Lesson #2: Treat Your Forex Trading As A Business For Top Results
Where I Came From
My background is as a Chartered Accountant in a role as Senior Manager at Deloitte and working in businesses to the level of Chief Financial Officer. The journey in my career gave me a lot of business management experience as I helped businesses plan, manage profits and cash flow, manage their growth, survive difficulties, reengineer processes and strategically position themselves. Businesses operate in a very dynamic environment that’s changing all the time. It takes vision and management to stay ahead in a changing world.
When I first came to trading I noticed that the available education was largely focussed on trading methods. Specifically, when to buy and sell, a superficial look at risk management and a scattering of talk about trading psychology. From that I thought, “maybe that’s all there is to it?” How fooled I was!
What I Discovered About Forex Trading
As I’ve continued and progressed on my forex trading journey I’ve realised that successful forex trading is so much more than that. Forex trading is a commercial business enterprise that needs the same or similar strategic and management principles applied as other businesses. That is, to succeed in a sustainable way to provide a second income, additional wealth or to continue to support you in the future.
It would have saved me massive amounts of time and sped up progress on my trading journey if I’d fully understood from the outset the significance that forex trading is a business.
Similarities to Business
Successful forex trading is like a business in so many ways. Here I discuss some important similarities to help you think along those lines and to inspire you to check whether your trading is set up in a way for sustainable forex trading success.
Just like other businesses forex trading needs a range of structures and processes in place for it to deliver your dreams.
“Big dreams are built on a big foundation.” – Rachel Hunter, TraderRach
Market Changes For Your Forex Trading Business
Businesses experience changes in the marketplace. Economic times fluctuate and with it people’s spending habits. This can have a large affect on supply and demand for business products.
For example, in good times luxury items can thrive as people splash out and treat themselves. When economic times change for the worse, demand for discretionary goods we can live without can almost cease. This industry has to either adapt and offer lower priced products in the short term, or wait it out.
Times change and with it supply and demand through economically driven shifts in spending, competitors actions and changes in customer preferences, to name a few.
Businesses must plan for change and be ready to respond rapidly.
>> Forex Trading
Similarly the forex trading market changes. It can fluctuate between trending volatile, trending quiet, ranging volatile and ranging quiet. The market can spend a short or long time in a particular market state.
A forex trading system doesn’t work in all market states, so when it’s out of kilter with the market, the trading system is producing either nothing or giving bad results; a period where you take nothing from your efforts, or worse, pay back.
An example of this was when I started trading with a share trading system. I’d put an enormous amount of effort and time coming up with the “perfect system”. At first everything seemed great and almost charmed, until the Global Financial Crisis began that stopped it dead in it’s tracks and put me back to the drawing board again. It was unbelievably demoralising and frustrating when I thought about what I’d put into this one system. Never again!
If only I’d been warned and fully appreciated what sustainable and successful forex trading required. I could have been prepared for an inevitable market shift and realised that these kinds of market changes happen and are a regular part of trading.
To prevent a potential period of excessive drought in earnings, a forex trader should either have other systems that work in different market conditions, or accept being patient and wait it out. It pays to plan this process and not be caught by surprise.
“Like other commercial businesses, forex trading is done in a dynamic market environment that’s not static and is forever changing. To get and stay on top you must keep a watchful eye on the market changes around you and respond strategically and quickly, remaining constantly on the alert for change.” – Rachel Hunter, TraderRach
Technology Changes For Your Forex Trading Business
Commercial businesses need to regularly respond to changes in technology.
When I think back to my first job after leaving university, we had computers with black and white screens with big backs sticking out of the rear of the monitors. There was no email, which was so peaceful, but incredibly hard to believe now. Mobile phones were starting to be seen around but they were large bricks with big fat aerials. We used to think it was so uncool to have a mobile phone because of the way they looked and how people stored them on their belts because of their large size. Software too has undergone a revolution as has superfast broadband making computer use much more of an instantaneous pleasure.
That’s a huge amount of change that businesses have had to be alert to, respond, plan and implement to keep up with changing times. It’s an absolute must since the productivity of employees and the ability to interact with colleagues and customers would be unacceptable if you remained stuck with the technology of the past.
>> Forex Trading
Forex trading has become assessable to every day people through technological changes, without which we wouldn’t be trading like we are. In the past many traders used pen and paper analysis and they lifted the phone to give an order to the broker. The speed of transactions was slow and that would have an affect on matching buyers and sellers, liquidity and the swiftness of transactions.
Forex trading platform technology changes over time. What’s good now may not stay that way if the software developer doesn’t make constant changes and keep at the forefront of what’s possible. Technology changes may be forced on you by decisions of the broker or you may make a new choice yourself.
The way we test our trading systems and analyse our results changes over time as computer technology evolves and competing products become available.
“Forex trading is impacted by constant technological change. We need to keep an eye out for it and plan changes that we choose to make. Remember, nothing stands still for long.” – Rachel Hunter, TraderRach
Process and Procedures Review For Efficiencies and Improvements For Your Forex Trading Business
Businesses have many processes in place for how tasks get done. A thriving business will regularly review these processes to ensure there are no bottlenecks so the processes support the outcomes being achieved in a timely fashion.
A lot of things are in constant change in the business environment and it’s important to stay on top of processes so that staff and other cost structures are maintained at an improving and competitive level. Excellent efficiencies and the control of outcomes are vital for the success of any thriving business.
In particular, changes in technology have a significant impact on processes that improve efficiencies. Improvements are made to how things are achieved so that blockages are removed and progress is made towards the business’s goals.
>> Forex Trading
Similarly a forex trader needs to focus on processes they use to get their trading done.
The effective use of software allows a forex trader to manage their positions, analysis, back testing and review in a way that is efficient and allows a greater result to be achieved in less time invested by the trader.
It’s important to think about how you get your trading done and whether you need to change the way you do things to achieve a better outcome for your trading results and the utilisation of your time.
For example, the way you trade, whether it’s manually sitting at a screen or automated with transactions executed with computer programs, will make a big difference to how many forex trading systems you can successfully manage simultaneously.
“Regularly review procedures and processes for getting your forex trading done for continuous efficiencies and improvements.” – Rachel Hunter, TraderRach
Timelines For Progress For Your Forex Trading Business
Businesses have milestones with targets they’ll achieve at different times. Longer-term goals are broken down into shorter-term milestones. Monetary goals are broken down to specific actions that will ensure progress towards the short and longer-term goals.
>> Forex Trading
With our forex trading we have goals that we want to achieve that will help us head to the vision we have for our forex trading. We don’t have our whole life to achieve something. The sooner we achieve worthwhile milestones the better.
It’s important to specify goals that we want to achieve and set times we want to achieve them by. Without any pressure we can easily drift and get stuck at a certain stage of our trading, not moving forward.
In the early part of my trading I spent too long in the development and testing phase of a trading system, not fully appreciating how quickly markets change. Don’t make the same mistake!
The market tends to change regularly and if we achieve and improve too slowly we’ll always feel like we’re a step behind.
“Set specific achievements you need to make by a specific time and stick to it. Time waits for no one.” – Rachel Hunter, TraderRach
Allocating Resources For Your Forex Trading Business
Businesses typically go through an annual budget process and plan how they’ll allocate their resources. This is usually called budgeting.
In this process businesses consider strategic and tactical steps they’ll take and work out how the available money will be spent and whether they need additional funding. They forecast receipts of income, the expenses that are likely to be made to make that income and the investment in assets to generate future profits.
>> Forex Trading
With forex trading we have a certain amount of resources at our disposal and we need to allocate them to achieve our goals.
Allocating Money for Forex Trading
How much do we allocate of our available money towards:
- Our trading account.
- Education focussed on improving your trading.
- Data, platform and programming charges.
- Assets like computers and back testing software.
- Other costs and assets including competing demands from other parts of your life.
With a fixed amount of money to allocate, everything’s a trade off. So if you choose to put your money towards one area it’s coming from another.
