Over the last couple of weeks, I have written about taking personal inventory and making the evaluations necessary to choose where you want to be as a trader. In this article, I would like to invite your attention to what you may or may not be willing to do to become a successful trader. Trading can be done successfully on a part time or on a full time basis, but it is critical to understand it is a serious business. Anyone who trades their own money is putting it at risk.

If I am going to put my money at risk, it seems to me that the question then becomes what am I willing to do to try to make the risk worthwhile. Beyond all else, I would suggest that a real commitment is necessary. The trader who wants to succeed must first commit to his trading as a business. InvestorWords.com defines "business" as: "A commercial activity engaged in as a means of livelihood or profit, or an entity which engages in such activities." Clearly, that is what the trader is attempting to do and his activities should be treated as he would any other business.

First, I would suggest that the trader commit time to the operation of his business and next he should carefully formulate a business plan specific to his own goals, needs, and current abilities understanding that the plan can be expected to evolve as he does as a trader. In my book, "Trade Your Way to Wealth," I have set out elements of a business plan and discussed how a trader might construct his personal plan. Rarely does a business succeed without a plan and trading is no exception.

Next, I would suggest that the trader commit himself to learning his business. Trading can be simple and it can be fun, but at the same time it requires effort and knowledge. Trading knowledge is not necessarily easy to procure. Most successful traders have undertaken to educate themselves. They read extensively, attend seminars, watch DVDs, obtain coaching and are willing to pay what it costs in terms of their time, effort, and money. Failure to take at least some of those steps can result in a very expensive learning experience.

The trader must achieve an understanding of the strategies he is using and particularly of the risks attendant to the strategy. He must formulate an exit strategy for every trade and, in my view, that is best done before the trade is ever entered. He must become acutely self-aware and exercise extreme discipline. He must understand that many trades may result in losses and that most of the profits result from as little as 3% of his trades. He would be wise to keep careful records and a journal of trades to which he refers regularly to keep himself on track and assure that he is following his plan.

Focus, commitment, and discipline are key ingredients to successful trading. Without them, the trader is not giving himself the best chance to achieve his goals. As I have written before, money management, risk awareness, exit strategy, and discipline are requirements and though each may be relatively simple to understand intellectually, they are not necessarily easy to put into practice when confronting a fast moving market.

If you are willing to create a business plan, exercise stern discipline over your trades, plan each trade, learn how to cut losses and equally importantly let profits run, and have a money management plan, you are giving yourself a chance. As with so many things, it is in your hands. Your level of commitment will go far in determining how you fare.

This is a business and it can be very rewarding, but it requires work, study, and practice. It may be simple (buy low, sell high), but that does not mean it is easy. As I suggested in the first of this series of articles, it is helpful to take a self-inventory. See where you have been, carefully consider where you want your trading to take you and finally have a serious discussion with yourself to decide whether you are willing to commit to becoming a good trader or whether something else is for you.

Good Trading!
Bill Kraft

May 1, 2009

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