Make Money Trading: How to Build a Winning Trading Business
by Jean Folger and Lee Leibfarth
Quick Summary
A practical guide to building a sustainable trading business, covering everything from developing a trading plan and selecting markets to managing risk, maintaining records, and treating trading as a professional enterprise rather than a hobby. The authors emphasize the business fundamentals that separate consistently profitable traders from amateurs.
Categories
- Trading
- Trading Education
- Risk Management
Detailed Summary
"Make Money Trading: How to Build a Winning Trading Business" by Jean Folger and Lee Leibfarth, published in 2007 by Marketplace Books, approaches trading from a business-building perspective rather than focusing solely on strategies and setups. The central thesis is that most traders fail not because of inadequate technical skills but because they fail to treat trading as a legitimate business with proper planning, capitalization, record-keeping, and operational discipline.
The book begins by establishing the framework for a trading business plan, drawing parallels between starting a trading operation and launching any small business. Folger and Leibfarth argue that aspiring traders need to address fundamental business questions: How much capital is required? What are the operating costs? What markets will be traded? What is the expected return on investment? What is the contingency plan for extended drawdowns?
A substantial section covers market selection, guiding readers through the comparative advantages and disadvantages of different markets including equities, options, futures, and forex. The authors discuss factors such as capital requirements, leverage characteristics, liquidity profiles, regulatory environments, and tax implications for each market type, helping readers align their choice with their personal circumstances and risk tolerance.
The risk management framework presented is comprehensive, covering position sizing methodologies, stop-loss strategies, portfolio-level risk limits, and the mathematical relationship between win rate, average win size, and average loss size. The authors demonstrate through examples how seemingly profitable strategies can become unprofitable when risk management is inadequate, and conversely how modest win rates can generate significant returns when the risk-reward ratio is favorable.
Record-keeping and performance analysis receive detailed treatment. The book advocates for maintaining detailed trading journals that capture not just entries and exits but also the rationale for each trade, the emotional state during execution, and retrospective analysis of what worked and what failed. The authors provide templates and methodologies for tracking key performance metrics including profit factor, Sharpe ratio, maximum drawdown, and expectancy.
The psychological aspects of trading as a business are addressed through discussions of routine establishment, workspace optimization, health maintenance, and the management of personal relationships during the stresses of active trading. The authors acknowledge that trading can be psychologically isolating and recommend specific practices for maintaining mental equilibrium.
The final sections address the legal and tax aspects of operating a trading business, including entity structure options (sole proprietorship, LLC, S-Corp), the trader tax status election, mark-to-market accounting, and the deductibility of trading-related expenses. This practical coverage of the administrative and financial infrastructure of trading sets the book apart from purely strategy-focused works and provides genuinely useful guidance for traders transitioning from hobbyist to professional status.
