In many ways, stock trading is a lot like owning a small, independent business.
For instance, when you trade in stocks, you're exposed to financial risk, as in any business. Salaried employees can sleep easy knowing that they’ll never be forced to return their salary to the employer, even if the employer incurred a loss. At the most, the salaried employee will be fired. A self-employed person will pay for every error with his or her own money. Conversely, a self-employed person who is successful will earn far more than the wildest dreams of the average salaried employee.
Do you have it in you to be self-employed? If so, you might also have the tenacity to become a day trader. Sometimes a new student will ask, “Meir, I understand I won't earn big money at the outset, but can I be sure that within the first few months I'll earn at least as much as an average salary?” Oops! An employee-based question. A day-trader would never ask such a thing. Being salaried is not bad, but to be independent, you need to be made of something tougher. A self-employed trader can work less, enjoy more, and profit ten times higher than a salaried employee, but must be willing to take the risk. Be warned: without the willingness to risk your money, you'll get nowhere in trading.
For the independently-minded, being an employee is rarely a sufficient lifestyle…so the two best options are operating a small business or trading stocks. While both methods have their advantages, there are some clear benefits to trading. For instance:
- Fewer Commitments - Most businesses require a brick and mortar office, usually rented. Rent is a long-term commitment: rent payments, management fees, municipal taxes, electricity, water, maintenance and more. By contrast, a stock trader works from home. Your current expenditure might grow slightly, but there are no long-term commitments.
- Responsibility - A business requires employees, consultants, an accounting staff, legal counsel...a great big headache and heavy responsibility to provide for individuals who are dependent upon you. Knowing that in the good old days I needed to be responsible for paying my employees’ salaries caused me many a sleepless night over the years. A stock trader doesn’t employ anyone. It’s the trader, the computer, and the Internet. A huge advantage!
- Less Investment at the Outset - Every business demands investment: vehicles, office machinery and supplies, advertising, printing, premise renovation and more. In addition to a significant minimum investment, you'll need working capital to ensure ongoing activities until a positive flow develops. The stock trader needs a good computer, several screens, and working capital that allows opening the trading account and having funds to trade. That’s it!
- The Risks - It’s rare to see a business close without causing sorrow and pain. Businesses close in hard times. Debts pile up, employees pressure for raises, and banks suddenly cut off their lines of credit, leaving the business without oxygen. Assets and stock, which under regular circumstances are worth their purchase value, are thrown out or sold for pennies. A stock trader can limit losses to a specific part of his or her investment. Show me any other business where you can limit your loss!
- The Possibilities - In most businesses, it’s hard to be creative. The sorry fact is that most self-employed people make less than salaried employees. The professional stock trader does not operate within a competitive business reality that limits his or her possibilities. The sky’s the limit!
Not everyone is suited to being a stock trader, just as not everyone is suited to being self-employed. Setting up a business requires commitment, responsibility, investment, and risk. If I had to choose a field to be self-employed in, undoubtedly my top choice would be one with the lowest risk and highest possibilities.
How to Succeed
From my experience, I've learned that the chances of success for a beginning trader who must earn a livelihood from trading are far lower than for those who simultaneously maintain their original source of income. I want you to start out small and at the same time, maintain another source of income. I want you to succeed slowly and safely, knowing you have a secure amount of money coming in, reducing the pressures to generate immediate income. If you’ve left your job or are between jobs, don’t rely on trading profits. If you don’t place all your hopes on trading profits, you'll profit. If you feel pressured to profit, you'll end up losing.
A successful trader needs three basic components:
- Thorough knowledge and follow-up at the beginner stage
- The proper trading environment: that is, a quality computer and a hi-speed Internet connection
- An account with a professional broker who can provide fast, effective charts and executions.
The chain is only as strong as its weakest link. Each of the components below is important to your chain, which is your business. If you want your business to do well, invest in each of them, from the enrichment stage (learning) to the daily tools stage (trading system).
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