Trading is a Business:
To make money in the markets, you need to be trading as a business. Hobbies cost money; businesses make money. A business has a plan, a process, and a system. A business has customers to whom it sells products at a price above cost.
How a new trader approaches trading and the markets will determine their success from the very beginning. So many people think of trading as gambling, and that stems from the perception that traders are just trying to guess or predict the direction of a stock or market. If a trader randomly picks trades with no system or edge, that is a form of gambling.
In Las Vegas, there are gamblers who are making bets against the odds, and there are businesses that take those bad bets; they are called casinos.
Casinos are not gamblers; they are businesses that set table limits and take bets to their advantage. A casino makes its money with the mathematical edge it has over its customers, the gamblers. To be a successful trader, operate like a casino, not a gambler.
It is crucial that a trader operates their trading like a business if they want to be profitable. Emotions, egos, and excitement are generally not good business practices and have little place in operating a good business.
In trading, making money should be the primary goal, kept at the forefront of a trader’s mind. Fun and excitement in trading can be expensive entertainment.
The reality is that the majority of the time, good trading is boring. A trader must approach their market entries, exits, and position sizing as they would any other business, using a disciplined process to grow their capital and succeed.
1. You can’t open your trading business to having capital at risk until you have a full system with an operating trading plan that has an edge.
2. Your business inventory is your current positions; you have to buy them for less than you intend to sell them. Whether it is buy low and sell high or buy high and sell higher, there must be an expectation of gross profit.
3. Your customers are who you sell to; they have to be willing to pay more than you bought your positions for.
4. Losing trades are the cost of doing business.
5. Liquidity is the most important fundamental for inventory; you don’t want to get stuck with unmovable merchandise. Trade where there is volume and tight bid/ask spreads.
6. Your trading psychology and mindset are the managers of your business; you can’t let fear, greed, or ego lead to an unprofitable error outside your system.
7. Your business must have insurance to manage risk. Stop losses, diversification, and hedges are your insurance against big losses.
8. Location is everything. You must conduct your business on a chart price level where there are ample buyers and sellers, so you don’t get stuck with positions that no one wants.
9. Your current trading positions are like your employees. You are a good boss for keeping the ones who are productive and profitable, and firing the ones who are unproductive and lose money.
10. Expansion of your business can only happen after your first buying and selling location is successful. Once you have mastered a system of entries and exits, you can add new markets and signals that also have an edge.
11. Your trading capital is your business. Lose all your money, and you lose your ability to operate and are out of business.
12. The only reason to be in business is to make money. If you’re not making money, you need a new business plan.
Trading as a business means operating inside a systematically profitable process. Trade like a business, not like a gambler, hobbyist, or for entertainment.
For trend followers, the real danger is not the small losses themselves.
It is trying to reduce the discomfort they create by smoothing the distribution of the system itself.
Fat tails are absolutely essential to trend following, but no one knows “when” they will appear or “how large” they will be.
And before those major trends emerge, there will often be many small losses and many trades that fail to run as far as expected.
That is why many traders start trying to reduce the discomfort.
They take profits early, add more conditions in an attempt to avoid losses, and begin seeking smoother results.
But what they are sacrificing in exchange for that comfort is precisely the fat right tail that produces the returns in trend following.
You cannot remove the uncomfortable parts of the distribution while keeping only the fat tail.
This is so important to understanding trend following that I could never emphasize it enough.
The Underdog Lifestyle
📚 Read every day.
🏃 Train every day.
💼 Build a small, high-quality engineering firm.
📈 Follow the investment plan.
₿ Accumulate Bitcoin.
🤫 Stay out of the spotlight.
🌱 Keep improving.