In the past 18 months we have seen droves of retail traders enter the markets.
Regardless of how long you’ve been trading, if you find yourself struggling in the markets, you need to ask yourself this important question:
Am I treating this as a hobby, or like a profession?
Trading is easy to get started, but not easy to succeed in. Anyone can open up a brokerage account and buy and sell stocks. That doesn’t mean you’re a trader. Pick-up basketball vs the NBA. Same sport, different league.
Read this carefully:
Gambling vs Trading
One of the most common misconceptions is that trading is the same thing is gambling. Trading CAN be treated as gambling. But unlike slots at the casino, trading has the option to provide a statistical advantage for the player. Here the key differences between trading and gambling:
Traders don’t trade for the rush. They trade to make money. If you’re trading for the thrill of it, that’s fine. It means it’s a hobby for you, not a profession.
Your Trading Business Plan
When you commit to trading, you commit to launching a small business, of which you are the CEO of. You call all the shots.
You wouldn’t go to a bank to get a loan for a business without a comprehensive business plan to assure them you are worth the risk. The same approach is needed for your trading. You need to be able to answer all of these questions in your business plan:
What do you do before the market open? I can tell how good a trader is by their pre-market preparation routine. Trading is one of the highest-pressure professions out there.
How do you expect to make optimal decisions if you roll out of bed 15 minutes before the market open with no watch list or game plan?
You need to be at your computer at the latest an hour before the bell rings. Look at the stocks gapping pre-market. Check out company press releases. Look at their charts. Build your watch list. Identify key levels. Plan for different scenarios.
What Do You Do Before a Trade?
A spontaneous trade with no plan on the best stock in the world is a bad trade. You cannot go into a trade without identifying these 5 things:
If you don’t prepare the trade, you prepare to fail. Knowing what you SHOULD be doing before a trade all comes down to knowing your trading metrics.
What Are Your Trade Metrics?
What is your win percentage on your trades? What is your average risk vs reward? What is your best-performing setup?
You need to know your trading metrics inside and out. You cannot risk your hard-earned money if you cannot aside probability to any given market scenario.
You wouldn’t bet in Texas Hold’em without knowing the river. This is what you’re doing if you place trades without knowing your metrics. Your trading journal should be your best friend as an aspiring professional.
Hobbies are activities where you do for the enjoyment of the activity. Professions are activities you strive for excellence and perfection.
Take a look in the mirror. Are you doing this for fun? Or you trying to actually make money? Don’t hesitate to reach out to me if you have any questions!