Have a business plan
What
is the first thing that you do when you want something with an intense desire?
When you want it so bad you can taste it? When you can feel the desire in your
bones? When you’re driven by a desire that leaves you hungry for it? With this
kind of emotionally passionate focus, you automatically begin to think about
“how” you can get it. In other words you begin to plan. The “how” or
“plan” charts the way to achieving the desired item…no matter what it is
and no matter how small or large. Planning is essential to the process of
achievement and without it you would come as close to accomplishing the goal as
you would if you were to be blindfolded and spun around and given a bow and
arrow to hit a bulls eye 100 yards away. Trading requires planning at both the
macro level (the big picture or business plan) and the micro level (the small
picture or plan for every trade).
Now,
many of you reading this article are trading without a business plan.
That’s very unfortunate … for you! If you don’t have a macro trade plan
and you are trading then you are “out-of-sequence” in your trading
process. Your success as a trader depends on a number of items that
include market knowledge, a set of rules, money management and risk management,
and self-discipline to explicitly follow these trading necessities. Your
plan would include all of these elements and others to construct a vehicle that
is designed for getting the results you want. Without a macro trading plan or
business plan you lack the “big picture,” the overview map that holds the “how”
you would proceed. Furthermore, what are you telling yourself to justify
not having a macro trade plan? Here are some examples:
I
have no idea how to write one,
I
don’t consider it necessary,
It’s
boring and time consuming,
Successful
traders don’t have plans
I
have a mental plan.
Of
course, there are all types of excuses, but the bottom line is that they are
excuses, and they are standing between you and setting yourself up for getting
effective trading results.
Let’s
take a look at some of the essentials that would go into your macro trade plan.
- Create a cover sheet with
the name of your business and this will establish the intention of
treating your trading like the real business that it is. Your cover
sheet and name may seem inconsequential, but having an emotionally focused
label is powerful.
- Establish your purpose for
trading, the compelling reason why you want to trade. You’ll want to
tie this to the what-matters-most in your life in order to “harness” the
passionate energy associated with it. Things like family, friends,
personal freedom, and those things you’re “hungry” for. Answer the
questions: I want to be a trader because… My primary objective
of being a trader is… These objectives are important to me
because… I believe I can achieve my goals because…
- Identify your trading style in
order to help you define your risk management strategy and the tools
you’ll use to trade. Answer these questions: My trading
style is… I have chosen this style because…
- One of the toughest obstacles
in trading is not the market, but rather the trader, him or herself.
A simple personality profile questionnaire will help you determine your
strengths, weaknesses, how you handle losses and your expectations.
There are many resources available on the web to help you evaluate your
personality. Here is a link that can help: http://www.outofservice.com/bigfive/
Then answer these questions: My greatest strength
is… My greatest weakness is… Potential problem areas are…
- Goals should be set to help you
evaluate your progress, and give you a target for which to aim.
These goals should be both mechanical data (direct and indirect information
related to the markets) and internal data (mental and emotional)
goals. An example of a mechanical data goal would be to beat the
S&P 500 index in returns over a 12 month period. An example of
an internal data goal would be to read 1 book every 2 months to sharpen
your trading knowledge.
- Identify the markets you want
to trade; that is, those markets that your personality resonates
with. Also, determine the details of these markets for instance,
Forex because you live on the West Coast and you’re a night owl and you
particularly like the British Pound vs. the Japanese Yen pair.
Finish these sentences: I will trade the following
instruments… I am trading these instruments because… My
trading times will be as follows…
- Make sure that your technology
is up to date, free of bugs and with an IT (information technology) person
on call in case your computer goes down. Trading online demands a
powerful and reliable system. Ensure that you have one and that it
is backed up. Additionally, get a strong internet provider…cable
preferably. Going further you’ll want a trading platform that you
trust both for data streams and for accurate fills.
- Effective routines lead to good
habits. Create a routine for the beginning, middle and end of your
trading session; i.e., pre-market routines for both mechanical data
(research, news, zones, time frames, indicators) and internal data
(meditation, taking your emotional temperature, and lowering stress levels
in order to be focused and ready for the trading trenches.)
- Gauging your risk is critically
important at all times. Categorize what you can control and
determine how you will manage it. For example, having limits on
every trade you enter. The prime directive is to protect your
capital at all times. Limits such as having a max number of
shares/lots/contracts per trade; having a max loss per trade; and
identifying a max loss per day are very important. Complete these
sentences: I will gauge my risk on each trade by… I will risk
only _____ on any one trade… My daily stop loss will be… Once
my stop is reached, I will…
- Have your protocols
(strategies, procedures, setups and entry rules) spelled out. Many
strategies exist for trading, and every one does something
different. What will your approach be? What tools will you use
when you trade (mechanical/internal)? Complete the following
phrases: My primary reason for entering into a trade will be…
My secondary reason for entering into a trade will be… My ideal
setup would be…
- Your review process is just as
important as what you put into your macro trade plan. Weekly,
monthly, quarterly and yearly reviews would not be too much.
Remember it’s a living document meaning that it evolves as you do and
you’ll want to have an intimate relationship with it. It is your trusted
vehicle for taking you and your A-Game to success. Ask yourself
these questions:
What
securities are you trading more consistently?
What
indicators work best for you?
Are
you adhering to your stop loss plan?
Are
you achieving your trading goals?
What
times do you trade best?
What
is your optimal share size?
Yes,
planning is of paramount importance and if you put the time in to construct a
good macro (business) trade plan you will have laid out your road map to
getting the results that you want. If you haven’t written your plan yet
or if it is not a strong model, then stop trading and do it now. Your
success is too important to trade by default; i.e., just doing what you feel
without a plan…you want to design your path and include everything that you’ll
need for that journey. Remember success is where preparation meets
opportunity.
Happy
Trading
Article by Dr.Woody Jhonson , Online Trading Academy
