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Should we consider stock trading as a business?

A. Why Is Stock Trading a Business?

Like any business, Stock Trading needs: 

      1. Capital
      2. Risk Management
      3. Planning and Strategy
      4. Journal Entry
      5. Emotional Discipline
      6. Consistency  

    This results in Income Generation. If done properly, trading can generate income, similar to a small business.

    We can’t consider it as a business if you are:

    A. gambling and don’t have a plan

    B. trading based on tips, news, or emotions

    C. not using a journal entry

    D. repeating the same mistakes

    If this situation persists, then it is a hobby or an addiction!

    Therefore, we can consider converting a simple stock trading business into a more comprehensive one by prioritizing the following essentials. They are:

    Trading Capital 

         1. Use trading capital that you can afford to risk.

         2. Never use borrowed money or funds allocated for emergencies.

    Risk Management

        1. You should only use 2% of your initial capital for trading.
        2. Create a proper trading plan.
        3. Use Stop loss while trading.
        4. Limiting yourself to one trade a day for intraday, one trade a week for swing trade, or one trade a month for short-term trade. 

      Planning & Strategies.

          1. Identify your trading style and create a trading plan.
          2. Choose your strategy – either using technical, fundamental, quantitative individually, or a combination of any two or three. 
          3. Strictly follow the rules you set on your trading plan, like when to enter and exit, stop loss and target, and most importantly – risk per trade.  

        Journal Entry

            1. Entry and Exit
            2. Reason for entry and exit
            3. Emotion behind the trade
            4. Profit & Loss
            5. What did you learn?  

          Emotional discipline

           It is important that we learn the skill to improve our ability to manage emotions like Fear, Greed, Hope, and Revenge Trading.

              • Fear:

                Fear of taking entry and exit at the correct time.

                              This can be avoided by following a simple strategy of your own. If the particular strategy is not made by you, then do paper trading till you feel confident in that strategy. 

                • Greed:

                  This can be avoided by following a fixed target and stoploss, or with a fixed risk-reward strategy.

                  • Hope:

                    Always follow a strict process or strategy, so that you will not fall prey to the trap of wishful thinking and lose more money than the initial stop loss amount, or ignore the target.

                    • Revenge Trading:

                      Revenge trading is when the trader trades with a mindset of wanting to “win it back”, usually after a loss, which can lead to overtrading or making impulsive decisions after missing a trade.

                  Consistency

                      1. Choose a strategy that suits your style.
                      2. Be familiar with the strategy and process.
                      3. While following the process, maintain consistency.
                      4. Become an expert with the process and the strategy by being consistent.

                    If you follow all these factors seriously, then no one can hold you back; eventually, you will be able to generate wealth like any other business.

                    If all the stakeholders directly or indirectly related to the Indian Stock Market consider stock trading as a business, like any other business, then it will definitely boost our economy as a whole.