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In our last lesson we finished up our discussion on trading journals with a look at the important things to look for when reviewing past trades. In today's lesson we are going to discuss how to handle trading like a business with a discussion of how to compile a trading business plan.
One of the leading causes for the failure of many businesses is their lack of planning. I think most successful people would agree that if you want to be successful in life and business you need to have a plan for how to obtain that success, set goals to meet along the way, and then work on executing your plan and meeting your goals.
Trading is no different from any other business in this sense and it is my opinion that those who fail to plan out their trading like a business are doomed to failure as well. With this in mind it is important to have a written business plan for your trading just as you would for any other business. Below are some of the things which should be included in that plan, most if not all of which you should now have a good understanding of if you have watched all of our lessons up to this point.
What are your reasons for wanting to become a trader?
What do you hope to gain from trading? Be specific here. If the possibility of making a lot of money has drawn you towards trading then list out how much money you want to make from trading and what you plan to do with that money if you make it.
What are the things that are going to separate you from the large majority of traders who fail?
What are your biggest weaknesses?
How do you plan to address your weaknesses and leverage your strengths?
How much time can you devote towards actively following the market?
Do you plan to day trade, swing trade, position trade or a combination of the three? Does your choice here reflect the time you have to devote to the markets?
What market or markets do you plan to trade and why?
At what times throughout the day are you going to spend actually trading, researching trades, and then learning about the market?
What are your criteria for entering a trade?
What are your criteria for exiting a trade?
What is your money management strategy?
How will you know if one of the pieces of your strategy stops working?
After identifying that one of the pieces of your strategy has stopped working what will you do to address it?
What trading software and equipment you will use to trade and how much is it?
What Broker/Brokers will you use?
Do you plan to add money to your account and if so where is that money going to come from?
If you are profitable do you plan to reinvest profits or withdraw some or all of them?
If you plan to trade full time how you will support yourself if you aren't profitable right away.
How much money do you plan to start to trade with? Does the math work out when considering taxes, all costs, living expenses and your initial trading balance?
As you can see, just as with any business, there are many things to consider before jumping into trading. From my experience however those who actually take the time to think about and write down the answers to each of the above questions have a much higher chance of success than those who do not.
That's our lesson for today and this completes the InformedTrades.com basics of trading course. I hope you have had as much fun and learned as much from our first trading basics course as I have from putting it together.