trading business plan format

Trading Business Plan Template

Written by Dave Lavinsky

Trading Business Plan

Over the past 20+ years, we have helped over 500 entrepreneurs and business owners create business plans to start and grow their trading companies.

If you’re unfamiliar with creating a trading business plan, you may think creating one will be a time-consuming and frustrating process. For most entrepreneurs it is, but for you, it won’t be since we’re here to help. We have the experience, resources, and knowledge to help you create a great plan.

In this article, you will learn some background information on why business planning is important. Then, you will learn how to write a trading business plan step-by-step so you can create your plan today.

Download our Ultimate Business Plan Template here >

What Is a Business Plan?

A business plan provides a snapshot of your trading company as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategies for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan

If you’re looking to start a trading company or grow your existing company, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your trading business to improve your chances of success. Your business plan is a living document that should be updated annually as your company grows and changes.

Sources of Funding for Trading Companies

With regards to funding, the main sources of funding for a trading company are personal savings, credit cards, bank loans, and angel investors. When it comes to bank loans, banks will want to review your plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to ensure that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Personal savings and bank loans are the most common funding paths for trading companies.

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How to write a business plan for a trading company.

If you want to start a trading business or expand your current one, you need a business plan. The guide below details the necessary information for how to write each essential component of your trading business plan.

Executive Summary

Your executive summary provides an introduction to your trading business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your executive summary is to quickly engage the reader. Explain to them the kind of trading company you are running and the status. For example, are you a startup, do you have a trading business that you would like to grow, or are you operating a chain of trading companies?

Next, provide an overview of each of the subsequent sections of your plan.

• Give a brief overview of the trading industry.
• Discuss the type of trading business you are operating.
• Detail your direct competitors. Give an overview of your target customers.
• Provide a snapshot of your marketing strategy. Identify the key members of your team.
• Offer an overview of your financial plan.

Company Overview

In your company overview, you will detail what type of trading business you are operating.

For example, you might specialize in one of the following types of trading businesses:

• Retail trading business: This type of business sells merchandise directly to consumers.
• Wholesale trading business: This type of business sells merchandise to other businesses.
• General merchandise trading business: This type of business sells a wide variety of products.
• Specialized trading business: This type of business sells one specific type of product.

In addition to explaining the type of trading business you will operate, the company overview needs to provide background on the business.

Include answers to questions such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include the number of customers served, the number of products sold, and reaching $X amount in revenue, etc.
• Your legal business Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry or market analysis, you need to provide an overview of the trading industry.

While this may seem unnecessary, it serves multiple purposes.

First, researching the trading industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your marketing strategy, particularly if your analysis identifies market trends.

The third reason is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section:

• How big is the trading industry (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential target market for your trading business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: individuals, schools, families, and corporations.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of trading business you operate. Clearly, individuals would respond to different marketing promotions than corporations, for example.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, including a discussion of the ages, genders, locations, and income levels of the potential customers you seek to serve.

Psychographic profiles explain the wants and needs of your target customers. The more you can recognize and define these needs, the better you will do in attracting and retaining your customers.

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Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other trading businesses.

Indirect competitors are other options that customers have to purchase from that aren’t directly competing with your product or service. This includes other types of retailers or wholesalers, re-sellers, and dropshippers. You need to mention such competition as well.

For each such competitor, provide an overview of their business and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as

• What types of customers do they serve?
• What type of trading business are they?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you make it easier for customers to acquire your product or service?
• Will you offer products or services that your competition doesn’t?
• Will you provide better customer service?
• Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.  

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a trading company, your marketing strategy should include the following:

Product : In the product section, you should reiterate the type of trading company that you documented in your company overview. Then, detail the specific products or services you will be offering. For example, will you sell jewelry, clothing, or household goods?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your plan, you are presenting the products and/or services you offer and their prices.

Place : Place refers to the site of your trading company. Document where your company is situated and mention how the site will impact your success. For example, is your trading business located in a busy retail district, a business district, a standalone facility, or purely online? Discuss how your site might be the ideal location for your customers.

Promotions : The final part of your trading marketing plan is where you will document how you will drive potential customers to your location(s). The following are some promotional methods you might consider:

• Advertise in local papers, radio stations and/or magazines
• Reach out to websites
• Distribute flyers
• Engage in email marketing
• Advertise on social media platforms
• Improve the SEO (search engine optimization) on your website for targeted keywords

Operations Plan

While the earlier sections of your plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your trading business, including answering calls, scheduling shipments, ordering inventory, and collecting payments, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to acquire your Xth customer, or when you hope to reach $X in revenue. It could also be when you expect to expand your trading business to a new city.  

Management Team

To demonstrate your trading business’ potential to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally, you and/or your team members have direct experience in managing trading businesses. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act as mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing a trading business.  

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet, and cash flow statements.  

Income Statement

An income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenue and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you charge per item or per pound and will you offer discounts for bulk orders? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.  

Balance Sheets

Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your trading business, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a lender writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.  

Cash Flow Statement

Your cash flow statement will help determine how much money you need to start or grow your business, and ensure you never run out of money. What most entrepreneurs and traders don’t realize is that you can turn a profit but run out of money and go bankrupt.

When creating your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a trading business:

• Cost of equipment and supplies
• Payroll or salaries paid to staff
• Business insurance
• Other start-up expenses (if you’re a new business) like legal expenses, permits, computer software, and equipment

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your facility location lease or a list of your suppliers.  

Writing a business plan for your trading business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will understand the trading industry, your competition, and your customers. You will develop a marketing strategy and will understand what it takes to launch and grow a successful trading business.  

Trading Business Plan Template FAQs

What is the easiest way to complete my trading business plan.

Growthink's Ultimate Business Plan Template allows you to quickly and easily write your trading business plan.

How Do You Start a Trading Business?

Starting a trading business is easy with these 14 steps:

• Choose the Name for Your Trading Business
• Create Your Trading Business Plan (use a trading business plan template or a forex trading plan template)
• Choose the Legal Structure for Your Trading Business
• Secure Startup Funding for Trading Business (If Needed)
• Secure a Location for Your Business
• Register Your Trading Business with the IRS
• Open a Business Bank Account
• Get a Business Credit Card
• Get the Required Business Licenses and Permits
• Get Business Insurance for Your Trading Business
• Buy or Lease the Right Trading Business Equipment
• Develop Your Trading Business Marketing Materials
• Purchase and Setup the Software Needed to Run Your Trading Business
• Open for Business

What is a Trading Business?

There are several types of trading businesses:

• Retail trading business- sells merchandise directly to consumers
• Wholesale trading business- sells merchandise to other businesses
• General merchandise trading business- sells a wide variety of products
• Specialized trading business- sells one specific type of product

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Trading Business Plan

MAR.12, 2024

According to a report, 13% of day traders maintain consistent profitability over six months, and a mere 1% succeed over five years. This is primarily due to inadequate planning and undercapitalization. A well-crafted trading business plan can help you avoid these pitfalls, and this article will guide you.

In this article, you’ll learn:

• The current trends and growth forecasts in the stock trading industry
• A breakdown of the costs involved in starting a trading company
• The key components of a trading business plan (with a trading business plan example)
• Strategies for securing funding and overcoming the barriers to entry

By the end of this article, you’ll understand what it takes to create a business plan for an investment company , positioning your trading business for long-term success in this lucrative but highly competitive industry.

Pros and Cons of Trading Company

Let’s explore the pros and cons associated with running a trading company before diving into the specifics of a trading site business plan. Understanding them will help you make informed decisions:

• Potential for significant profits.
• Flexibility in terms of time and location.
• Opportunity for continuous learning and skill development.
• High risk due to market volatility.
• Emotional stress and psychological pressure.
• Requirement for constant vigilance and discipline.

Trading Industry Trends

Industry size and growth forecast.

According to a report , the global stock trading and investing applications market size was at around $37.27 billion in 2022 and projects to grow at a CAGR of 18.3% from 2023 to 2030 (Source: Grand View Research). The following factors drive this growth:

• Increasing internet penetration
• Rising disposable income
• Growing awareness of investment opportunities.

(Image Source: Grand View Research)

The Services

As per our private equity firm business plan , a stock trading business offers various services, including:

• Facilitating Trades on behalf of clients
• Algorithmic trading services to automatically execute trades
• Market Insights (research reports, market analysis, and economic forecasts)
• Technical and Fundamental Analysis (price charts, historical data, and company fundamentals)
• Investment Recommendations
• Seminars and Webinars
• Online Courses
• Demo Accounts
• Portfolio Diversification
• Stop-Loss Orders
• Hedging Strategies
• Direct Market Access (DMA)
• Global Market Access
• Trading Platforms
• Mobile Apps
• High-Frequency Trading (HFT)
• Legal and Compliance Services
• Educate clients about Risk Disclosure

How Much Does It Cost to Start a Trading Company

According to Starter Story, you can expect to spend an average of $12,272 for a stock trading business. Some key startup costs include:

How Much Can You Earn from a Trading Business?

