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Successful Trading Is Like Running A Business
Are you a business owner or a part-time employee?
Earlier this week, I was reviewing “Trade Like A Stock Market Wizard” by Mark Minervini and came across this quote:
“Trading stocks and running a business are virtually identical. In fact, to be successful, you must trade just as if you were running a business.“
This had me thinking, what does treating trading as if it were a business really mean?
I’ve boiled it down to these key principles:
Earnings Season is upon us — this is one of the most exciting times to trade IF you have a strategy centered around capturing momentum from Earnings Gap Ups (just take a look at LEGN this week 🔥).
I’ve broken down every piece of my Earnings Gap Up strategy into a FREE 5-day Educational Email Course, which you can get immediate access to here:
Key Principles of A Successful Trading Business
Treating trading as if it were a business means approaching the market with the same level of seriousness, discipline, and planning that you would apply to a successful business. It involves recognizing that trading is not just a hobby or a form of gambling, but a profession that requires hard work, dedication, and a sound business plan.
To again use Mark’s words, “…if you treat trading like a business, it will pay you like a business. If you treat trading like a hobby, it will pay you like a hobby, and hobbies don’t pay; they cost you.”
Let’s take a deeper look at the 5 principles of a successful trading business:
1. Developing a clear trading plan
Just like any business, trading requires a well-thought-out business plan that includes specific goals, strategies, and a risk management plan.
Here’s what this looks like for me:
Every year my goal is to hit triple-digit returns. This is obviously market dependent, but it is important to have baseline expectations.
You can then break out your goals into achievable, stretch, and super stretch goals.
Stretch & super stretch goals are the markers you would hit if things were to really go your way throughout the year. A personal stretch goal of mine is to hit a 200% return, and a super stretch goal is to hit a 500% return in a single year.
I have been vocal about my key strategies, which are centered around high-volume gap-ups. I have made it a point this year to trade these setups and become a complete master. The other setups I trade are:
Whole Number Setup
Inside Days, Up & Out (working on this right now)
10/20EMA pullbacks (working on this right now)
Risk Management Plan:
My risk management plan is simple:
Never risk more than 1% equity on any given trade
Never let a 5% gain turn into a loss
Never take more than a 5% loss (gap downs aside)
Practice progressive exposure
Sell 1/3 of my shares at my average winner zone
Use the 10/20EMAs as guides to close green positions on weakness
Execute on A+ setups only when coming from cash to invested
2. Maintaining good trading records
Just as businesses need to keep accurate and up-to-date financial records, you need to maintain trading records. The application of keeping good trading records is the following:
The Best Traders Analyze Their Trading Performance
Post Trade Analysis (PTA) is a non-negotiable if you want to be successful in the market. Here are the 3 main metrics you need to have the answers to:
Average % Gain
Average % Loss
Most Profitable Setup
Least Profitable Setup
Most Frequent Trading Mistake(s)
You can find a lot of answers in learning how to track these 5 metrics.
If you don’t have a trading platform that allows you to track & import your trades, I highly recommend checking out Tradersync. I’ve been using their platform exclusively for over a year now after trying multiple different services – still haven’t found anything better.
3. Using a systematic approach
Successful trading requires a systematic approach to decision-making, based on thorough analysis and a consistent methodology. But what does a systematic approach really mean?
No trader will be successful in the market unless they adopt a systematic approach to their routines. This means:
Clear daily routines (premarket, during the market, postmarket)
Clear weekend routines
Journalling routines (daily, weekly)
Post-trade analysis routines (weekly, quarterly, yearly)
Last week, I took a deep dive into how you can master YOUR routine using what I do on a daily and weekly basis as an outline. If you haven’t read that yet, I highly recommend doing so here.
Additionally, if you’re wanting to get an inside look at key scans I run through on a daily and weekly basis, as well as how I curate my focus lists throughout the week, consider upgrading to a paid subscription to Upside Unlimited:
Building Discipline (Sit Out & Execution)
Becoming a successful trader and businessperson is all about discipline. You have to know when to sit out, and you also have to know when to execute.
If you’ve mastered sit-out power, you can:
Sit until your setup shows
Avoid taking dumb trades and losing money on setups that aren’t the best in your wheelhouse
Remove emotions like the fear of missing out (FOMO), thus trading better when the time is right
Execution discipline (and the steps I’m taking to master it):
If you have execution discipline, you can unemotionally execute your setups whenever they arise. It’s that simple.
This is the single most important area I’m looking to improve on into the end of the year.
Here’s my plan (and how you can implement it too):
Conduct nightly reviews, jotting down the best setups for the upcoming session (which I currently do)
Set alerts on these setups (which I currently do)
SET BUY/SELL STOPS IN BROKERAGE THE SAME NIGHT (area of focus)
4. Continuously improving your skills and knowledge
Just as a successful business owner must stay up-to-date with industry trends and new technologies, a successful trader must continuously improve their skills and knowledge of the markets.
To do this, you must adopt a beginner’s mindset:
Accept that you don’t know everything
See challenges as an opportunity for growth
Make humility & gratitude a staple of your mental models
This approach can help traders avoid complacency and stay focused on the continuous improvement of their skills and knowledge.
5. Focusing on Psychology
Like traders, business owners must also manage emotions such as fear, greed, and anxiety, which can cloud judgment and lead to poor decisions. Maintaining discipline and sticking to a well-defined strategy is one of the only ways to outperform 99% of market participants in the long run.
In fact, this area of performance in the market is one that I’ve taken a great interest in studying and mastering. As a result, I have distilled many of my favorite findings below:
A. The “Uncertainty” Principle by Mark Douglas
The sooner you realize there are no certain outcomes in the market, the better. This will allow you to:
1. Overcome fear/overconfidence
2. Interpret the market’s action without bias
3. Stay focused in the ‘now moment’
4. Reach the flow state
“The best traders have evolved to the point where they believe, without a doubt or internal conflict, that anything can happen.” - Mark Douglas
B. The Pareto Principle
The Pareto Principle states that over many outcomes, roughly 80% of the results come from 20% of the causes.
In trading, this means that 80% of your returns will come from 20% of the stocks you trade. Why is this important?
There are many interpretations, but my favorite is this: By understanding 80% of your returns come from 20% of your trades, you can take an unemotional look at your losers. There is no need to get attached to any one loss because chances are it won’t matter in the long run.
C. The Yerkes-Dodson Law
Without getting too scientific, the Yerkes-Dodson Law states that there is an optimal balance between stress and performance. This law has implications in every profession, but here’s how it applies to trading:
If you trade in a hyper-relaxed state, your performance will suffer. If you trade in a hyper-stressed state, your performance will also suffer.
The best traders know how to mentally engage just enough to reach the optimal level of arousal to fuel their performance.
D. Adopting a Dollars Mindset
I wrote an in-depth article on the importance of trading for dollars, not pennies. You can read that here:
This week's newsletter highlighted the importance of treating trading as a business to achieve success. It is crucial to approach the market with the same level of seriousness, discipline, and planning that one would apply to a successful business.
The 5 Key Pillars of A Successful Trading Business Are:
Developing a clear trading plan
Maintaining good trading records
Using a systematic approach
Continuously improving skills and knowledge
Focusing on psychology
If you want to get paid like a business, you can’t treat trading like a hobby.
That’s it for this week, talk to you next Saturday.
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