Many traders make the mistake of not regarding their trading as a real business, and pay a high price for this negligence in terms of lost time and money, and personal anguish. Because there are no employees, vendors or customers, the perception of trading being simply a ‘way to make money’ is easily held.
But if you look at trading as you would any other business, then look at the causes of failure for the two groups, you’ll find that there are seven causes common to both. In this article, let’s take a quick look at these and what you can do to protect your trading business.
1. Lack of Industry Experience. No matter what the business is, if you are the one that will be organizing and running the business, and you don’t have experience in that industry, the odds are immediately against you. There are few occupations that prepare you for trading, which only confirms the importance of focus on building skills and working knowledge.
2. Lack of Training. Like other professions, trading is definitely skill-based. In order to trade well, it takes more than simple discipline sticking to your system (but yes, that is important to be sure). Successful trading also requires that you be good at what you’re doing, possessing a knowing competence.
3. Lack of Business Experience. A great number of traders get their first experience at owning their own business and working for themselves when they become traders. As an employee working for someone else, there is the convenience of having the company direction, structure and all the other details taken care of. As a trader, you have dozens of other business decisions to make, and without business experience, this aspect is often either neglected or very stressful.
4. Insufficient Startup Capital. The startup of any business will take some time and resources before it can sustain itself. When there is insufficient startup capital to get the business fully mature, this puts a strain on both the business and the owner / manager as now much needed resources are not available, at least not in quantity enough to provide efficient activity. In this circumstance, some businesses essentially starve and die.
5. Underestimating the Time to Profitability. Even with what would normally be sufficient startup capital, if the owner is overly optimistic and as a result, the time to achieve sustained profitability extends well beyond an efficient growth and development curve, the business will likely run out of capital and need additional funds to survive. This is undesirable for any business investor.
6. Lack of Financial Controls. One of the greatest dangers to a business is wasted resources, particularly during the startup and growth stages. During this period, it is essential that the business gets the benefit of all resources available.
7. Lack of a Business Plan. Ask any Venture Capitalist, bank or Angel Investor for funding without a having a business plan and they won’t even give you the time of day, let alone any money. Experience has proven time and time again that without a proper business plan that details how the business will succeed, that odds are strong that it will fail.
The good news is that taking the time to create a proper business plan often foregoes the other six causes, as one is brought to attend to each of them in a business-like and thoughtful manner. While writing a business plan can be daunting, with the right help, it can be a very manageable task – and one that might just make the difference for you and your trading business.
About this article
This article was written and submitted to GTS by Brian McAboy of www.insideouttrading.com.
As you know at GTS, I always highlight the importance of a good trading methodology and not playing around with working trading systems. This takes discipline and a good mind set which can take time to develop. Reading up on trading psychology is definitely something I would recommend and viewing content from the likes of Brain and other leading figures in this field is a great place to start.