Earnings in the trading business can vary significantly and depend heavily on:

• Trading strategy and approach
• Market conditions and volatility
• Risk management techniques
• Capital allocation and leverage

While specific income figures are difficult to predict due to these factors. However, here are some statistics showing the earning potential of a stock trading business:

• According to Investopedia, only around 5% to 20% of day traders consistently make money.
• According to Indeed Salaries, the average base salary for a stock trader in the U.S. is $80,086 per year.
• 72% of day traders ended the year with financial losses, according to FINRA.
• Among proprietary traders, only 16% were profitable, with just 3% earning over $50,000. (Source: Quantified Strategies)

What Barriers to Entry Are There to Start a Trading Company

Barriers to entry into the stock trading business include:

• Regulatory Requirements: Obtaining necessary licenses and registrations from governing bodies like the SEC and FINRA is a complex and time-consuming process.
• Capital Requirements: Trading activities require significant capital to manage risks and leverage opportunities, which can be a substantial challenge for new or small firms.
• Technological Expertise: Developing or acquiring sophisticated trading platforms, algorithms, and data analysis tools is costly and requires specialized expertise.
• Market Knowledge and Experience: Gaining in-depth knowledge and practical experience in the complex and dynamic financial markets takes years of dedicated study.
• Competitive Landscape: Breaking into the highly competitive trading industry dominated by established firms and well-funded proprietary trading desks is challenging for new entrants.

You can overcome these barriers by developing unique strategies, leveraging innovative technologies, and offering competitive and specialized services to differentiate yourself in the market. Do check our financial advisor business plan to learn more.

Creating a Trading Business Plan

A well-researched stock trading business plan is crucial to start a trading business. A general trading company business plan is a comprehensive document that defines your goals, strategies, and the steps needed to achieve them. It helps you stay organized and focused and increases your chances of securing funding if you plan to seek investors or loans.

Steps to Write a Trading Business Plan

You can use a business plan template for a trading company or follow these steps to prepare a business plan for a personal trading business:

Step 1: Define Your Goals and Investment Objectives

Step 2: Conduct Market Research

Step 3: Develop Your Trading Strategy

Step 4: Establish Your Business Structure

Step 5: Develop a Financial Plan

Step 6: Outline Your Operational Procedures

Step 7: Create a Marketing and Growth Strategy

Step 8: Implement Risk Management

Step 9: Create an Exit Strategy

What to Include in Your Trading Business Plan

Executive summary, company overview.

• Market Analysis
• Trading Strategy and Risk Management
• Operations and Technology
• Financial Projections
• Management and Organization
• Appendices (e.g., research, charts, legal documents)

Here’s an online trading business plan sample of ABC Trading:

ABC Trading, a recently established stock trading firm, provides online trading services to individuals and institutional investors. Key highlights of our business include:

• Vision – Becoming a leading online trading platform with a wide range of trading products and services.
• Values – Our core focus is innovation, excellence, integrity, and customer satisfaction.
• Target market – Tech-savvy and risk-tolerant investors looking for alternative ways to invest their money and diversify their portfolios.
• Revenue model – Commissions and fees for each trade, as well as subscription fees for premium features and services.
• Financial goal – Break even in the second year of operation and generate a net profit of $1.2 million in the third year.

ABC Trading is seeking $500,000 seed funding to launch its platform, acquire customers, and expand its team.

Company Name: ABC Trading

Founding Date: January 2024

Location: Delaware, USA

Registration: Limited Liability Company (LLC) in the state of New York

Regulated By: Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA)

Our team comprises seasoned professionals with diverse finance, mathematics, computer science, and engineering backgrounds.

Marketing Plan

Marketing Strategy: We aim to leverage online channels, such as social media, blogs, podcasts, webinars, and email newsletters, to create awareness, generate leads, and convert prospects into customers.

Marketing Objectives:

• Reach 100,000 potential customers in the first year of operation
• Achieve a 10% conversion rate from leads to customers
• Retain 80% of customers in the first year and increase customer lifetime value by 20% in the second year

The customer profile of ABC Trading includes the following characteristics:

• Age: 25-65 years old
• Gender: Male and female
• Income: Above $100,000 per year
• Education: Bachelor’s degree or higher
• Occupation: Professionals, entrepreneurs, executives, or retirees
• Location: US or international
• Trading experience: Intermediate to advanced
• Trading goals: Income generation, capital appreciation, risk diversification, or portfolio optimization
• Trading preferences: Stocks, options, or both
• Trading style: Technical, trend following, or volatility trading
• Trading frequency: Daily, weekly, or monthly
• Trading risk: Low, medium, or high

Marketing Tactics:

• Create and distribute engaging and informative content on social media platforms
• Offer free trials, discounts, referrals, and loyalty programs
• Collect and analyze customer feedback and data to improve and personalize the customer experience
• Partner with influencers, experts, and media outlets in the trading and finance niche

Marketing Budget:

We will allocate $10,000 for our marketing campaign, which we will use for the following purposes:

Operations Plan

ABC Trading’s operations plan ensures the smooth and efficient functioning of the company’s platform and services and compliance with the relevant laws and regulations.

Operation Objectives:

• Maintain a 99% uptime and availability of the company’s platform and services
• Ensure the security and privacy of the company’s and customers’ data and funds
• Provide timely and professional customer support and service

Operation Tactics:

• Use cloud-based servers and services
• Implement encryption, authentication, and backup systems
• Hire and train qualified and experienced customer service representatives and technicians
• Monitor and update the company’s platform and services regularly
• Follow the best practices and standards of the industry and adhere to the applicable laws and regulations

Operation Standards:

• Test and verify the quality and reliability of the company’s platform and services before launching and after updating
• Document and report any issues, errors, or incidents that occur on the company’s platform or services
• Resolve any customer complaints or disputes in a timely and fair manner
• Maintain a record of the company’s operations activities and performance

Financial Plan

ABC Trading’s financial plan is to provide a realistic and detailed projection of the company’s income, expenses, and cash flow for the next three years, as well as the key financial indicators and assumptions that support the projection.

Financial Objectives:

• Achieve a positive cash flow in the second year of operation.
• Reach a break-even point in the second year of operation.
• Generate a net profit of $1.2 million in the third year of operation.
• Maintain a healthy financial ratio of current assets to current liabilities of at least 2:1.

Financial Assumptions:

• Launch its platform and services in the first quarter of 2024
• Acquire 10,000 customers in the first year, 20,000 customers in the second year, and 30,000 customers in the third year
• Average revenue per customer will be $50 per month, based on the average number and size of trades and the subscription fees
• Average operating expense per customer will be $10 per month, based on the average cost of salaries, rent, utilities, marketing, and legal fees
• Pay a 25% tax rate on its net income
• Reinvest 50% of its net income into the company’s growth and development

Projected Income Statement:

Projected Cash Flow Statement

Projected Balance Sheet

Fund a Trading Company

To successfully establish and operate a trading company, raising funds to finance daily operations and business expansion is crucial. There are different ways with their advantages and disadvantages:

1. Self-funding (Bootstrapping)

Self-funding, also known as bootstrapping, is when the founder or owner of the trading company uses their own personal savings, family business ideas , assets, or income to finance the business. This is the most common and simplest way to fund a trading company, especially in the early stages.

• Complete ownership and control
• Flexibility in decision-making
• Potential for higher long-term returns
• Limited access to capital
• Personal financial risk
• Slower growth potential

2. Debt Financing

Debt financing involves borrowing money from lenders, such as banks, credit unions, or microfinance institutions, to fund the trading company’s operations. The borrowed funds must be repaid with interest over a specified period.

• Retain ownership and control
• Potential tax benefits from interest deductions
• Disciplined approach due to repayment obligations
• Debt burden and interest payments
• Collateral requirements and personal guarantees
• Difficulty in securing financing for startups

3. Angel Investors

Angel investors are wealthy individuals who invest their own money into early-stage or high-potential trading companies in exchange for equity or convertible debt. Angel investors typically provide smaller funding than venture capitalists and offer mentorship, guidance, and access to their network.

• Access to capital and industry expertise
• Potential for additional mentorship and guidance
• Lower risk compared to traditional investors
• Dilution of ownership and control
• Potential for conflicting visions and expectations
• Limited resources compared to larger investors

4. Venture Capital (VC) Funding

Venture capital firms are professional investment firms that provide capital to high-growth startups in exchange for equity ownership. They typically invest large sums of money and are active in the company’s management and strategic direction.

• Access to substantial capital for growth
• Expertise and industry connections from the VC firm
• Validation and credibility for the business
• Significant dilution of ownership and control
• Intense pressure for rapid growth and return on investment

Depending on your business model, goals, and needs, you may also consider other options, such as grants, subsidies, partnerships, etc. Ensure to check for relevant documents, like the hedge fund private placement memorandum . The best way to fund your trading company is the one that suits your situation and preferences.

OGSCapital: Your Strategic Partner for Business Success

At OGSCapital, we specialize in professional business plans that empower startups, established companies, and visionary entrepreneurs. With over 15 years of experience, our seasoned team combines financial acumen, industry insights, and strategic thinking to craft comprehensive plans tailored to your unique vision. Whether you’re seeking funding, launching a new venture, or optimizing your existing business, we’ve got you covered.

If you have any further questions regarding how to write a business plan for your trading business, feel free to contact us. Our team at OGSCapital is here to support you on your entrepreneurial journey. You can also check our hedge fund business plan sample here.

Download Trading Business Plan Template in PDF

Frequently Asked Questions

What does a trading business include?

A trading business involves trading stocks and other financial instruments under a legal business structure. It includes:

• Market analysis
• Trading strategy
• Risk management

How does a trading company work?

A stock trading company facilitates the buying and selling of stocks (shares) on behalf of investors. These companies operate within stock exchanges, executing trades based on specific trading strategies.

OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.

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How to Write A Trading Business Plan?

Writing a trading business plan is a crucial step toward the success of your business. Here are the key steps to consider when writing a business plan:

1. Executive Summary

An executive summary is the first section planned to offer an overview of the entire business plan. However, it is written after the entire business plan is ready and summarizes each section of your plan.

Here are a few key components to include in your executive summary:

Introduce your Business:

Start your executive summary by briefly introducing your business to your readers.

