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Use your time effective, trading as a business
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Use your time effective, trading as a business

  #1 (permalink)
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Use your time effective, trading as a business

Trading should be setup as a business. I myself have no experience in having an own business, but I was always interested in how great companies ‘work’ and are structured. I think one needs to work via a ‘stucture’ or else too much time is wasted for example mindless surfing on the internet.

Efficiency vs Effectivity
First, I want to state the difference between efficiency and effectivity. Simply said,
Efficiency: doing things as good/best as possible
Effectivity: doing the right things
Personally I often make the mistake of putting too much time in efficiency. Its like the adagium, you can better be aproximately right, than precisely wrong.

I think the best solution is to have periodic ‘meetings’ with yourself - just like a business ( meetings)- to reflect on the business: what am I doing right now, is it effective, which path should I take now, how should I do it etc.

Concrete goals
First, you need to set up the longer term goals, and break them up into smaller, concrete goals. This is very known, but simply works. I simply take one blank piece of paper each day and write down what I want to do. Sounds simple, but practically doubles productivity.

Creativity
But I must also say, while being productive gets the work done, I think it also kills creativity to some degree. Often, the best ideas are made when one is doing something other then trading. I also read once that during simple (not too hard) physical activity the best ideas pop up. And this is also my own experience, during jogging I have most ideas for example.

Next, the ‘problem’ is often, while working out on ideas, you get new ideas all the time. Most of the time, I want to immediately ‘jump on them’ , because new things are often more interesting.

Areas of focus
Nevertheless, just like a business, I think it is best to divide your time in a good structure. There are several aspects on trading one can think of:
  • R&D: analysis, working out ideas, read bmt
  • Actual trading
  • Accounting: Documenting trades, documenting activity statements, monitoring performance
  • Legal?

What a day looks like
With this in mind, I set up the day as follows:
08.00 am-12.00 am Work out ideas/Analysis
12.00 am-14.00 pm Physical activity: jogging/mountainbiking - to clear your head
15.30 pm-19.00 pm Actual trading ( US open in Europe)
19.00 pm-19.30 pm Document trades/update statistics

Once a week, mostly in weekend: hold a meeting ‘with yourself for reflection: measure /monitor trading performance, update statistical analysis, am I doing the right things to achieve my longer term goals? Etc.

Once a month: hold a meeting ‘with yourself for reflection: measure /monitor trading performance, update statistical analysis, am I doing the right things to achieve my longer term goals? Etc.


Having set up this very simple work-model, I also must admit that enthousiastically working out an idea till 05.00 am in the morning has its charm, and if I do it, I feel more ‘alive’

I am sure others have far better models.
How do you divide your time best?
What would be the perfect structure for a trader? What is yours? What works for you and what doesn’t?

One of my worst enemies are my own false assumptions

Last edited by Zwaen; September 22nd, 2014 at 04:13 AM.
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  #3 (permalink)
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Here's a few lessons I've learned from starting my business.


Zwaen View Post
R&D: analysis, working out ideas, read bmt
Actual trading
Accounting: Documenting trades, documenting activity statements, monitoring performance
Legal?

Accounting is a PITA, but in my experience, you need to know the basics of writing a consolidated balance sheet, income statement and cash flow statement. Four basic concepts are important:

1. It's easy to extrapolate that you will be making $x million in revenue if you continue trading this particular model, and it looks good on paper. Then you realize your return on equity is low and you might as well be doing a 9-5 job, or your CCE reserves are dip below $50,000 in the worst month and you risk insolvency.

2. The typical business has a parabolic growth curve, and knowing the minimum point (breakeven) and roots (return on initial investment) is important. For traders especially, revenue-expense breakeven is not enough, you need cash flow breakeven.

3. You will need to fight your broker's trade reports.

4. A grasp of the basic tax implications of trading (e.g. different products) is important to proceed with other business planning and assumptions.

Aside from the above, legal and accounting work should be delegated to someone who is an expert at those. It's fairly affordable to have someone come in to maintain your books monthly.

Legal costs are tremendous and I would choose wisely. Important hints of a good lawyer are that you have 1 point person at the firm, that they make you think of things you wouldn't think of yourself, and that they answer your phone calls and can expedite a document. These sound like simple criteria but most lawyers don't meet them.

More importantly, you mentioned nothing of the people dynamic.

A one-man shop is not a business in my view. Even a low-end pizzeria needs distinction between waiter and cook. Don't start a trading business alone.

Arm yourself with business partners, rivals, advisors, investors, mentors, even a board of directors. All of them put you in check and build up your schedule for you.

Don't be afraid to hand out future cash flows and equity interests to sophisticated advisors/investors/employees/co-founders. Too many people in this industry are selfish, and would rather have a whole small, cake than a slice of a larger cake. This is often their undoing.

Hire well. Complement the skills you're lacking, pay competitively, retain talent, but don't just form a team of identical, perfect mountain climbers like yourself. Look for people who add fun and a better temperament to the team. Hiring is a nontrivial skill that you have to master.

It's difficult to sympathize with others' failure, but it's even more difficult to feel good for your rivals' success. Success usually comes with an empathy for your rivals' success. Identify your competitors, and they will make you a better person.


Quoting 
How do you divide your time best?
What would be the perfect structure for a trader? What is yours? What works for you and what doesnít?

I spend at least 70-80% of the time on my schedule meeting people and talking to them. It used to be around 30-40% of the time when I first started. It's the natural direction if your business turns out successful, but perhaps it's a precursor to making your business successful. Whatever the case, spend time meeting and talking to people.

