I think the biggest mistake most people make when they decide to start trading is that they approach it as a hobby instead of a business. To me, this explains why most people are unprofitable in the long run. Most professional traders, and I am referring to those that manage money, approach trading as if they are conducting a business. The first step involves determining what constitutes their trading edge. If you don't have a trading edge, you can't be successful. They will conduct substantial research into a trading strategy before they ever trade with it. Once they've determined how they will trade, they will come up with a business plan. This plan determines how much capital will be put to work, where they will conduct their business, what hours they will trade, what hours they will work on preparation, how they monitor positions, etc. If you want to have success in this business, do some research into how these professionals trade, then conduct your own research to develop your OWN trading edge. Then set up a business plan that is suitable to your own situation.
Very good points. I would like to add one thing. Trading is a bit different from a business in that it is a probabilities game. Depending on your time frame (hours, days, weeks, months, or whatever), you will not make money every hour, day, week, etc. But if you have an edge, the probabilities will work out in your favor. So in this respect, trading is not like a business in which you must pay the employees each and every month. I see so many people posting on here asking each other if they are consistently profitable. However, there is no need to be consistently profitable. If you have an edge AND you can manage money, you can be overall profitable. Managing the variability of returns is part of the business plan that ScottColeFTA has described so well.
Do those that act so professionally beat the market averages? Does the business plan/edge/strategy beat the SP500?
It depends what you want. Beating the S&P is only 1 goal. For example, some people may be more interested in reducing volatility than beating the S&P. With the same average return and less volatility, more $$ accumulates.
It depends on what group of professionals you are looking at. Mutual fund managers? They have a more difficult time of beating the S&P. Look to the hedge funds and commodity trading advisors. Many of them beat the S&P handily, and with less volatility.
In a business the lesson is usually to presevere and stick to your conviction. (unless when bancruptcy is imminent). In trading, the lesson is, be prepared to switch position in an instant upon market confirmation.
We know casinos are businesses. The gamblers that go there, will they become businesses too if they go there with capital and a business plan ? The biggest mistake I see in people is they don't know they are gambling. They justify their continued gambling by pretending they are running a business. A good measure of a business is does it have customers ? A gambler who sells roulette signals, or teaches how to play the game, could become a business, though. That way he can transition from gambling to having customers.
Casinos don't make good customers. They always insist the odds be in their favour. They also have the option of activating the roulette magnet whenever they need to. So, it's covered pretty water tight. If you want customers, go on internet forums and sell them joes, a signal, a system, a whatever. They'll lap it up no questions asked.
I agree that edge has something to do with it... especially when it comes to discretionary trading (the "edge" might be short-lived and/or illusory). Even when it comes to system trading, curve-fitting can produce a lot of illusory edge. I also think one of the major culprits of trading failure is trading too large. People get drawn into trading by the promises of making 3% to 5% to 10% per month--all promises that are far too unrealistic. As a result though, newbies jump in thinking they can turn $50K into $100K in the first year, etc. Trading that large leaves them very vulnerable to catastrophic drawdown where "catastrophic" means "large enough to knock them out of the game."