Market Opportunity:

Mention your product range:.

Highlight the product range of your trading business you offer your clients. The USPs and differentiators you offer are always a plus.

Marketing & Sales Strategies:

Financial highlights:, call to action:.

Ensure your executive summary is clear, concise, easy to understand, and jargon-free.

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2. Business Overview

The business overview section of your business plan offers detailed information about your company. The details you add will depend on how important they are to your business. Yet, business name, location, business history, and future goals are some of the foundational elements you must consider adding to this section:

Business Description:

Describe your business in this section by providing all the basic information:

Describe what kind of trading company you run and the name of it. You may specialize in one of the following trading businesses:

• Retail trading
• Wholesale trading
• Export-import
• Dropshipping
• Describe the legal structure of your trading company, whether it is a sole proprietorship, LLC, partnership, or others.
• Explain where your business is located and why you selected the place.

Mission Statement:

Business history:.

If you’re an established trading business, briefly describe your business history, like—when it was founded, how it evolved over time, etc.

Future Goals

This section should provide a thorough understanding of your business, its history, and its future plans. Keep this section engaging, precise, and to the point.

3. Market Analysis

The market analysis section of your business plan should offer a thorough understanding of the industry with the target market, competitors, and growth opportunities. You should include the following components in this section.

Target market:

Start this section by describing your target market. Define your ideal customer and explain what types of services they prefer. Creating a buyer persona will help you easily define your target market to your readers.

Market size and growth potential:

Describe your market size and growth potential and whether you will target a niche or a much broader market.

Competitive Analysis:

Market trends:.

Analyze emerging trends in the industry, such as technology disruptions, changes in customer behavior or preferences, etc. Explain how your business will cope with all the trends.

Regulatory Environment:

Here are a few tips for writing the market analysis section of your trading business plan:

• Conduct market research, industry reports, and surveys to gather data.
• Provide specific and detailed information whenever possible.
• Illustrate your points with charts and graphs.
• Write your business plan keeping your target audience in mind.

4. Products And Services

The product and services section should describe the specific services and products that will be offered to customers. To write this section should include the following:

Describe your products:

Mention the trading products your business will offer. This may include product categories, product range, product features, product sourcing, etc.

Describe each service:

Mention the trading services your business will offer. This may include:

• Logistics & shipping
• Warehousing & storage
• Distribution & fulfillment

Additional Services

In short, this section of your trading plan must be informative, precise, and client-focused. By providing a clear and compelling description of your offerings, you can help potential investors and readers understand the value of your business.

5. Sales And Marketing Strategies

Writing the sales and marketing strategies section means a list of strategies you will use to attract and retain your clients. Here are some key elements to include in your sales & marketing plan:

Unique Selling Proposition (USP):

Define your business’s USPs depending on the market you serve, the equipment you use, and the unique services you provide. Identifying USPs will help you plan your marketing strategies.

Pricing Strategy:

Marketing strategies:, sales strategies:, customer retention:.

Overall, this section of your trading business plan should focus on customer acquisition and retention.

Have a specific, realistic, and data-driven approach while planning sales and marketing strategies for your trading business, and be prepared to adapt or make strategic changes in your strategies based on feedback and results.

6. Operations Plan

The operations plan section of your business plan should outline the processes and procedures involved in your business operations, such as staffing requirements and operational processes. Here are a few components to add to your operations plan:

Staffing & Training:

Operational process:, equipment & machinery:.

Include the list of equipment and machinery required for trading, such as office equipment, warehouse equipment, transportation vehicles, packaging & testing equipment, etc.

Adding these components to your operations plan will help you lay out your business operations, which will eventually help you manage your business effectively.

7. Management Team

The management team section provides an overview of your trading business’s management team. This section should provide a detailed description of each manager’s experience and qualifications, as well as their responsibilities and roles.

Founders/CEO:

Key managers:.

Introduce your management and key members of your team, and explain their roles and responsibilities.

Organizational structure:

Compensation plan:, advisors/consultants:.

Mentioning advisors or consultants in your business plans adds credibility to your business idea.

This section should describe the key personnel for your trading business, highlighting how you have the perfect team to succeed.

8. Financial Plan

Your financial plan section should provide a summary of your business’s financial projections for the first few years. Here are some key elements to include in your financial plan:

Profit & loss statement:

Cash flow statement:, balance sheet:, break-even point:.

Determine and mention your business’s break-even point—the point at which your business costs and revenue will be equal.

Financing Needs:

Be realistic with your financial projections, and make sure you offer relevant information and evidence to support your estimates.

9. Appendix

The appendix section of your plan should include any additional information supporting your business plan’s main content, such as market research, legal documentation, financial statements, and other relevant information.

• Add a table of contents for the appendix section to help readers easily find specific information or sections.
• In addition to your financial statements, provide additional financial documents like tax returns, a list of assets within the business, credit history, and more. These statements must be the latest and offer financial projections for at least the first three or five years of business operations.
• Provide data derived from market research, including stats about the industry, user demographics, and industry trends.
• Include any legal documents such as permits, licenses, and contracts.
• Include any additional documentation related to your business plan, such as product brochures, marketing materials, operational procedures, etc.

Use clear headings and labels for each section of the appendix so that readers can easily find the necessary information.

Remember, the appendix section of your trading business plan should only include relevant and important information supporting your plan’s main content.

The Quickest Way to turn a Business Idea into a Business Plan

Fill-in-the-blanks and automatic financials make it easy.

This sample trading business plan will provide an idea for writing a successful trading plan, including all the essential components of your business.

After this, if you still need clarification about writing an investment-ready business plan to impress your audience, download our trading business plan pdf .

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Frequently asked questions, why do you need a trading business plan.

A business plan is an essential tool for anyone looking to start or run a successful trading business. It helps to get clarity in your business, secures funding, and identifies potential challenges while starting and growing your business.

Overall, a well-written plan can help you make informed decisions, which can contribute to the long-term success of your trading company.

How to get funding for your trading business?

There are several ways to get funding for your trading business, but self-funding is one of the most efficient and speedy funding options. Other options for funding are:

• Bank loan – You may apply for a loan in government or private banks.
• Small Business Administration (SBA) loan – SBA loans and schemes are available at affordable interest rates, so check the eligibility criteria before applying for it.
• Crowdfunding – The process of supporting a project or business by getting a lot of people to invest in your business, usually online.
• Angel investors – Getting funds from angel investors is one of the most sought startup options.

Apart from all these options, there are small business grants available, check for the same in your location and you can apply for it.

Where to find business plan writers for your trading business?

There are many business plan writers available, but no one knows your business and ideas better than you, so we recommend you write your trading business plan and outline your vision as you have in your mind.

What is the easiest way to write your trading business plan?

A lot of research is necessary for writing a business plan, but you can write your plan most efficiently with the help of any trading business plan example and edit it as per your need. You can also quickly finish your plan in just a few hours or less with the help of our business plan software .

About the Author

Upmetrics Team

Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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Trading Plan Template for 2024 [Free PDF | Sheets Download]

• 7 mins read ●
• Published: 11 May 2022
• Last Updated: 1 April 2024

Needless to say, having a plan before you start trading is essential to your success as a trader. Every experienced trader will tell you that when you enter the markets, you risk your money and, more importantly, your ego and confidence in yourself.

• A well-thought-out trading plan is crucial for forex trading success, safeguarding both finances and self-confidence.
• While many traders are naturally skilled, creating a clear trading plan can still be challenging.
• Using a trading plan template can streamline your strategy and increase chances of consistent profits.

This article will help you with everything you need to know about developing a trading plan . We’ll also include a trading plan PDF, a trading plan Excel template , and a Word document that you can download and use in your trading journey.

• What is a Trading Plan Template

Trading Plan Template FREE Downloads

• How to Build Your Own Trading Plan Template?

1. Set Your Goals – Financially and Emotionally

2. get familiar with trading jargon and analysis methods, 3. develop a trading strategy, 4. set a risk reward ratio, 5. always learn and grow, 6. make an organized trading track record.

• BOONUS: Trading Plan Infographic

What is a Trading Plan Template?

As the name implies, a trading plan is a set of rules and guidelines that a trader follows to execute a trade. Besides that, a trading plan might include suggestions for a healthy trading daily routine and tasks, hence a trading checklist , that will help you manage your account and control your emotions.

For example, with a trading plan, you can define your:

• trading goals
• strengths and weaknesses
• risk management strategy
• trading strategy
• entry rules
• daily routine
• and much more

“Plan your trade and then trade your plan.”

In this section, we have created trading plan templates that you can use for free in the format of your preference. 

• Trading Plan Template PDF
• Trading Plan Template Google Sheets
• Trading Plan Template Word

How to Build Your Trading Plan Template in 6 Easy Steps

So, now that you understand what a forex trading plan is, you need to create a specific plan that matches your style and personality. Personally, while working as a trader in a proprietary trading firm , I remember every trader had a different method, routine, tasks, and rules.

For example, some traders like adding sticky notes on their desktops while others prefer a clean table. Some traders enter hundreds of trades in one trading day while others enter one or two trades in a day. So, it’s up to you to define your own plan and trading strategies .

Nonetheless, based on my knowledge and experience, there are some must-have steps you need to consider to develop a successful trading plan .

You can download our trading plan template below and check the steps on how to develop your trading plan later in this article.

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First and foremost, you must define your goals. In other words, you will need to know what you plan to achieve from your trading experience.

To help yourself, ask these questions :

• Is it an additional income only? Your main income?
• Do you plan to get rich from trading?
• What is the trading capital you are willing to risk and what is your profit target?
• How many hours a day do you plan to spend on trading?

