Profits Are A Small Step, Once You’ve Reached Breakeven

In Blog by Michael Arnold

New or novice traders often reach for the wrong goal and it’s very difficult to convince them of this fact. They get in to trading to make “fast money” and assume this is the place to do it. Well, trading is not a get rich quick, but it can be a get rich quicker, if you wrap your mind around the idea that your first goal is not to trade and make money, but to trade and not LOSE money.

Controlling risk is the number one skill set a trader needs to master and most of this can be accomplished by treating trading as a business. Imagine opening a free standing sandwich shop. The business owner had startup costs and has expenses that go out every day, such as rent, electricity, labor costs and food costs, like bread, meat and condiments. The startup costs for the fictional sandwich shop are gone once spent, and the new entrepreneur hopes to get that money back OVER TIME, not right away. The focus turns to making enough to cover daily expenses. Can the shop get enough people to come in the door and buy enough food to cover tomorrow’s out-of-pocket daily expenses? Each day that the business falls short, means an increase in the deficit caused by the start-up investment.  Getting to breakeven is always the first goal of a new business. Once that goal is achieved consistently, the new business knows it will survive because from that point, every new customer is pure profit.

Your trading business works the same way. Startup costs are minimal and like the sandwich shop, daily expenses go out the door in the form of trading losses. Once a trader can get those under control, and consistently break even in trading, he or she is one little tweak or strategy adjustment away from turning a profit. The consistency is the key and if you are trading and feel stuck because “I’m not losing, but I’m not making either”, then you should be aware that you have actually reached a place where your success is right around the corner Trading success is achieved by putting one foot in front of the other, so keep moving towards breakeven and you are most of the way there.

Futures, options and swaps trading involve risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results