Trade Like A Business: Two Steps to help increase your trading productivity

For an audio version of this article (along with added commentary), you can listen to this podcast episode.

The odds of becoming a successful trader are very slim. As the great (and late) Mark Douglas once wrote “if I were to classify traders based on the kind of results they achieve, I would put them into three broad categories, the smallest group, probably fewer than 10 percent of the active traders are the consistent winners…The next group which consists of between 30 and 40 percent of active traders are consistent losers… The largest group, the remaining 40 to 50 percent of the active traders, are the boom and busters. They have learned how to make money, but they haven’t learned there’s a whole body of trading skills that have to be mastered in order to keep the money they make.” The term “trading skill” is often thought of as just referring to the price chart, however, in working with many aspiring traders over the years, I’ve noticed that the greatest “lack of skill” isn’t always on the chart, rather in the approach.

What Is a Professional Trader?

Many believe that in order to be considered a professional, they must trade full-time and have it be their only source of income. Bloomberg Television must be on in the background, a Wall Street Journal has to be read each morning, and the day must consist of nothing but actively watching a price chart tick up and down. Although many do this, including myself when I first began trading the markets, a “professional trader” is more of a mindset than anything else. It means deciding to treat your trading like a business instead of like a hobby and taking the appropriate actions to put yourself on the best path to success.

Most successful businesses start by creating a business plan which is a formal statement defining what the business is from a philosophical standpoint. This plan also outlines the business's goals, objectives and tactics which essentially answer the two main questions that every business has. “What do we want to achieve and how are we going to go about achieving it?” In trading, the “what” is usually pretty simple. We want to produce profit. The “how” however, is a question that often goes unanswered and in many cases unasked. I hate to oversimplify and make finding success in trading seem easier than it really is, because it’s not by any means, but to be a successful trader all you need is the following: 1) A strategy which provides you with an edge in the markets and 2) the ability to consistently execute that strategy.

Do I Have an Edge?

Name me a successful business that has started selling a product without ensuring that there is a demand for it. Anybody? Somebody? Exactly! Then why do so many traders begin placing live orders without having the slightest idea of what they’re doing actually works? This advice comes from personal experience. Never put your hard-earned money at risk unless you’re certain that your trading has a positive expectancy. A positive expectancy means that if your strategy has an edge and if traded consistently over time, it will produce profit. In order to determine the expectancy of your strategy it’s imperative that you test it by running it through both historical and real-time data. This process is called backtesting. During this process, your fancy suit and tie are traded in for a lab coat and glasses as you’ll look to embark on a journey of experimentation and data collection. Correctly testing your strategy means looking at hundreds if not thousands of historical trading opportunities and taking detailed notes on the performance. This is often a long and grueling process as lots of data must be collected, analyzed, adjusted and often retested multiple times. Each strategy is different, but aside from overall profitability and win percentage (which is what most traders worry about), it’s important to track other forms of data such as maximum favorable and maximum adverse excursion (optimal placement for tops and targets) for example. Testing a strategy isn’t just about discovering whether it works or not, it’s also about maximizing its performance. More importantly, it provides the trader with a 100% belief in their system, which is the most priceless asset a trader can have.

Executing Your Strategy

As a business, having an amazing product is only half the battle because no matter how great it is, it’s worthless if you can’t efficiently produce it. A trading strategy is the same. Having a strategy that produces a consistent profit is a good start, but being able to execute it day in and day out is how profits are earned. The execution phase of trading is often the hardest point to overcome as when it comes time to pull the trigger the heart starts beating fast, the palms start sweating, the hands begin to shake and fear and anxiety begin to take over the body and mind. One tactic to overcoming this feeling is to put yourself in a comfortable situation by setting up a routine. Have you ever seen a basketball player that dribbles the ball twice, spins it and taps his leg before shooting a foul shot? Or a baseball player who steps out the batter’s box, re-straps his batting gloves and taps his bat on top of the plate three times before taking his stance? These are both examples of rituals that professional athletes have created in order to put themselves in a comfort zone while being involved in high-pressure situations. As traders, we can create a similar comfort zone by setting up a consistent routine and essentially creating a work schedule for ourselves. I’ve personally found that my performance is much improved when I execute my daily routine and that I make many more mistakes when I don’t. Here’s what my trading day looks like.