A corollary of this is that you will have very little time doing what you actually are good at (hopefully trading), so you better be good at it before you take the leap and turn a hobby/interest into a business, because there's little time for on-the-job-learning.


Quoting 
12.00 am-14.00 pm Physical activity: jogging/mountainbiking - to clear your head

I personally think that 50-60 minutes is the ideal workout unless you are training for some kind of endurance competition. Moreover, I feel that family, exercise and a healthy diet are important but independent parts of life from your work. It's when work and exercise+diet+family cross over (e.g. you only eat 1 meal per day because you're too busy, or you need to exercise to "clear your head", that your family is either a distraction or important motivator for your career goals) that you are leading an unbalanced and unproductive lifestyle.

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I agree that trading should be treated as a business.

Keep in mind that this is a very easy business to get into. Anyone with a couple thousand dollars can open a brokerage account and be your competition.

You should write your business/trading plan in such a manner that you could take it to the bank and convince the loans officer to give you a loan to start your business. This includes Balance sheet, income statement and cash flow reports.

You should have specific goals and objectives set so that you can measure your performance over a specific period of time.

You should have a simple rules based operating guide that describes the criteria that has to be met before you will take a trade.

You should be able to explain what are you doing differently than all the similar businesses (other traders) that will differentiate you from the crowd and allow you to make a profit? (How will you take money from other traders?)

I think how a trader allocates his time is a personal preference. It is not how much time you spend doing a particular task that should be measured; it is the results that are important. Are you achieving the goals and objectives you have put in place?

It is hard to find the Truth when you start your search with a preconceived notion of what the Truth will be.
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deaddog View Post
Keep in mind that this is a very easy business to get into. Anyone with a couple thousand dollars can open a brokerage account and be your competition.

Agreed, but this is the somewhat paradoxical part: it's also more expensive than ever to get into this business.

It's not really a business if you are a one-man shop. Sure, I've seen a few people pull it off, but the fresh college graduate working as an employee at a mid-tier shop is probably making a better living. To put it in perspective, I know a group that started with $2M in cash and the founders could only afford to pay themselves $70,000 salaries - that's worse than being a secretary for a nice tech startup. Of course, they gave up after 1 year.

Hiring someone to maintain the office can set you back around $45 to $80k base salary. A fresh college graduate sets me back around $170k-200k base salary excluding bonus and benefits. I'd add another 20-30% buffer for benefits and other onboarding costs, e.g. furniture, computer hardware, medical coverage. Hiring into the peak of the broad market index means you need to offer very competitive salaries.

The first 5 employees are extremely cost-inefficient - there's no point setting up a 401(k) corporate plan and fixed costs (e.g. first set of legal documents, e.g. NDA, IP assignment etc.) are higher than marginal variable costs. So you're only starting to look at an efficient business somewhere after 5 employees.

Your mileage will vary, but hiring 5 employees requires about 10-100x as much cash as the minimum deposits required at retail brokerages.


deaddog View Post
You should write your business/trading plan in such a manner that you could take it to the bank and convince the loans officer to give you a loan to start your business. This includes Balance sheet, income statement and cash flow reports.

Doesn't work this way in my experience. You have better luck convincing your bank to finance a shop selling sex toys.

There's a few, more boutique banks (e.g. Silicon Valley Bank) that are open to entrepreneurial endeavors and could give you a loan earlier, but the main commercial banks won't be doing you that favor.

Cash is king. You probably need a significant cash deposit, and have to put a portion of it into a CD for a secured loan for a year. Also, within ethical and legal bounds (i.e. without committing fraud), classify your business as something better than "speculative daytrading shop".



deaddog View Post
You should be able to explain what are you doing differently than all the similar businesses (other traders) that will differentiate you from the crowd and allow you to make a profit? (How will you take money from other traders?

There's many ways to make money in the capital markets besides taking it away from other traders.

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I view my whole financial life as a business.
Maximize return, minimize spending, always look to grow the business without taking stupid risk.

I think many retail traders use the idea of trading as a business though to justify foolish spending. "I need 20 monitors because it is part of my business".

Hiring people just sounds like elite trader delusions.

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NoiseTrader716 View Post
I think many retail traders use the idea of trading as a business though to justify foolish spending. "I need 20 monitors because it is part of my business".

Hiring people just sounds like elite trader delusions.

Not sure how hiring people is a delusion

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artemiso View Post
It's not really a business if you are a one-man shop.

I like to think of myself as a home based business rather than a hobby. My hobbies cost me money, my trading pays for them.



Quoting 
Doesn't work this way in my experience. You have better luck convincing your bank to finance a shop selling sex toys.

I agree. However if you had to prepare a business plan before you could trade a lot of traders probably would not attempt this business.


Quoting 
There's many ways to make money in the capital markets besides taking it away from other traders.

It is the only one I know. It's a zero sum game, the only way I can make money trading futures is to take it from someone else. Equities might be a different story but for a short term trader I have to someone willing to sell or buy from me at a price that will probably be different in my favor in the next few days. Isn't that the definition of a trade: two people agreeing on a price both believing that the other is wrong.

It is hard to find the Truth when you start your search with a preconceived notion of what the Truth will be.
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NoiseTrader716 View Post
Hiring people just sounds like elite trader delusions.

Why?

I hire people all the time for my trading related businesses.

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Big Mike View Post
Why?

I hire people all the time for my trading related businesses.

Mike

Can you be more specific?

It is hard to find the Truth when you start your search with a preconceived notion of what the Truth will be.
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