Trading as a business

Charlie Wright of Fall River Capital offers some pearls of wisdom about trading as a business:

"Thinking of trading as a business has helped me enormously as a trader. It puts everything into perspective and helps me deal with my own psychological difficulties with trading execution. Once I stopped viewing trading as speculation, my trading improved. Once I realized that I was not going to get rich quick, that trading was not easy money, my trading improved. Once I realized that almost no businesses are successful overnight, my trading improved. Once I realized that I had to make an investment in the business, both in terms of my own education and in equipment and working capital, my trading improved. One concept that is commonly taught in business schools is that of 'barriers to entry.' This is a very simple concept that has important ramifications as you consider trading as a business. The basic principle is that the higher the barriers to entry in a business, the higher the investment to establish market share but ultimately the higher the margins and profits. A good example is the beer business. Controlled by several large breweries, it would be financially very difficult to start up a new brewery and acquire significant market share. When Phillip Morris bought Miller, they spent over a billion dollars to acquire the business and do the advertising and promotion necessary to obtain market share. But Miller was successful, and when they achieved the share of market they wanted, the profits were outstanding. The reverse is also true. If an industry has low barriers to entry, and there is a relatively small up front investment, there is much competition for profits and lower margins. This is the case for many service businesses, real estate brokers, securities brokers, cleaning services, etc. Restaurants are also a relatively low investment business. All you need is some decent space for tables and some cooking equipment and you are in business. However, the competition for customers is intense and thus the margins are low. There is no good or bad when analyzing barriers to entry for a particular industry. If the investment is low, the stress comes from being smarter and superior than everyone else at making money. If the barriers are high, the stress comes from taking the large financial risk and the uncertainty of obtaining the target market share. Either way, the business is always difficult. Trading is a low barrier business. You basically need a computer, a broker, and a modest amount of capital and you are in business. But because of the low barriers to entry, the competition for profits is very high. There is no such thing as gaining market share. Many people wrongly conclude that low barrier businesses are easy to start and trading is no exception. Many new traders think that trading will be easy and they will get rich quick. Experienced traders know that this will not happen. Trading is as difficult as any business I have ever been involved in. The main point to remember is that trading is a business with low barriers to entry. This means that the competition for profits is very high and you will have to be smarter, more disciplined or more creative than the majority to make money."

Article source : http://www.michaelcovel.com/archives/cat_trading_101.html

Top 10 Ways To Lose All The Money In Your Trading Account In 30 Days Or Less - Guaranteed!

I came across the list below from 'Craig' here. It is a great list:

#10 - Put all of your efforts into finding the perfect technical indicator. Once you find this magical indicator, it will be like turning on a water faucet. Go all in. The money will just flow into your account!

#9 - When your technical indicator says that the stock is oversold, BUY IT RIGHT THEN. Always do what your technical indicator says to do. It takes precedence over price action.

#8 - Make sure to visit a lot of stock trading forums and ask them for hot stock tips. Also, ask all your friends and family for stock tips. They are usually right, and acting on these tips can make you very rich.

#7 - Watch what other traders do and be sure to follow the crowd. After all, they have been trading a lot longer than you so naturally they are smarter.

#6 - Pay very close attention to the fundamentals of a company. You MUST know the P/E ratio, book value, profit margins, etc. Once you find a "good company", consider going on margin to pay for shares in their stock.

#5 - Forget about developing a trading plan. If you see a good stock just buy it. Don't worry about when your going to sell. No need to get caught up in the details. Besides, you'll probably get rich the first year of trading anyway.

#4 - Buy expensive computers and trading software. While your at it, buy a couple more TV's so that you can watch CNBC on multiple screens! You NEED all of these gadgets in order to trade stocks successfully. Then watch the money roll in!

#3 - Always follow your emotions. They are there for a reason. If you feel nervous, sell the stock! If you are excited, buy more shares. This is the best way to trade stocks and fatten up your trading account.

#2 - Don't worry about using stop loss orders. When the time comes, you will be able to sell your shares and take a loss. Your emotions won't even come into play. Besides, stop loss orders are for sissies!

#1 - Absolutely, without a doubt, FORGET about managing your money. Don't worry about how much you can lose on a trade. Only think about how much loot your gonna make. Then start planning that trip to Fiji

Article source : http://www.michaelcovel.com/archives/cat_trading_101.html