In that aspect, you’d be surprised to know that many people who become professional successful traders do not necessarily do it to make money.

Instead, some traders do it for fun, a hobby, or a competitive game. So consider these factors as well. If this is the case for you, then you need to know it before you start trading. Maybe it can give you an advantage over other participants in the forex market .

Before you make your first trade in the forex market, you first must understand the trading jargon and the different analysis methods.

If needed, take a quick trading course to learn how the forex or the stock market works, read articles, books, financial sites, etc. Additionally, you better explore the two methods to analyze financial assets – technical analysis and fundamental analysis . 

Then, find the best way for you to analyze the markets and read Forex charts. It’s up to you to decide whether you want to use line, bar, or candlestick charts and, more importantly, what technical indicators you want to use.

Additionally, you can learn how to read popular chart patterns and use them to find trading opportunities. Once again, you have to try before you know it.

No one is born a great Trader, one gets great by learning

There are no two traders that are precisely the same. Therefore, you must find your trading strategy and trading style. This is a result of trial and error. It might take weeks or months until you get to the point where you have established a successful trading strategy, and there’s no way to escape this step.

When you make your first step in the trading world, you’ll get familiar with the different trading strategies – position trading, swing trading, day trading, and scalping trading. Moreover, you can try different strategies such as the naked trading strategy or the 5-3-1 forex trading strategy .

Keep in mind that there are many trading strategies to choose from, but you’ll have to find your unique trading style and strategy within time. For that matter, you need to use a trading plan at the beginning of your journey to find the right strategy that matches your personality.

Trading risk management is a predefined strategy to minimize losses and maximize profits. There are lots of tools and risk management rules a trader can use to protect themselves from losses and effectively manage their trading account.

Having said that, there’s one tool used by many traders, which is the most basic and the most effective of all – That is the risk-reward ratio .

In simple terms, a risk-reward ratio is a method to calculate the potential profit of a trade/day/week/month to a potential loss. In other words, it is a method to define your trade risk, that is how much risk you are willing in a trader, or in a day (the method is particularly for day trading).

For example, if you decide to use a risk-reward of 2:1, you are essentially willing to risk $1 for each trade to earn $2.

Trading is not like most professions. The markets always change, the technology evolves, and even the dynamic of the markets is constantly changing. Trust me, financial markets are not the same as they used to be fifteen years ago, and most likely, they will change again in the future.

I mean, the cryptocurrency market is one good example of the unpredictable nature of the trading world and financial markets.

This way or the other, you must read trading books and articles, watch trading movies , and listen to trading podcasts – everything you can do to increase your knowledge. Yes, knowledge is power, but in trading, knowledge is essential.

“An investment in knowledge always pays the best interest.” Ben Franklin

In the final step, make sure you analyze your trading past performance and keep track of your winning and losing trades. Yes, it’s an annoying task, especially when you have a losing day.

Writing down your losing trades is a punch to your ego, but it will help you improve your performance and trading decisions in the future. By doing so, you can learn your worst-performing days of the week, hours, financial instruments, etc. 

Luckily, in most retail investor accounts, you can enter your trading platform and extract your daily/weekly/monthly performance. So, in the words of Forrest Gump: “One less thing to worry about”.

BONUS: Trading Plan Action Plan Infographic

Here is an infographic with 6 action steps for your trading plan.

You can also check our blog post about using a trading journal template [free Google Sheets and Excel spreadsheets included]

Over to You

In a nutshell, every trader must have a well-defined solid trading plan . Developing an organized trading system is the first step in becoming a professional and successful forex trader and will increase your chances of success over the short and long term.

For now, you can use our free Forex trading plan template to start with. Then, add notes, tasks, or any other inspirational quotes you think will help you to trade better.

Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.

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Disclaimer: The information on the HowToTrade.com website and inside our Trading Academy platform is intended for educational purposes and is not to be construed as investment advice. Trading the financial markets carries a high level of risk and may not be suitable for all investors. Before trading, you should carefully consider your investment objectives, experience, and risk appetite. Only trade with money you are prepared to lose. Like any investment, there is a possibility that you could sustain losses of some or all of your investment whilst trading. You should seek independent advice before trading if you have any doubts. Past performance in the markets is not a reliable indicator of future performance.

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Trading Plan Template & Examples: Step-by-Step Guide to Creating a Solid Trading Plan

Bonus Material:

Trading plans are an important part of any trader’s toolkit. The problem is, most traders don’t actively lay out a plan before they begin trading.

The result? They lose money and wonder why . Furthermore, many traders don’t know how to create a trading plan , or what to include.

Successful traders understand that trading plans are crucial to profiting consistently. In this article, I’ll walk you through creating your own plan, step-by-step, plus you can get a head start by using my free trading plan template, download below :

What is a trading plan?

A trading plan is an integral part of a trader’s strategy, outlining how trades are executed. It establishes rules for buying and selling securities, position sizing, risk management, and tradable securities. By following this plan, traders maintain discipline, consistency, and leverage proven strategies.

Why you should create a trading plan

Ask a new trader what they intend to do before the trading day and then ask them what they did at the end of the day. They almost certainly didn’t follow their plan. 

Trading plans are there for us to follow. Trading plans mean we take trades that are consistent with our rules and risk, and it means we remove a lot of emotion and discretion . This is important because humans are not rational agents and outsourcing this work means we can achieve a better P&L and make more money. 

A trading plan should resemble a business plan. A trader’s capital is their business and so we need to include everything that might be useful, but it should always cover the below.

What to include in your trading plan

• The time required to spend on your trading

Your trading goals and targets

• Your risk tolerance and risk management rules

Available capital for trading

Specific markets you wish to trade, the trading strategies you’ll use, your motivation for trading.

Read more information on what to include in your trading plan (with examples) below, and download your free template here:

The time required for trading

We need to define the time we need in order to trade successfully. For example, if you’re in full-time employment, then it’s unrealistic to spend six hours a day trading the market.

For example: Here is a part of my trading plan…

“To trade the UK stock market on a full-time basis I realistically need to spend at least 8-10 hours per day in order to take advantage of intraday opportunities and manage open positions in real time”.

It’s important to set realistic targets in trading. Once you have a target, you can reverse engineer how to achieve it.

For example: A target of increasing a trading account by 20% is an achievable target. To do that, we need to look at our trading capital and work out which trading strategies we’ll use.

Using breakouts to trend follow is a strategy I have had much success with, and I explain how I do this in my guide to breakouts.

There are several trading styles:

• Swing trading: This is a common strategy that attempts to capture moves over several days or weeks. Swing traders look for shorter term trends and then move onto the next trade.
• Momentum trading: This is a trend-following strategy based on upward movement and momentum. It can be a successful strategy over months and years as the stock continues to move higher. This is often coupled with increasing fundamental strength and accelerating earnings.
• Scalping or intraday trading (also known as ‘day trading’): Intraday strategies refer to trades placed and closed within the same trading session. 

Your risk tolerance and risk management rules 

Risk management is the most important part of trading. Position sizing is the first and last line of defence in our trading accounts.

If you take position sizes with 20% of your account, then that means you are risking 100% of that position every time it is risked in the market. Even if the chances are 99%, then eventually that 1 in 100 chance of the stock going to 0p and losing 100% of the position will happen.

Whilst a 20% drawdown on the trading account isn’t fatal, the law of compounding means that we will now need to gain 25% of our account just to get back to where we started. 

Never underestimate the numbers here – a 33% drawdown requires a near 50% gain just to get back to where we started. 

It’s important to put in place risk management rules that will protect the account and prevent us from taking on too much risk.

Only you will know how much risk you’re willing to take, but if you put yourself in a position where you could do yourself material damage, then eventually that outcome will be presented.

If taking a loss hurts, then it means you are trading too large. Most traders blow their accounts due to overexposure. I’ve never heard of a single trader who blew their account due to continuously taking small losses. Position sizing and risk management is covered in detail in my trading handbook.

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Traders should always be clear about what money should be used for trading and what money should stay in their bank accounts. 

Far too many traders have drawdowns in their trading accounts and decide to top up their account with a bank transfer.

Unfortunately, they end up putting far too much money into their account and do not keep track of their losses.

You should never trade with money you can’t afford to lose. I’ve had emails from people asking me what to do because they’ve lost the deposit for their house and they haven’t told their partner. Sadly, there is little that can be done at that point because the money is already lost.

In your trading plan you should be clear about how much is going into your trading account and how much you will top this up each month if that is going to be your strategy to grow your account further. 

However, the best way of growing your trading account is by making money trading successfully in the market. Once you can consistently do this, then it makes sense to increase your funds and scale up. 

A trading plan should also include the specific markets you wish to trade. Do you plan on trading UK stocks, US stocks, foreign exchange (forex), or cryptocurrencies? Once you’ve picked a market, you still need to drill deeper. 

For example: If you pick UK stocks will you trade all of these, or just AIM, or just the Main Market? Will you trade only small cap stocks? Will you trade both SETS and the SETSqx platforms ? 

In my case, I trade all UK stocks, and don’t discriminate between any of them. However, my focus is on smaller stocks under £500 million market cap. 

Your trading strategies are the ways you are going to make money. This part of the trading plan is important because by defining your strategies it will be clear to follow.

For example: I want to trade small-cap stocks that have momentum behind them, and I will find this momentum through technical breakouts and positive RNS announcements.

I will trade gaps and also place orders into the auctions in order to get better fills. I will use various brokers for different types of execution. I will take secondary raises that have news catalysts that can potentially drive the shares higher.

