Run Trading Like a Business,
Not a Board Game
At Robot Wealth, we take a hands-on approach to systematic trading. This approach, despite being practical, often requires new readers and Bootcamp members to completely recalibrate their way of looking at the markets and retail trading.
“Why would I need to recalibrate to a practical approach? What do you think I’m doing??”
Maybe you’re doing fine, but many aspiring traders arrive at the Robot’s doorstep fantasising about hunting down that one perfect alpha, building complex ML models, mass data mining their way to bloodshot eyes, or some other sophisticated (and crucially, theoretical) means of untangling the markets with supreme intellectual capacity.
Many aspiring traders won’t make money — spending years chasing their own tails over such low ROI pursuits.
“Oh, is that a neural network?!”
Rather than focusing on a tried and tested approach, in practice, many aspiring traders follow the approaches with the weakest history of success, wrongly assuming that this is how you make money in the markets.
To make your life easier, we suggest you bookmark the fun distractions (at least until you have the luxury of being so experimental) in favour of the simpler, lower-hanging fruit that will grow your account.
Let’s see what this shift looks like.
What are you really trying to achieve?
Say you have X dollars of trading capital. As traders, what we’re trying to do is maximise the chance of turning $X into more than $X.
This doesn’t seem like a revolutionary way of looking at things – but it seems to me that most traders aren’t focusing ruthlessly on this problem, certainly not at the expense of the fun intellectual challenges.
For instance, a fun approach might be to pull some EUR/USD exchange rate data or price data from the E-mini S&P futures, and mine for buy and sell rules that would have proved profitable in the past.
Another fun approach may be to try out a lot of indicators and rules in some backtesting software until something promising comes up. Maybe throw in an automated, cloud-based data mining setup. Hell, why not a genetic optimisation algorithm or neural network?
These are fun and exciting games to play, and I understand why traders gravitate towards them.
Individual retail traders tend to enjoy tackling complex problems. They also tend to assume that greater complexity equates to greater market potential. These two factors combined mean you’ll often walk right by the more effective activities that will make your money grow.
At Robot Wealth our focus is using our time, resources and capital to get a return on our money – and so should you if you want to win.
We teach this approach using several fundamental truths in our Bootcamps.
The one we’ll talk briefly about now is Run it Like a Business — because it’s the fundamental that becomes most immediately apparent when you make this shift from fun -and-theoretical to money-making-and-practical (you can get primers on the other 6 at the bottom of this post).
Not that making money isn’t fun or anything…yeesh.
Run it Like a Business
When you shift focus to ruthlessly turning $x into >$x, a lot of real-world issues and logistical/infrastructure problems begin bubbling to the surface. Problems which hadn’t become relevant before, probably because growing your money by the most realistic, mundane means wasn’t your sole objective.
It’s like fantasising about buying your dream car. You imagine driving it, and the sense of accomplishment in attaining it. Yet part of that fantasy likely doesn’t include the higher-octane fuel needs, pricey insurance policy and diligent maintenance required just to get it out of your driveway — these issues only present themselves once you’re in the driver’s seat, not in fantasy land.
Let’s think about what you need to run your
Lambo systematic trading setup.
- capital to trade
- strategies to trade
- systems and infrastructure and processes for trading, performance reporting, reconciliation accounting, backtesting etc
- skills, knowledge and experience
Like any business, you need to set up your infrastructure and continuously refine and improve it. Much of the results you get from your trading will come from how effectively you operate this infrastructure, not how secretive and special your alpha is.
You have several resources in order to achieve this. First, and most obviously, is your time.
But, there are a lot of things to do! How will you split your time between:
- Researching ideas and developing trading strategies
- Development or setup of the other essential software and infrastructure
- The actual trading: monitoring, tweaking, and reconciling systems; executing semi-automated strategies etc
- Accounting and other admin work
- Reading about the markets and technologies and improving your knowledge and skills
Essentially, the work of an entire trading floor is in your hands. But don’t panic.
