4 Things Traders can Learn from Entrepreneurs

Trader Entrepreneur

Being an entrepreneur and having been through a variety of business ventures myself, I do think that having good business practices or procedures are crucial. On top of that, even though I’m not a business guru, I did manage to qualify as an accountant with the Charted Institute of Management Accountant (CIMA – see link). That means I understand the values required by entrepreneurs.

However, since the start of my trading career and as a NLP coach, I have come to realise that, actually… Traders have much to learn from good entrepreneurs too. A part from having a good plan, traders need to re-learn those business procedures.

If you’re wondering what I’m talking about, then I would invite you to read on as I explain the various elements of trading that is crucial when comparing trading to a business.

#1 Testing A Product

In a normal business environment, the typical scenario is that the business owner would buy a sample product, use/test the product in a consumer environment and understand the potential outcome of the product before he/she starts trading it commercially. Even with that, the business owner would start small before expanding and scaling it up as a real business.

However, in the trading world, new traders forget the importance of testing their system before actually going into a live account. The typical excuse you get is that “I’m bored”, “There’s no trill to it” or “I won’t learn with real money”.

I get it. In fact, this was what I use to say when I started trading. However, it became clearer and clearer to me that it is important to test out the system before I started with a real account. More than that, I still monitor my progress after I start with a real account.

This is something new traders need to learn from entrepreneurs. Trading a system is about taking time to understand the ins and outs of the system. I absolutely agree that you must try a live account at one point. However, that should not happen until you are able to fully appreciate the pros and cons of that system and the statistical outcome that it will yield.

#2 Barriers to Trade

Barrier-to-Trade

Sometimes, business owners may struggle to identify the products they want to put on the shelf. Even when they find what they want, they may not always get the right suppliers. Hence, there is always a certain barrier that is stopping them from getting a new product range started. However, because of those challenges, business owners need to think long and hard to evaluate if that specific product is worth their time and investment. Hence, they end up spending more time doing research in that specific product and to identify the best route to entry. Some would even go to the extent of finding out when is the best time to cash out.

Unfortunately, in the trading world, traders take it for granted that they can enter and exit the market at ease. Switching from one system to another (or even one market to another) is so easy. Platform brokers are making trading easier and easier for traders. To a point where many do not appreciate the importance of doing their research before they start trading something new. Since traders don’t make those “research”, they lack the in-depth analysis that is required when trading the financial market.

#3 Leverage

How long does it take for you to get a business loan? The application might take an hour but the approval of it will require a couple of days. So, all in all, it probably takes about 1 week (5 working days) before you get your money. Let’s flip it around, how long does it take to trade a leverage product (assuming you already have a trading account)? I’d say, almost instantaneously.

Don’t get me wrong, trading leverage products is a blessing in my opinion. However, traders need to appreciate the fact that it can be their Achilles’ heel if they abuse this privilege. By that, I mean that traders need to understand the importance of having a good stop loss management.

You see, like in a normal business, traders need to implement the idea of leverage the upside and protecting the downside. A smart entrepreneur always have a good contingency plan and a professional trader always have a stop loss in the event that the trade go against them. So if you want to maximise your returns in trading, remember to protect your downside first.

#4 Expectations

Trading Expectations

Many any new traders are lured into the trading career because they want financial wealth. While aiming for financial wealth is a good thing, the mistake new traders make is that they set themselves financial goals as well as certain trading expectations at a specific time in the future.

Yes, let me repeat this. Unlike entrepreneurs, it is not advisable for traders to have a financial goal at an early stage of your trading career. This is because you don’t know what will happen in the market. If you don’t know what’s going to happen next (in the market), then how would you know when you can achieve your trading goals?

Traders need to realise that setting financial goals lead to setting expectations. And having expectations almost always lead to strong emotions. Just to be clear, having both positively and negatively strong emotions (like happiness, over confidence, excitement, greed, fear and lack of confidence) are unhealthy. Instead, the only emotions that you should aim for is to have calmness, peace and relaxation.

Instead, traders should learn to set mental (a.k.a. trading psychology) goals. For example, being able to control emotions within 3 months or having the ability to keep calm when you are going through drawdowns. These are much more useful than financial goals.

Once you’ve mastered your trading psychology, then you can start thinking about setting financial goals. More importantly, you would have spent some time on your demo account and those numbers would have given you a good idea of what to expect when you are making non-emotional (or rational) trading decisions. Hence, having the right expectations are very important.

Conclusion

As a trader, you should be aware that trading is also a business in its own nature. However, due to the intensity and short investment cycle (since each trade can be considered as a business product), traders need to break down those business processes so that they can evaluate it more effectively.

Be patient and make sure to take your time to convert those business procedures into trading procedures. Once you get it right, the rewards will come to you sooner or later.

2 Comments

  • Gary

    Reply Reply January 31, 2014

    Great article Alwin!

    • Alwin Ng

      Alwin Ng

      Reply Reply January 31, 2014

      Thanks Gary!!

Leave A Response

* Denotes Required Field