What is your why? What are your goals, and what is your motivation? Trading is hard and there are ups and downs – it’s easy to motivate yourself when the going is good and you’re making lots of money. But it can be harder when you’re suffered several losses in a row, and you keep seeing your account grind lower or flat for weeks on end. 

Writing down your why will make it easier to stay focused and commit to the long-term process and improvement.

For example:

• I want to trade because I enjoy the challenge and I also want to be my own boss.
• I want the freedom that comes with the lifestyle of a full time trader and I want to be around my wife and future children as they grow up.
• I want to offer my family a better life, and by continuing to work on my skillset is putting me closing towards my goals.

Good trading plan example

How do you write a trading plan?

• Know your trading playbook
• Manage your risk 
• Have a realistic profit target

1. Know your trading playbook

You should have a playbook of trades that you know how to execute in the market. A playbook is a list of trades, each with step-by-step instructions on how to trade the pattern. 

If you don’t know what you should trade in your trading plan then building a playbook of trades is a good place to start. 

2. Manage your risk

Risk management is a crucial skill for any trader. I’ve written an in-depth article on trading risk management for further information.

The reason risk management is so important is that without it we would blow up our accounts. Nobody would think about driving a car with no brakes because it would obviously crash – risk management is the brakes and safety system for our trading accounts.

Everyone has different risk profiles. Some are happy to take on high amounts of risk accepting that they may take hefty losses in order for the possibility of excess return. 

Full-time traders like myself tend to be more cautious knowing that if they lose too much capital, they may have to go back to work. 

You should include in your trading plan how much you’re prepared to risk on particular trades in your playbook and how much in your account overall.

3. Have a realistic profit target

Having an idea of a profit target will mean that you don’t end up falling into the trap of never selling. Far too many traders watch a stock rise, see it pullback, then immediately regret not nailing down profit into strength.

By setting out clear take profit targets this avoids indecisiveness and will ensure you execute ruthlessly. 

Bonus tip: Trade the stocks in play

Trading is about being in stocks that are moving. Volatility is the lifeblood of a trader, and a dead stock means dead money. 

The stocks ‘in play’ are the stocks that have moved or are moving in recent sessions, and the stocks we should be immediately keeping tabs on. Stocks can cycle in and out being in play, and so we need to keep track of those that offer the greatest volatility to trade.  

Download my free one-page trading plan template

My opening plan trading template has everything you need to begin the trading day. It forces you to check and review your open positions, so you’re always knowing what to do. 

It also suggests to list the current stocks in play, and how you can trade them, and in what size. Additionally, it asks “What can happen?” so a trader using this template will never be caught out.

By thinking ahead about potential scenarios and how to trade them, this gives the trader an advantage over others who do not put the work in. Traders who punt around their money without a clue or a plan are commonly referred to as “liquidity”.

To download the free template, click the button below and follow the instructions.

About The Author

Michael taylor.

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The Ultimate Trading Plan Template

A proper Trading Plan is essential to your success as a trader.

Anyone thinking of starting a business wouldn’t begin without a plan, if they do, they probably won’t like the end results. Day trading is no different than any other business.

As they say, “If you fail to plan, then you’ve already planned to fail.”

You’re about to learn the same process I’ve used for the past 20 years. It’s also what I currently teach our students.

After completing this post, you should be confident in your ability to write a rock solid trading plan. To speed up the process, I provided a link to our Trading Plan template at the end.

Let’s get into it…

What is a Trading Plan?

A Trading Plan defines a trader’s goals, expectations, routines, risk management, and trading strategies. A successful plan will include the logic underlying the strategies and processes a trader deploys.

Elite traders already know they have won the game before placing a single trade for two reasons.

First, they have a well defined edge that’s repeatable. 

The primary goal of your trade plan is to precisely define your processes and strategies, with the end of goal of creating a repeatable process.

Second, elite traders fully understand there is a random distribution between wins and losses for any given set of variables that define an edge , resulting in flawless execution.

First, you need to focus on developing your process. You will work on developing the mindset of winning trader and the ability to think in probabilities (versus P&L) when you begin backtesting and simulated trading.

A simple google search and you will find endless styles and formats for trade plans.

For me, my plan acts as the CEO of my business. defining the big picture items such as rules, processes, routines, analytics, theories and goals.

A lot of traders include their trading strategies in their trade plan, but I prefer defining them in a separate Playbook. I do this for several reasons…

First, I’ve been trading for over two decades, in that time I’ve developed and traded a lot of different strategies.

I’ve always found it beneficial to have all my strategies broken down individually. This becomes extremely valuable as you get more into strategy development.

A lot of the strategies I’ve built were a result of combining the different tools, theories and processes from other strategies I’d previously traded in my career.

Second, I think a Trade Plan that focuses solely on the macro level picture will help you in your review.

When I began my career I was surrounded by elite traders every day. My mentor and the owner’s of the firm kept me in line and made sure I was following their processes. If I was trading poorly, they held me accountable.

Accountability Partner

If you haven’t already chosen someone as an accountability partner, it should be the first thing you do after reading this post.

Your trade plan will be shared with your Accountability Partner in order to review your progress.

Your playbook will be used in strategy development and shared with your peers for trade review.

Obviously your accountability partner can play both roles if they have a trading background.

However, it’s more important your accountability partner is someone your close to that is committed to helping you achieve goals.

A good accountability partner will call you out and question you when you’re not following your rules, and due to your respect for the individual it should sting a little.

For the remainder of this post we’re going to focus solely on your trade plan.

Once you’ve completed your plan, I have you covered on your playbook as well. (link to Playbook Guide at the end)

Why You Need a Trading Plan

Good trading should be effortless. The preparation is where the hard work comes.

Imagine two runners, on one hand someone completely out of shape trying to run 1 mile in 10 minutes versus a world-class runner. The process looks effortless for the world-class runner, and it is. They put all of the hard work into their preparation, resulting in a process that is effortless.

Your Trade Plan and Playbook are part of your preparation.

The objectivity and clarity that a solid plan provides is essential in a market that requires split second decision making to capitalize on opportunities.

It will empower you to trade objectively, with confidence and less emotional involvement.

Let’s take a look at some categories you will want to include in your plan.

Trading Plan Outline

This outline is a strong base to get you started. You can use this plan for all markets, including Stocks, Forex, Futures, Options, and/or Crypto.

Remember, there’s no formal rules so get creative!

1. Premarket Routine

Developing routines in our lives helps us to stay on track and reach goals. 

By analyzing our current routines and making adjustments, we’re able to form new habits. A skill that is rewarded in this business.

Here’s a great video on the importance of simple routines, especially when starting your day.

Try it, what do you have to lose?

Outline the tasks you will perform prior to trading each day.

Examples: -Read trading plan -Review a personal journal entry twice a week and reflect -Read prior day’s trade journal -Review prior day’s trades -Check economic numbers -Read playbook -Mirror reflection -Pre-market Analysis

2. Visualization/Mantras

Visualization and Mantras are great tools to include in your morning routines.

Examples: -Visualize yourself taking a trade and going through all the steps outlined in your Playbook -I accept that I have no idea what the outcome of any individual trade will be -I accept that today could be a negative day -I accept the loss of my next  trade financially -I accept I will get stopped out on trades that reverse and rip in the direction of the setup

3. Hard Rules

You want to get very specific with some macro rules for your trading business. They should be reviewed with your accountability partner on a monthly basis at minimum. I recommend meeting weekly or daily if you’re a new trader or not yet profitable.

Examples: -3 losing trades switch to SIM remainder of session -Take a random trade, switch to SIM remainder of session -Two max loss days back to back, SIM for remainder of week -No trading outside RTH

4. Risk Management

You don’t need to over complicate your risk management. Below is what I recommend to my students.

Example: -1% max per trade -3% max per day -5% max per week -15% max per month -Adjust trade size on Monday mornings

IMPORTANT! You should never trade real money until you have proven your ability to be profitable on a simulated account!

I promise, if you can’t make money on a simulated account, you won’t do it on a live account.

Don’t start trading a live account until you’ve proven you have acquired the necessary skills to make money on SIM.

5. Aftermarket Routine

All traders make mistakes. The question is whether or not you will analyze those mistakes to learn from them?

When the trade day ends, you still have work to do.

You should do some journaling and reflection on your execution for the day.

Keeping a  trade journal of all your trades as well as grading every trade is essential for growth. Make sure to take screenshots of your trades as well so you can go back and review them.

Here’s a few more examples: -Complete Scorecard for ever trade taken that day -Complete journal entry discussing market conditions for the day and reviewing your execution -Input trades into spreadsheet or whatever you’re using for analytics -Meditate -Workout

Trading can be emotionally challenging at times. There’s not many professions where you go to work and perform your best yet at the end of the day you leave with less money than you started.

Keeping mentally fit is imperative in this business. It’s important you incorporate some stress relieving activities, such as meditating or working out, into your aftermarket routine.

6. Weekend Routine

On Sunday evenings I have a routine to prepare myself for the upcoming week.

-Read trade journal entries from the past week -Review trades from the past week -Check sizing -Goals for upcoming week -Meet with Accountability Partner

7. Monthly Routine

On a monthly basis you should perform a thorough analysis on your trading business.

Examine your processes and trading analytics, looking where you can improve.

Examples: -Review trade analytics and make adjustments to strategies -Backup everything -Check risk management and sizing -Write main goals for upcoming month

8. Goals/Achievements

The markets are always changing and presenting new opportunities as well as challenges. Even after 20 years, I still find myself learning new things.

Reflecting on why you started trading in the first place is important. Don’t ever lose sight of your goals.

Keep track of your goals and achievements in your trade plan as you progress as a trader. You will find it encouraging as you start to see your progress.