My Trading Ritual

5:30 am “The Double Wake Up”

What I’ve noticed is that although my body is able to hop right out of bed, my mind isn’t so quick to follow. In the past I found myself making a handful of trading mistakes simply by not being fully awake and 100% focused. Therefore, after I hop out of bed and check any open positions for trade management purposes, I spend the first half-hour of my day checking messages on social media, reading articles and watching some type of trading/economic based content.

6 am “Top-Down Analysis”

During this initial round of market analysis, I have two main focuses; 1) To look for any swing trading opportunities and 2) to screen for which pairs need to be on my radar for potential day trading opportunities. I always start with taking a bird’s eye view of the market by looking at my higher timeframe charts (Daily) followed by working my way down to the 4 Hour and 1 Hour timeframes for each of the pairs in my trading portfolio.

7 am “Mental Preparation”

After prepping for my trading day it’s important that I step away from the charts. I find it a lot easier to concentrate with a clear mind so each morning I take some time to perform some mental relaxation drills. When the weather is nice I’ll take a walk around the neighborhood while listening to an audiobook. Or in the winter months, performing some yoga inside the comforts of my house gets me in the right place. Either way, the combination of clearing the mind and stimulating the body with physical activity allows me to get “into the zone” before stepping into the trading arena. Getting in the zone also includes eating a quality breakfast and doing a mental check. I WILL NOT involve myself in the markets if I’m not in the correct trading mindset.

8 am “Active Day Trading”

This is when I’m actively engaged in the markets looking for trading opportunities on both the higher and lower timeframes. At this time, I once again perform a round of top-down analysis on each of the pairs in my trading portfolio, however, this time I will progress down to the 5 minute (and often the 5 range bar) charts as I look for trading opportunities. Moderating a Live Trading Room provides me with the luxury of having multiple eyes on the markets during the busy days to help with finding opportunities and other like-minded traders to communicate with during the slower ones.

11 am “Mental Reset”

As my day trading session ends, my next step is to remove myself from the computer. If I haven’t scheduled any meetings for this time, my main objective is to focus on my physical fitness. Not only do I need to stay in shape for whatever crazy event I’m training for at the time, but exercise is also a stress reliever as it pumps up your endorphins which are your brain’s “feel-good “chemical release. On difficult trading days, this allows me to get my mind off of the pain, so that I don’t bring my attitude back home with me to my wife and kid. And on good days, it helps me avoid an overconfident state, which could potentially lead to “chasing” the markets and over-trading.

2 pm “Review & Journaling”

I used to review my day and journal my entries directly after my trading was complete, but I found myself being to “in the moment” and being able to have a much more objective view if I mentally reset first. Aside from statistics, I like to cycle through the trading day and look at all of the opportunities that existed. Questions are asked such as “could this trade have been handled differently?” Or, “was there any way to take advantage of this opportunity?” This time is used to work on myself as a trader and focus on my continuous improvement.

4 pm-7 pm (Depending on my schedule) “Post NY/Pre London Top-Down Analysis”

This is my final round of analysis for the day. Like earlier in the morning, I’m only looking for higher time frame opportunities that may exist during the upcoming Asia and London sessions. After my orders are placed, I leave my office for the day and I make sure to spend time with my family.

Trading Like a Business

The odds of becoming a successful trader are very slim but greatly increased if you take a professional approach. Yes, being a professional trader can provide us with freedom of time, but we shouldn’t abuse that privilege. A good business looks to streamline their process in order to increase productivity and as traders, we need to do the same. We are our business, and if we want to see consistent results we need to trade a consistent strategy while taking a consistent approach to the markets. If done correctly, our business has a chance to survive, if not then we’re most likely destined for failure.

Thanks for taking the time to read my words & if you enjoyed it, I’d appreciate it if you’d SHARE & hit that “applause” button below. Also if you found a section that particularly hit home, make sure you “highlight” & “tweet” it!

You can also follow me on…YouTube |Instagram|Twitter| Facebook |Linkedin