Any human endeavor, regardless of its complexity or magnitude, on average tends to produce better results when every possible step of its evolution is carefully planned and such plan is the basis for the execution of the task (s) at hand. This is true for most human activities. Business, war and government are usually conducted following some previously planned course of action. A viable business plan should even contemplate the most effective response towards the expected risks and opportunities encountered along the way, and should consider the proper response to the unexpected.
This sounds too complicated, right? I mean, why would we need to have a business plan, when all that’s required from us as traders is to open an account and click away our hard-earned money? After all, trading encompasses such a high degree of unpredictability, that a plan would be a waste of time. Well sir or madam, if you happen to agree with this last statement, you’re on the wrong track. The creation and proper implementation of a sound business plan for trading (Trading Plan) is in my experience THE most important factor that will determine the success or failure of a trader, particularly during his learning period. A proper plan will also establish the parameters which will allow for a systematic approach to the markets, and also for the proper evaluation of the traders activity. Therefore, this article (which will be delivered in 3 parts) will try to help in providing some basic guidelines for the proper construction and implementation of a business plan for trading, focused on the market niche towards which this newsletter specializes (Swing Trading).
For the purposes of this article, a proper trading plan will contemplate the major aspects of the traders activity:
-Goals
-Tactics
-Money Management
Today, we’ll deal with this first aspect.
Goals
The simple fact that most traders don’t seem to know what they’re looking for seems to me quite fantastic. They’ll tell me that their goal is to “make money”, or to “become a consistent trader”. The first answer is full of hope, just like when I enter a casino. The second one is even more naive, especially when one considers that most of the traders that produce such answers have no trading plan. How can anyone state that they want to be “consistent”, when consistency is defined as the ability to follow a set of guidelines. The first step towards consistency is to have and follow a set of rules (plan).
The first “chapter” of any business plan usually states the purpose and goals of the trader. This chapter is typically short and straightforward, but it doesn’t mean it’s easy. The establishment of the purposes and general goals of a trader will directly influence the other aspects of trading (tactics, money management, etc). What is it that you do as a trader? What is your “niche” in the market? Even the establishment of tags such as “Swing Trading” is too vague and widespread. We need a lot more precision.
Start with your general goals. Why are you looking to trade in the markets? Don’t answer purely to make money. That is a result, but not your goal. Provide your goals in life, which you intend to reach with the help of trading. Then get to a description of your trading goals. The definition you give to your trading activity will directly affect the rest of the parameters in your plan, so think about it carefully. Then outline important items such as the size of the capital you intend to trade (which will directly affect the money management chapter).
The establishment of goals is the most “free-form” of the chapters in a trading plan. In the next edition we’ll begin to delve more in depth into the establishment of “trading related” goals, and we’ll begin to discuss one of the most important issues of any trading system: Money Management.
In the realm of trading, meticulous planning often lays the foundation for success. Just as in business, war, or government, a well-structured plan serves as a roadmap for navigating the complexities of the market. Yet, the notion of creating a business plan for trading may seem daunting to some. After all, trading is rife with unpredictability, leading some to believe that a plan is unnecessary. However, the truth is quite the opposite. In fact, the creation and implementation of a robust Trading Plan are arguably the most critical factors in determining a trader’s success, particularly during the learning phase.
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In conclusion, education is not merely a luxury but a necessity for aspiring traders seeking to excel in their craft. By investing in quality education and mentorship, traders can accelerate their learning curve and achieve their trading goals with confidence. Join Live Traders today and embark on a journey of continuous learning and growth in the world of trading.