Examples: -Zero random trades for a week -Average trade score of X for the month -First chop comma ($1,000 net day)

While I think all these categories should be included in your own plan, remember to get creative and include anything you feel could potentially improve your trading.

Maybe include some pictures to motivate you.

Free Trade Plan Template (Download)

I created a template in Google Sheets with the categories and examples covered in this post to get you started on your trade plan.

If you would like the template and some other cool trading tools,  become a JT Insider. It’s free.

I also recommend you check out this guide “How to Become A Day Trader – (Here’s how I did it…)”. I share with you how I overcame my trading failures by developing an Objective Edge.

Final Thoughts

Whenever a student comes to me struggling, I ask them for their trade plan. The struggles typically lead back to a rule or set of rules they have outlined in their Trade Plan that they’re consistently breaking.

It’s an essential tool when reviewing your trading with your accountability partner. Remember to select someone close to you must be completely transparent with them or you’re only cheating yourself.

Don’t make trading more difficult than it already is. Write a solid plan and work on having the discipline to follow it.

Anything not mentioned you like to include in your plan? Leave a comment below!

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Analyzing Alpha

Setup a Trading Business: The Complete Guide

By Leo Smigel

Updated on October 13, 2023

Trading as a business involves trading stocks and other financial instruments under a legal business structure, such as a sole proprietor, partnership, or limited liability company (LLC).

Everyone wants to make money, and everyone wants to be free.

You can accomplish both if you’re a successful trader.

And you’re in luck because there’s one thing I know how to do exceptionally well – it’s trading as a business.

You might say, Leo, I don’t need to start a trading business – I’m a new trader. Well then, I’ve got a question: How many successful companies do you think started without a plan? Sure, there are some, but I would bet those with a sound plan faired better over the long run.

And trading is no different. Trading is most successful when it’s done most businesslike.

And for those who are already profitable and ready to go full-time, I’ve got some massive tax-saving tips for you, so stay tuned.

I’ve also sprinkled secrets about becoming a full-time trader that you’ll be hard-pressed to find elsewhere.

I will explain everything you need to know step by step and show you how to become a professional trader running your own successful trading company, whether you’re incorporated.

Before You Can Start Trading

Before creating any business, you need to start with a solid plan and understand where you fit in the market.

But before we jump into the nitty-gritty details of running your trading business, you need to answer five show-stopping questions.

1. What Is Your Why?

Why do you want to be a trader? Many traders start trading because they want to get rich.

Now, it’s possible to become rich trading; however, understand that if you’re not a profitable trader already, the chances of success are slim.

Most studies say that only 5% of traders become profitable. And according to the Small Business Association, this is in stark contrast to starting a business where 33% are still around after year ten.

In other words, if it’s money you’re after, it’s much easier to create an online business than to become a profitable trader.

And no matter how smart you are, trading will slap you around until you’re begging to quit.

You need more than the pursuit of money to keep you in this game.

You need an unwavering passion to play, and you need an advantage.

2. What’s Your Trading Edge?

A trading edge is an observation or approach that creates an advantage over the rest of the market players. Anything that can add a few points to the winning side of the equation builds an edge in your favor.

Most traders lose money in the financial markets because they lack an edge.

I’m also going to say something controversial here:

Risk management isn’t an edge – it’s just good trading – and I can prove it.

Let’s play the coin toss game. If you guess correctly, you get a dollar and lose a dollar if you don’t. You can play this game all day long and cut your losses short, but you’re never going to make a million dollars.

Why? Because you have no edge. The probabilities are not stacked in your favor.

You need an edge to make it full-time, and you need multiple to make it a career.

You need to be the casino – you need to have multiple edges that compound over time. Don’t be a gambler with the odds stacked against you.

So how do you find an edge?

Most edges come from a better understanding of market structure, faster execution speed, or better data and analysis.

For example, a market structure edge may be an exceptional ability to exploit the post-earnings announcement drift (PEAD) anomaly. Another may be the early identification of trends through sophisticated technical or data analysis.

You want to ensure you are on the right side of the stock market as much as you can.

And if you’re struggling to find an edge, I’ve got you covered.

I backtested Scot1and’s slingshot trading strategy at a high level to verify if it has an edge – which it does. If you’re not familiar with Scot1and, he’s a professional trader. He shares his trades publicly on Twitter and has multiple triple-digit years under his belt, with his highest being 305% and last year (2021) being 150%.

Scot1and wanted to find a way to get into solid stocks before the runup and invented the slingshot trading setup. That’s one of his many edges. And this setup can work for you, too, assuming it meshes with your market philosophy and psychological makeup – but more on that later.

Once you have successfully identified and defined your edge, or better yet, edges, it’s time to consider your risk tolerance.

3. What’s Your Risk Tolerance?

Risk tolerance refers to the degree of risk you’re able to take. And while there are multiple ways to define risk, we’ll consider volatility and drawdown for our purpose.

Since your comfort level with uncertainty determines risk tolerance, it can be challenging to be aware of your risk appetite until faced with a potential loss.

You should strive to gain a clear understanding of your risk appetite and your ability to stomach large swings in the value of your portfolio.

When traders trade above their risk tolerance levels, at best, they’ll lose sleep and make suboptimal decisions the next day, and at worst, they’ll sell out at the exact wrong time.

Risk tolerance is all about understanding yourself – a key characteristic you should possess as a flourishing trading business owner.

And let me tell you when you start a trading business, and it becomes your primary source of income, your risk appetite will change a lot – even for algorithmic traders.

Most traders’ greatest struggle in establishing a profitable trading business revolves around trading psychology.

Finding edges in the market isn’t difficult. I just showed you the slingshot strategy, which is a potential edge that you can incorporate into your trading.

What’s hard isn’t knowing what you should do; it’s doing what you should do – it’s trading like a business.

And risk tolerance is just one aspect of trading psychology.

Psychology And Trading

Trading psychology refers to the emotional aspects of an investor or trader’s decision-making process – it’s how emotions affect your trading, and trading affects your emotions.

There are some important considerations to make here.

Most traders fall into thinking they can achieve trading success with little thought of their psychological makeup.

Successfully aligning your trading strategy with your psychology implies you may need to give up on or change some of your values and beliefs.

For instance, do you value your need to be “right”?.

A trader who values being “right” is more likely to refuse to set a stop and take a slight percentage loss in case the trade goes haywire.

Do overnight moves keep you up at night?

Then perhaps day trading is a better style for you.

You need to find a trading style that suits your trading psychology and addresses your strengths and weaknesses.

This doesn’t mean a risk-averse person can’t adopt a swing-trading style. It also doesn’t mean that if you value being right, you’re perpetually wrong when following your stops.

It just means that traders need to understand why they’re embracing a trading approach and have safeguards against their deficiencies – often, you can flip a weakness on its head.

For example, let’s go back to someone struggling to stop out.

The first issue might be that they do not understand what they’re trading and why they’re trading it. If they’re trading specific mean reversion scenarios, they shouldn’t be using stops – position sizing is the key to risk management; however, let’s assume that the trader was a long-only swing trader.

If they’re a breakout trader not following their stops, likely, they don’t have a deep understanding of what a breakout is and how they work.

Now I could spend hours discussing breakouts, but for now, let’s understand two things:

• Roughly 70% of breakouts fail.
• Successful breakouts rarely retrace to the low of the day.

With this market knowledge, this trader that has to be right now understands that her win percentage should be between 25-35% and where to place their stop. Additionally, their understanding aligns with their market understanding allowing her to be correct and less likely to pull the cord on the stop.

I find deep understanding solves most trading psychology challenges – but just because you’ve got your edge and your psychology in order doesn’t mean you can trade like a business just yet.

4. What Are Your Return Assumptions?

Return assumptions refer to the returns a trader or investor expects to make from a particular investment or their trading activities via their trading efforts in the financial markets.

All active traders share one common goal: to utilize their trading capital to make as much money as possible while assuming a certain level of risk.

For that reason, it’s critical to set your expectations right and figure out a rough idea of what kind of return you might achieve before you kick off your trading endeavors.

So, how do you determine a reasonable rate of return?

Whether you’re a business or a trader, the answer is the same.

Look at you and your competition’s average annual returns per each different system or setup, and determine a number you think you can realistically achieve.

Target Compound Annual Growth Rate (CAGR)

This average annual return is the target compound annual growth rate or CAGR. It’s the average return or profit you make divided by your capital.

To keep the math easy, if you make $10,000 on a $100,000 account, your annual return is 10%.

You need to calculate an appropriate CAGR accurately as it flows through to all of your other business calculations, like how much money your trading business needs to generate each year to cover its expenses.

Without history to back it up, investors shouldn’t set their target CAGR above 15%, and traders shouldn’t set their CAGR above 40%.

And yes, good traders have the potential to compound their capital faster than investors due to the structural advantages of having less money to move.

Here are the top ten filers by 10-year annualized performance to give you context.

Now, I know for some of you, these CAGR numbers are tiny, but exceptional returns are the exception, not the rule.

Minimum Absolute Return

Understanding what you can likely achieve makes it time to figure out precisely what you need to succeed.

The absolute minimum return refers to the minimum return that a trader sets over a predetermined time frame.

This return needs to cover your business expenses, which I’ll cover shortly, and the owner’s draw. The draw is the salary you need for yourself and your dependent’s living expenses.

The minimum absolute return is typically your breakeven level. It’s not the target.

Target Absolute Return

The target is your target absolute return. This is the profit you want your trading business to create over the period, typically a year.

You calculate your target absolute profit target by multiplying your target CAGR by starting capital and subtracting fees, which we’ll cover shortly.

I would advise against creating a profit target and working backward since you may need to inflate your CAGR artificially.

The last thing you want to do is overestimate your trading income and underestimate your trading loss.

Maximum Drawdown

Maximum drawdown refers to your maximum downside risk over a period. It’s the maximum observed loss from a peak to a trough.

For instance, if your portfolio value is $100,000 and you lose $30,000, your drawdown would be ($30,000 – $100,000) / $100,000 = 30% or $30,000 in dollar terms.

It’s important to note that maximum drawdown only measures the extent of the most considerable loss, excluding the frequency of significant losses.

Maximum drawdown determines how much capital you’ll need to start your trading business, assuming you’ve included multiple market cycles in your analysis.

Capital Required

Armed with an understanding of your absolute minimum return and maximum drawdown, we can finally determine how much capital you’ll need to start your trading business.

Capital required refers to the amount of money a trader needs to carry out trading activities within the financial markets.

Consider your capital as the raw material that powers your trading activity in the stock market or any business.

So let’s go through the math.

If you need to generate $50,000 per year and expect your minimum CAGR to be 10%, you would need $50,000 / 10% = $500,000 without a drawdown.

Keep in mind if your CAGR return is that low, it’s likely you don’t possess enough of an edge, but I kept the numbers simple for explanation purposes!

But that’s not all. If your maximum drawdown is 20% or $200,000, you’ll also need to add that to your initial capital.

And with all businesses, you’ll need to put in a considerable amount of time.

5. Time Commitment

Time commitment refers to the number of hours per week applied to your new trading business.

It’s essential to treat and act “businesslike” at all times.

Only by approaching each trading day with full intent and purpose can you aspire to succeed.

This extends beyond just executing your trading strategies.

It also includes learning, studying, researching new strategies, and improving your mindset as a trader.

Can you fit it all into your schedule? Do you have enough time to make it work?

These are critical questions to ask yourself before starting your trading startup.

Let’s think about this a little more.

Understanding A Trading Business

Although different from the traditional brick-and-mortar business, a trading business’s anatomy can be broken down similarly.

Think of your trading strategies as your new products and services.

Through these strategies, you’ll be generating your trading income.

And just like how traditional businesses need to constantly improve their products and services based on customer and market feedback, you’ll be doing the same, which leads me to my next point…

Trading Losses Are Expenses

Trading losses are going to be inevitable. You want to take advantage of this market feedback to improve your product. Be sure to analyze each loss and learn from them. They will be your best teacher.

But at the same time, you simply want to treat your losses as a cost of doing business.

Think of the casino business and a game of roulette.

Of course, the casino makes money when the player loses.

But does the player always lose?

So, if we have a player who is always betting on the color red, they have an almost 50-50 chance of winning each time.

There will be times when the player hits lots of reds in the short-run, and the casino loses money.

However, the house always wins.

In the long run, given that the roulette contains a neutrally colored zero, the casino has the edge (remember, we spoke about the edge earlier).

Act like a casino; if you have an edge in the financial markets, you will win long-term.

Short-term losses are simply the cost of conducting business.

Capital Preservation

But continued losses should signal to the management team that it’s time to rethink the plans.

Intelligent management knows preserving your capital to live another day is more important than making more money in the short term.

New traders often have this backward.

The truth is that the only aspect of the trading process you have significant control over is how much money you will lose in a trade.

It’s critical to size your bets correctly.

And speaking of plans, let’s go over what your trading business plan should include.

Your Trading Business Plan

A trading business plan, similar to a typical business plan, is a document that details everything that you need to know to run your trading business. It includes your objectives, how you intend to make money, your edge, what you will trade and why, and how you will grow your business.

It’s time to address the actual birth of your business as a new independent trader.

What Is Your Company’s Mission Statement?

A company’s mission statement defines its culture, values, ethics, fundamental goals, and agenda. The statement outlines what the company does, how it does it, and why. Prospective investors may also refer to the mission statement to see if the company’s values align with theirs.

A well-crafted mission statement articulates the purpose of your business.

It helps to serve as a framework for your business. Outlining what your business stands for, along with your objectives and values.

What is your mission statement? Why are you doing this? Is it just for the money? What’s your driving purpose for embarking on a trading career?

It’s critical to understand the why because it empowers the how.

What Is Your Company’s Philosophy?

A company philosophy refers to “the way we do things around here.” Conventionally, it relates to the fundamental beliefs of the people and the organization.

Your company’s philosophy boils down to your market beliefs.

Do you believe that it is fundamentals or emotions that drive the markets?

Or is it the Fed?

Your trading edges come from a deep understanding of how you view the market. And you need this deep understanding to stick to your strategies during a drawdown.

The last thing you want to do is have a shaky market philosophy and jump ship at the wrong time.

So what is your market philosophy? These will guide your principles.

What Are Your Company’s Principles?

Company principles refer to the principles that a company abides by throughout its day. These could be building a great workplace culture, conservative cash flow use, or taking significant, calculated risks.

What principles does your company abide by throughout your trading day?

These should stem from your philosophy.

For instance, if you believe that the Fed moves the market, are you selling your positions if the Fed is not printing money?

If you’re a trend follower, do you implement Paul Tudor Jones’ rule of refusing to purchase any stock below its 200-day moving average?

Having the various principles aligned with your market philosophy and mission will help you maintain the necessary discipline with your trading.

It will also help you understand what assets to trade.

Your Trading Universe

This is the range of financial instruments that a trader plans to trade across the investable universe, including all tradable assets. In reality, most investors do not invest so broadly and have a narrower universe that could be constrained to event-driven biotech stocks.

This is your total addressable market, and your edge governs it.

Assuming the above, if biotech is in a long-term downtrend, do your edges still allow you to make a profit? If not, you may need to grow your edges and the total addressable trading universe.

What Are Your Company Rules?

Company rules refer to the established rules, in writing, made by the company’s higher level of authority and bound to follow by all employees and stakeholders.

Often these rules revolve around conduct, hours worked, and customer service levels. And larger trading organizations should define these; however, the rules I’m referring to for a trading business help you protect your capital and add discipline to your trading operations to boost profitability — essentially money management rules, which I like to think of in four distinct categories.

1. Portfolio Management Rules

Portfolio management entails building and overseeing a selection of investments or investment strategies that will meet the long-term goals set above.

Most investors take the approach of diversifying their assets, which is a reliable measure.

However, a superior alternative is implementing uncorrelated strategies within the same asset class.

For instance, buyers tend to reduce their leverage during sell-offs, which causes both stocks and bonds to drop, even though these two asset classes are generally uncorrelated.

Therefore, having a mix of long and short stock strategies can help you offset this risk.

What are your portfolio management rules?

An example would never be allocating more than 25% of capital to a single strategy.

2. Risk Management Rules

Risk management is the process of identifying, assessing, and controlling threats to an organization’s capital and earnings. These risks stem from various sources, including financial uncertainties, legal liabilities, technology issues, strategic management errors, accidents, and natural disasters.

Remember that the aspect of trading you have considerable control over is how much you’re willing to lose on any given trade.

So, always go into a trade knowing your pre-defined price targets to take profits and the price points you’re willing to get out for a small loss if the trade goes against you.

The worst thing you can do is hold on to a losing trade that invalidates your thesis, hoping it will eventually become a winner.

An example of a breakout strategy risk management rule would be to set your stop at the low of the day, invalidating the idea if it moves against you, but never more than the average daily range.

3. Position Sizing Rules

Position sizing refers to the size of a position within a particular portfolio or the dollar amount that an investor will trade. Investors utilize position sizing to determine how many security units they can purchase, which helps them control their risk and maximize returns.

How much you will earn or lose from your trades is directly tied to the size of your trading positions.

Your position size will also impact your ability to diversify your trading positions.

If too large a portion of your trading account is tied up in one trading position, you won’t have the necessary capital to open other trades.

We never know which of our positions will be the big winners.

There is no worse feeling than watching the market rally, and you are in 3-4 positions that decide to sit out the rally.

Keep in mind that even with proper position sizing, there is a risk that an active trader’s position loses more than their specified risk if a stock gaps below the stop-loss order.

This is why it’s essential to position size correctly, especially around earnings announcements, which you may want to avoid altogether.

A common position sizing rule is to never risk more than 25% of your account on any single trade.

4. Leverage Trading Rules

Leveraged trading, also known as margin trading, margin finance, or trading on margin, allows you to open a trading position with a broker using a small amount of capital to take a much larger position.

Suppose you commit $10,000 on a 10X leveraged financial instrument. You’ll be trading as if you had put in $100,000.

Thus, any capital gains you make have a tenfold effect, but the same applies to losses, so using leverage implies an element of risk.

If you’re taking on leverage, ensure that your edges are well defined and diversified, and you have a clear leverage rule.

I will never go above 500% leverage, and this scales down as the volatility of the instrument increases.

Leverage is extremely risky in almost all cases. But there is one exception to this:

When trading crypto, using leverage can help mitigate the risk of an exchange hack at the cost of margin interest fees.

SWOT Analysis

With your rules established, it’s time to perform a SWOT analysis.

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, and so a SWOT analysis is a technique for assessing these four aspects of your business.

SWOT analysis is a simple tool that can help you analyze what your company currently does best and devise a successful strategy for the future.

1. What Are Your Strengths?

Strengths define what you excel at.

Perhaps you have a programming background, and you can create trading algorithms.

Perhaps you’re a decisive person who can make solid, carefully constructed decisions rather quickly.

Perhaps you’re able to stay calm and collected and perform under pressure.

For me, as you’ve probably guessed, it’s the first one that helps mitigate my weakness.

2. What Are Your Weaknesses?

Weaknesses prevent you from operating at your prime.

For instance, you may have difficulty dealing with market sell-offs and tend to get “sucked in” by the emotion of everyone else panicking.

The best way to mitigate this is to have a plan to take advantage of these opportunities.

The second best way is to reread your business plan and stay away from the news and social media on such days.

Plus, keep in mind that these sell-offs are often an opportunity in the market. Smart institutions often accumulate on sell-off days due to their liquidity constraints. If you’re a breakout trader, you should identify what stocks are acting stronger than the market.

As they say, one man’s misfortune is another man’s opportunity.

So, take note of your weaknesses and negative triggers. That way, you’ll be able to easily spot them and make logical decisions rather than emotional, irrational ones that will hurt your profitability.

My weakness?

I pay both my living and business expenses from my trading income. I would feel immense pressure to make money every day and override my trading systems in the early days.

I’m sure you can all guess what happened.

Understand what your weaknesses are, that they may change over time, and figure out how to mitigate them.

3. What Are Your Opportunities?

These refer to favorable external factors to grow your business or competitive advantage.

For instance, can your trading strategies be applied to additional trading instruments or different markets?

Crypto trading is attractive as an algorithmic trader as it trades 24/7 against relatively unsophisticated traders.

4. What Are Your Threats?

In contrast to opportunities, threats refer to factors that potentially harm your business.

Government measures towards reducing fossil fuel use towards energy production in favor of renewable energy sources pose a threat to any non-renewable energy sector business or energy stock in your portfolio.

And these types of risks apply to your trading business.

Changes in capital gains tax laws, crypto regulation, or even black swan events are threats.

Do you have proper hedging strategies in place?

With an understanding of your strengths, weaknesses, opportunities, and threats, it’s time to do some benchmarking.

Performance Measurement

Performance measurement is the process of collecting, analyzing, and reporting information regarding the performance of an individual, group, organization, system, or component.

They say what gets measured gets improved. And like other traditional businesses, trading businesses are no different.

To monitor your trading performance, you require data.

You can collect data manually from your trading platform and record it in a spreadsheet, but I highly recommend that discretionary traders use journal software that records the information.

Although there are hundreds of metrics you could track, you should track the following key performance indicators (KPIs) classified by market and strategy at a bare minimum:

• Profit & Loss
• Total number of trades
• Win percentage
• Average time in trade
• Largest winning trade
• Largest losing trade
• Average winner
• Average loser
• Maximum drawdown
• Profit factor
• Gain-to-Pain Ratio

Feel free to check out my website for definitions and example calculations for these metrics if you have questions.

Operating Costs

As promised earlier, we need to understand your trading business’s fixed and variable costs to determine the absolute minimum return.

Fixed costs are expenses that remain constant for a period of time irrespective of the level of outputs. Variable costs are expenses that change directly and proportionally to business activity level or volume changes.

So, what do these look like for your new trading business?

Fixed Costs

Here are some fixed costs trading businesses have at varying degrees:

• Computer & equipment
• Trading software
• Administration software
• Internet & telephone

You’re most likely already paying for the trading software, and the good news is that most of the home office expenses are relatively inexpensive.

But don’t forget to consider the most significant expense of them all — paying your managing member.

To understand your trading business’s true profitability, you need to track your monthly draw in your accounting software.

Variable Costs

Here are some variable costs involved with your trading business:

• Transaction fees
• Slippage costs
• One-time data costs

Office Location

Another aspect you also want to think about is if and where to set up an office.

As a trader, you can set up an office anywhere you like across the globe — granted, some time zones are more convenient than others.

You can set up your own home office.

You can also buy or rent your own business office.

A big driver of this decision is how well you can balance life and work while at home.

If you’ve got kiddos at home and cannot concentrate, the answer is typically straightforward.

Additionally, scaling to multiple employees is a little easier if you’re an algorithmic trader, as you can more easily separate roles.

These aspects determine whether it makes sense to stay at home or hang up a shingle somewhere outside of your personal space.

Regardless of where your office is, you’ll want to make sure you maximize the tax benefits.

Benefits For Incorporating

There are many benefits of incorporating your business, including asset protection through limited liability, corporate identity creation, perpetual life of the company, transferability of ownership, and an ability to build credit and raise capital and tax savings.

But if trading is your primary source of net income, you should consider incorporating it for tax purposes.

Securities are considered capital assets. The sales of these assets are taxable income considered as capital gains.

This can create massive tax liabilities on your trading operations, so it’s usually ideal for an active trader to incorporate as a company.

Additionally, trading is not considered a business activity by the IRS, so it is not possible to deduct business expenses as they are ineligible for tax deductions in this case.

This is noteworthy since costs such as software, internet access, and data access can be significant for most active traders.

However, you can receive similar tax treatment to other business owners by creating a separate business entity to conduct your trading activities.

You can form a sole proprietorship, partnership, or S-Corp, and file for trader tax status (TTS), which exempts you from the $3,000 capital loss limitation and wash sales adjustments.

A trader can form a single-member LLC to elect S-Corp trader status. The main tax benefits of creating an S-Corp are to arrange tax deductions for health insurance premiums and a retirement plan contribution.

In addition, an S-Corp does not pass through negative self-employment income (SEI), and the employee benefit deductions work tax efficiently.

C-Corps are not ideal for a trader status because the IRS might charge a 20% accumulated earnings tax and the 21% flat tax.

Before incorporating a company, ensure you qualify for it. The business must be eligible for claiming TTS.

While there’s no specific ruleset, we can look at prior court cases to determine eligibility guidelines.

As a trader, you need at least four trades per day. Trade executions on approximately four days per week. More than 15 trades per week, 60 per month, and 720 per year.

Your average holding period must be under 31 days.

Additional factors include having a material trading account size ($25,000 for pattern day trader designation on securities and $15,000 for other instruments).

Spending over four hours per day with the intention to run a business to make a living.

Plus, having trading computers, multiple monitors, and a dedicated home office.

Please keep in mind I’m not a lawyer or an accountant; please consult these professionals so they can understand your specific situation and tax law.

The Bottom Line

We’ve covered much of what you need to know for setting up your trading as a business.

It requires several moving parts, from determining your why, identifying an edge, creating your rules, and even getting into the nitty-gritty of incorporating a legal entity.

The exact, crystal clear method you specifically choose to become a successful trading business owner will not be drawn on a map for you.

Just kidding, there is a map.

It’s called Analyzing Alpha.

Be sure to subscribe to our newsletter below to receive exclusive email content that’s jam-packed with value to help you on your journey to becoming a truly successful and profitable trader.

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Create a Winning Forex Trading Business Plan: Key Components and Strategies for Success

Table of Contents

Introduction

A trading business plan is an essential component of successful Forex trading. It serves as a roadmap, guiding traders in making informed decisions, managing risks, and achieving consistent profitability. In this article, we will explore the key components of a Forex trading business plan, offering insights on setting trading goals, developing a strategy, risk management, broker selection, and more. By incorporating these elements into your trading business plan, you will be better prepared to navigate the dynamic world of Forex trading.

Setting Clear Trading Goals

The first step in creating a trading business plan is to establish clear trading goals. These goals should be tailored to your individual financial situation, risk tolerance, and personal preferences. Consider the following when setting your trading goals:

• Short-term, medium-term, and long-term goals : Your goals should cover various timeframes, ranging from daily or weekly targets to longer-term objectives, such as annual returns or overall account growth.
• Profit targets and performance metrics : Establish specific profit targets and performance metrics to measure your progress, such as return on investment (ROI), win rate, or risk-adjusted return.
• Aligning goals with your risk tolerance and personal financial situation : Ensure that your trading goals align with your risk tolerance and financial situation. For example, if you cannot afford significant losses, it is essential to set conservative profit targets and maintain strict risk management protocols.

Developing a Trading Strategy

A solid trading strategy is the foundation of your trading business plan. Here are some key considerations when developing your strategy:

• Fundamental analysis and technical analysis : Fundamental analysis involves analyzing macro-economic and geopolitical factors that affect currency prices, while technical analysis involves using charts and technical indicators to identify trading opportunities. Determine which type of analysis aligns with your trading style and use it as the basis for your strategy.
• Identifying your trading style : There are three primary trading styles: day trading, swing trading, and position trading. Choose the one that best aligns with your personality, time constraints, and financial goals.
• Selecting the best trading strategies and techniques for your style : Each trading style requires different strategies and techniques. For example, day traders may use scalping strategies, while position traders may employ trend following strategies. Research and experiment with different strategies to find the ones that work best for your trading style.
• Adapting your strategy to various market conditions : The Forex market is dynamic and constantly evolving, so it’s essential to adapt your strategy to changing market conditions. Learn to identify different market phases, such as trending or ranging, and adjust your strategy accordingly.

Risk Management

Risk management is a critical component of a trading business plan. Without proper risk management, traders can quickly incur significant losses. Consider the following when managing risk:

• Position sizing and leverage : Determine the appropriate position size and leverage for each trade based on your risk tolerance and account size.
• Stop loss and take profit orders : Always use stop loss and take profit orders to limit your losses and lock in profits.
• Risk-reward ratio : Maintain a favorable risk-reward ratio by ensuring that your potential profit is always greater than your potential loss.
• Managing emotions and maintaining discipline : Trading can be emotionally challenging, so it’s essential to maintain discipline and manage emotions such as fear and greed. Stick to your trading plan, and avoid overtrading or deviating from your strategy.

Choosing the Right Broker

Selecting the right broker is crucial to the success of your trading business plan. