“The trader’s long-term success hinges on entrepreneurial skills.”
“Trading is not just a business but also a business organization.”
“Many traders fail because they establish ineffective trading businesses.”
“The successful trading business weaves best practices into best processes.”
—Brett Steenbarger, Trading Psychology 2.0
Here are four quotes I have highlighted from Brett Steenbarger’s latest book, Trading Psychology 2.0. In it he underscores the relationship between entrepreneurship and trading, my focus of this article. By the way, I strongly believe this is a book every trader should read and read again.
In the late 1970’s my business consulting work with clients, entrepreneurs and business owners, focused on two areas:
• Clarifying and capitalizing on the organization’s culture
• Developing operational structures and systems to exploit performance
Why these two areas? I wanted to ensure that my clients could get the highest return on their investment of their time, energy, and money.
When, I started trading full-time in 1993, (and for the next four years), having retired in 1990, I wrongly assumed all I had to do to become a successful trader was to find the ‘guru’ with the key to the Holy Grail and pay them what they wanted.
Well, as I’m sure you already know, it doesn’t usually work out that way. Believe me, I am living proof of that.
After four-plus years of dismal trading results, I was on the verge of quitting (which I had never done before.) Thankfully, my wife asked me a question that changed everything. She asked, “Why are you not doing for yourself what you always did to help your business consulting clients succeed?”
After a couple of weeks thinking about this question, I took action. I stopped trading and began developing several possible models for going forward, and did whatever it took to reinvent myself as the co-owner of a trading business with my wife.
My new resolve combined with the support of Jim Dalton and others in becoming more proficient in using the Market Profile, I was able to reverse my previous performance. I now had a trading business, a trading purpose, trading principles, and a trading process that finally fit me.
I say all this by way of possibly being able to help you advance your trading journey via your own trading business. The four primary benefits, as I see them, are:
• Your trading is validated by YOUR own trading business, the contextual support of your trading activities.
• Your trading business is validated by YOUR trading-business structure as the working model that guides your trading performance.
• Your business structure is validated by YOUR entrepreneurial skills, such as the core skills of thinking, information processing, and decision-making.
• You, as an entrepreneur who trades. Peter Drucker once said, “The entrepreneur always searches for change, responds to it, and exploits it as an opportunity.”
Let’s drill down now to some areas of a trading business to consider.
The legal structure. You will want to determine the legal structure that offers you the most benefit as regards tax implications and retirement plans, for example. You can organize as a sole proprietor, partnership, Limited Liability Company, Sub-S, or C-Corporation. Typically, deciding your legal structure is based on research done by you and your key advisors, such as an attorney, accountant, and financial advisor.
The business culture. Guiding principles define the culture of a trading business. They are the synthesis of the purpose, operating values, vision, goals, current financial position, knowledge, experience, and resources of your trading business. The culture of your trading business also includes what is known as S.W.O.T. (your trading Strengths, Weaknesses, Opportunities and Threats).
The principals and staffing structure. These are the key individuals supportive of your trading business, both internal and external. Your best case scenario is to establish a quality of working relationship that is mutually beneficial.
• Internal (paid) team members might be your spouse, partner, family member, or trusted friend who can add value by the service they provide.
• External (both paid and unpaid) team members might be other traders, your professional advisory team and coaches, and additional members of your support team (admin, website, etc).
In a small trading business, the trader typically wears multiple hats. For example, you are responsible for:
• Establishing the office space and technology, e.g. furniture, hardware, and software
• Running the business operation
• Overseeing business finances, legal issues, and tax reporting
• Risk and trading portfolio management
• Employee management, procedures and compensation
• Developing and managing the business’ guiding principles, culture, trading process and methodology
• Managing the continuing education of those in your trading business
Frequently, we see a couple as the owners of a trading business, with one of them acting as support for the trader: setting the operating structure, defining and implementing the policies and procedures, and also managing the trader’s environment and metrics.
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The primary benefit of a trading business structure is the freedom it provides. Most traders enter trading to be independent and consider structure to be restrictive, to varying degrees. But in reality, a well-structured and run trading business offers many benefits. With systemization and delegation, a trader is freed from certain responsibilities and tasks, allowing for time to be allocated to all manners of increasing trading proficiency.
I find fascinating that, in many cases, the things that can develop and increase one’s ability to be a more successful trader are generally overlooked and under-emphasized. I say this based on my over 23 years of observing and working with traders.
In closing, my suggestion is simple. I suggest you invest in developing a business structure that advances and enhances your trading activities, one that gives you a genuine edge. As traders, isn’t that what we all want?
Until next time…
