Trading is different from business in general. However, you should think that your trading is a business. Thus, you have to make a plan and run it like a business in general. Most traders trade as well as gambling; unlike a business that has a clear structure and plan.
As with business in general, the way you make a profit in the trading business is by earning income. Additionally, you will suffer losses if expenses are greater than the income you earn.
You certainly expect consistent profits for the long term. Your goal is certainly to reduce spending as small as possible and maximize profits.
Check out these tips to treat your trading like your business:
Determine the amount of risk
Risk is determined by stop loss. Traders usually determine the stop loss only by estimating without calculating the percentage of the potential loss. Moreover, sometimes they do not determine the stop loss or just being determined later after experiencing a substantial loss. In the long run, the risks that are not calculated will be able to spend your funds.
According to Trading Academy, you should also have a maximum loss that you will accept on any trade. This is called your stop and is where you will absolutely get out of a trade. Therefore, you must determine the amount of risk in each trade. Experienced traders recommend that the risk per trade is no more than 5% of the current balance or equity.
Determine the risk/reward ratio greater than 1: 1
After determining the amount of risk, then determine the target profit or reward as a multiple of the magnitude of the risk. To produce consistent profits in the long run, it is recommended to determine a risk/reward ratio that is greater than 1: 1.
Make a clear trading plan
A trading plan will make you more objective and reduce emotional involvement. You can adjust the trading plan to the trading system that you are using which consists of entry and exit methods, entry strategies and money management. Determine when you have to enter the market, the amount of risk each time an entry and risk/reward ratio. Besides that, like any business in general, you should also keep a journal to evaluate trading results. Without regular and continuous evaluation you will not know the trading performance that you have done. Trading journals do not have to be as detailed as statements on the trading platform, but rather as evidence that you have done what was planned.
Don’t overtrade
If you do not use a trading system that has been tested then you will tend to over trading where you will enter based on the influence of emotions because there is no signal as a reference. Besides not necessarily making a profit, the more often you enter the market, the greater the expenditure that you will get.
Read more: The Importance of a Forex Trading Plan