You’ll be relieved to know that you don’t need to make everything from scratch yourself and you shouldn’t. Leave that to the people who play the fun games at the expense of trading returns. You can buy software or pay others to make it for you.
Of course, there are some things you probably can’t do yourself even if you wanted to, such as streaming market data.
Okay, now that we’ve knocked those off, the task becomes….
How do you make the best use of your resources of time and money to improve your trading setup in order to maximise the return you make on your trading capital?
One of the main lessons we communicate in Embrace the Mayhem is that the market is very efficient and trading is hard.
So the prospect of trading in order to turn $X into more than $X should somewhat intimidate you. If you don’t find it intimidating then you are underestimating the efficiency of the market!
The path is straight and narrow, but your resources are finite, so you need to be prioritising the highest ROI activities.
High ROI Activities
High ROI activities include:
- Implementing new trading strategies within a proven framework. An example might be to implement a portfolio of pairs trades in the equity market.
- Scaling existing strategies to new instruments or markets. For example, porting the pair trading setup to a different international equity market.
- Well planned iterative research, set up in such a way that you can test and invalidate ideas quickly. This is the kind of research we show in the Bootcamps.
Low ROI Activities
Low ROI activities include:
- Large scale data mining exercise or any research that involves a large amount of effort to be expended before the idea can be invalidated
- Looking for totally unique alpha ideas when you could be implementing simple trades within a proven framework
- Building your own backtesting platform. You probably think you’ll learn a ton doing this and you’re not wrong about that – but it’s going to suck a huge amount of your time on something that you can buy in cost-effectively.
- Building your own execution platform
- Re-writing stuff that already works in a different language.
Of course, there’s room for fun and creativity in every business. But, if you’re serious about trading, you want to prioritise the activities that are most effective and give yourself the maximum chance of return on your capital, time and expenses.
It’ll surprise you how few solo retail traders genuinely do this. Which is why most of them go round in circles for most of their trading careers without getting any closer to making real money.
I’ll repeat this point again because it’s so vital to your success as a trader:
Many of the results you get from your trading will come from how effectively you operate and refine your trading business, focusing on high ROI activities, and not how secretive, complex and special your alpha is.
You want to Run it Like a Business.
Let me address a potential source of anxiety…
When you start thinking like this you’re going to look at your “business” and realise it’s not going to be very viable one on day 1.
It’s going to have to be a labour of love to start with. Chances are you don’t have the capital, strategies, systems, skills, experience and other assets that you need to make this viable. Not today, anyway.
This is fine. Perfectly normal.
You don’t go from 0 to 100 on day 1. And you don’t need an exact step-by-step plan.
Work hard, concentrate on the fundamentals and keep your eyes open to the opportunities that will present themselves if you do this work well with clear eyes and an open heart.
- Growing your skills, intuition and experience. And building a library of trading frameworks, strategies, approaches and tools.
- Saving money to grow your trading capital
- Growing a network of other traders
- And prioritising effective high ROI work over vanity projects.
Real trading isn’t some board game or puzzle, it’s a business which needs multiples roles filled and processes refined.
You don’t have many resources as a solo trader, and you are competing with some of the best minds in the game. Why waste your time and energy on the stuff that won’t move you any closer to your goals?
Focus ruthlessly on turning $x in >$x (running it like a business) – the next problems for you to tackle will soon make themselves known.
Want more? No need to stop here….
Run it Like a Business is just one of the 7 Fundamentals we teach inside the first week of Algo Bootcamp, along with:
and The (only 2) Ways to Make Money (we don’t have a nice picture for that one yet…)
Want a walkthrough of all of these?
On the run-up to our next Algo Bootcamp release, you can discover the approach behind the above concepts — sent directly to you via email. Simply join the Bootcamp waiting list below.
Get these on the Bootcamp Waiting List!
Gain priority access to our up-coming Bootcamp, as well as exclusive video tutorials on the 7 Trading Fundamentals