Trading Like A CFO

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For a lot of traders, trading is something of a hobby, and they approach it with the same level of disorganization that they do their stamp collection. On the other hand, some hobbyists take their actions seriously and act with military-like precision. Both of those approaches and the variants in between might work very well for different kinds of people. Psychology is, after all, an essential component of trading, and it’s not reasonable to assume everyone will trade the same.

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That having been said, it’s tough to get away from the similarities of trading and to manage a business – even if it’s not a trader’s primary source of income. In fact, because of the very nature of forex trading – handling currencies – it has an uncanny resemblance to the kind of everyday work a financial manager or CFO does. Of course, managers have different styles, but there are certain necessary traits of management – and financial management in particular – that are common, and therefore very useful when it comes to trading.

Trading like a boss

Everyone wants to trade like a boss, but a boss is just a different name for a manager. Not everyone who trades has a formal education or experience in management – in fact, some of the best and most effective traders happen to be really good at other things, such as math and journalism (to highlight two very disparate professions that translate well into trading). Getting some management theory can give you an edge in trading, so it’s well worth taking some time looking into.

When it comes to finance, the boss is the Chief Financial Officer; so if you want to trade like a boss, you’re thinking of becoming the CFO of your portfolio. So, what are some of the things a CFO does that translate well into trading? Let’s start with the four main functions of a manager:

  • Planning: Everything you do begins with a plan, and trading is no exception. This is where you work out what strategy you’re going to use, in what markets, and, most importantly, what you are trying to achieve with your trading. Are you going to be a day trader? Hold positions for a longer time? How many pips do you expect to average? How much money are you going to put into your account? How much of your account are you going to risk on each trade? Where do you see yourself as a trader next month? Next year? Next decade? Ideally, you write this down; when running a company, this is called a “business plan” – you can have a “trading plan.”

trade like a cfo

  • Organization: Once you have your plan, you’ve got to figure out how you are going to put it into action. What time of day are you going to trade? What currencies are you going to trade? A lot of this will depend on how the strategy you’ve developed performs. Do you have a strategy that absolutely nails the JPY? Great! You’re going to be doing your trading during the Asian session, and you’re going to have to organize how you’ll do that. Write that down in your “trading plan” so you don’t forget it.
  • Direction: This is the fun part: where you actually trade, putting in the orders according to your strategy and closing out, so you make a nice profit. This is the part of trading that people think about most and is often the most written about: such as checking upcoming events and keeping track of resistance levels (the tips section on Orbex is excellent for this, as you’ve probably already discovered).
  • Control: Probably the most forgotten part of trading, and this is where you go back and compare your results to your plan, and make sure everything is meeting expectations. Often, it doesn’t, which is why some traders are reluctant to do it – but it’s essential to be able to adjust your plan so that it works better in the future. Checking to see if your strategy is meeting expectations is vital to know if it’s actually working – if it is, so you keep at it; if it isn’t, so you can get a better one. This part is why it’s very useful to write down your plan, so you can compare what exactly you were planning to achieve with your strategy.

CFOs are continually going over these four elements when they make their decisions, and that applies to good money management in your forex portfolio as well. We’ll get into more detail about how each of these elements can be used to maximize your trading results, so stay tuned!

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