A forex trader may not have sufficient spare money to achieve their goals in the timeframe they want. Don’t expect to make $1 million per annum off an initial trading account size of $10,000 any time soon. If your goals are too big for the size of your trading account, a planned decision may need to be made on how to access more money for trading [legally of course!].
Personal Strengths and Weaknesses for Forex Trading
Resources are not just about money either. Each of us start forex trading and develop with personal strengths and weaknesses. It’s important to make an honest and regular assessment of your own strengths, weaknesses, personality traits, beliefs and tolerance to risk.
Fast progress with forex trading takes a constant assessment and focus on improving yourself. The more real and honest you can be, the faster you can improve if you take action to address any issues.
We’re all wired differently and that’s why different strategies suit different people. It’s not about just finding a trading system that makes money. If a strategy is not compatible to you, you’ll have trouble trading it.
For example, if you have a lot of difficulty making regular losses it’s likely that you’ll have trouble trading a 3:1 reward-risk system that only needs 25% winners to break even. This is because it will have times where it has a large run of consecutive losses.
As we evolve as a trader, we change and so does our capacity to trade different systems.
Allocating Time For Forex Trading
Each of us is committing a certain amount of time to our trading. Many people start trading while working full time in another job. Or when times are tough you may be out of work and have all day or you’ve got to a stage where you choose to trade full time. Whatever it is, time is a scarce resource and we need to make the time we have available count.
Time is a resource too and we need to plan how we allocate what we have against what needs to be done, setting milestones and achievements that will achieve worthwhile achievements in a good timeframe.
“Be considered and allocate your resources wisely to achieve the life and results you want from forex trading”. – Rachel Hunter, TraderRach
Reporting And Measurement For Your Forex Trading Business
Well-managed businesses report and measure their performance outcomes on a regular basis. We usually associate this with accounting; financial accounting focussed on what’s happened and management accounting focussing on what’s ahead.
When it comes down to it businesses report and measure to assess and plan performance. From this analysis businesses make changes to alter their future outcomes with a goal of performance improvement.
>> Forex Trading
Every forex trading business needs to measure outcomes in a way that allows it to regularly assess, plan and improve performance. Like all businesses trading has a lot of variables that interact and impact on performance. You can’t control when the market pays for a particular strategy, although you can to some extent, but you can control your actions and it’s your choice which broker you use.
It’s important to have a reporting and measurement process in place that isolates key drivers of the overall trading performance. By separating the key drivers of performance a forex trader can work directly on the controllable elements and influence the non-controllable elements as much as possible to improve their overall trading performance.
Without any structured process of analysing what’s working and what’s not it’s easy to fall into a state of confusion, where you don’t know where to turn to take your forex trading to a new and better level. I’ve been there and done that and from my own personal experience a structured reporting process can save you from having a meltdown and set you on the road to top level performance.
With structured performance based information you’re equipped to improve your forex trading.
“What get’s measured gets managed.” – Peter Drucker
Creating A Forex Trading Business With Sustainable Success
Recognise that forex trading is a business and plan with that in mind. Think and act like a successful business entrepreneur at the helm of your emerging forex trading empire.
Like a successful business, a successful forex trading business should have a regular process in place to consider how it manages:
- Technology changes.
- Market changes.
- Process and procedure improvements.
- Allocation of resources.
- Reporting and measurement.
Remember that a successful forex trading business looks ahead, plans and is forever responsive and adaptable. Everything is forever changing and as time goes on the rate of change is speeding up.
Be your forex business CEO and formulate your path to obscene riches and happiness. Take action now!
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About the Author: I’m Rachel Hunter, TraderRach, a Forex Trader who helps traders achieve the life they love with forex. Be strategic and design your trading business for sustainable success and have fun! That’s my mission. Join many traders’ gaining the edge with “10 Powerful Lessons for Forex Trading Success” plus other goodies. Years of precious learning specially packaged up for you. My background before trading is as a Chartered Accountant and Chief Financial Officer. I know what it takes to make a trading business rock on. It would give me great pleasure to make a difference to your success.