How To Think Like A Business Owner For Stock Trading
by Arnab Dey Finance Published on: 10 November 2022 Last Updated on: 27 December 2022
When you first start out researching the possibility of making money on the stock market, it’s easy to think of it as a hobby or something that you just do in your spare time for fun.
This works out ok if you’re just dabbling in it to see if you like it, but the minute that you start thinking about trying to earn money at home through buying and selling stocks, you’ll need to start learning how to think like a business owner for stock trading purposes.
Core Business Principles
By seeing your work as a stock trader through a business owner’s lens, you’ll avoid some of the biggest pitfalls of the beginner stock trader: losing more than you can afford, throwing good money after bad, and letting your emotions control your decisions to name just a few of the elementary mistakes. To think like a business owner as you learn how to trade stocks for a living.
You need to follow some core business principles:
1. Every decision has a cost/profit balance –
One of the biggest pillars to building your stock-building practice is to remember that every trade that you make has a potential cost and a potential profit attached to it and that there are no guarantees on the stock market.
Even professional stock trading organizations lose on the “sure-fire” trades, so be prepared for this. You also need to examine each trade for whether the potential profit outweighs the initial cost of the trade.
2. Keep a steady capital reserve –
All good businesses have some of their assets tied up in investments but also a steady capital reserve; for someone day trading at home, this means a supply of cash in a bank account that isn’t tied up in the stock market so that you are always able to pay the bills and keep the lights on.
As you get better at trading, you should increase the size of your capital reserve to avoid the temptation of gambling too big and losing all your gains.
3. Be aware of the tax code –
Profits earned from the stock market are taxable in most states, and you will need to keep an accurate record of how much money you made and lost on the stock market so that you can be taxed accordingly.
There are also additional laws surrounding taxes on different types of trades, so it’s worth taking an online course in stock market tax law so that you keep your new business above board and avoid an unpleasant and unexpected tax bill.
4. Build for steady continuous growth –
The final core business principle to observe is to set yourself up for steady growth over time. The internet is full of get-rich-quick promises on the stock market, but it is always better for a newcomer to day trading to aim for lots of small profits each day rather than hunting for the riskier bigger wins which rarely come off.
5. Take help whenever you can –
The stock market can be a lonely place but there’s plenty of support out there for the new day trader, ranging from message boards to video classes to help you build your repertoire of trading tricks and best practices.
Best Day Trading Practices
The idea of trying to find multiple small victories each day should drive your day trading strategy right from the start.
Every good business owner knows that it is these small victories that teach us lessons about what is successful and build confidence in our business strategies.
Other good day trading practices to observe include:
1. Use stop loss orders every time –
A stop-loss order is part of your trading contract where you’ll sell your stocks if they fall to a set price. Every stock market trader always puts a stop-loss order in every trade to prevent damaging losses and there is a lot of skill involved in finding the right stop-loss order that looks after your money without missing out on surging stocks.
2. Build-in breaks –
Make no mistake; learning how to make money on the stock market is an exhausting profession as you have to be in tune with your strategy and the current market fluctuations across a variety of fields.
It’s easy to get depressed after a series of losses or overconfident when an unlikely trade pays off and both of these situations can lead to poor decision-making. By building in set breaks throughout the day, you’ll give yourself space to calm down and return to a rational decision-making mindset.
These breaks will also give you time to reassess your current situation and make appropriate changes to your strategy.
3. Only risk what you can lose –
At its most basic level, trading stocks is a form of gambling; much more predictable than the lotto and one without a “house” to play unevenly against but gambling all the same. As with all gambling, you need to approach it with the mindset that you might well lose everything on the first day, so you need to only invest money that you can afford to lose.
This idea ties in with the capital reserve principle meaning that you should siphon off a percentage of the profits that you make into your regular bank account so that you always have funds available for the world outside of the stock market.
Learning how to think like a business owner for stock trading will help you build a successful career and let you make money from home alongside your regular job.
If you are thinking about making it your primary source of income, you should check out StockOdds set of introductory videos to help you grasp the basics of day trading.
They also have an enormous dataset of previous market scenarios that you will be able to use to check your newly formed strategies against, meaning that you’ll be able to apply these business owner principles in practice before you make your first real-world trade.
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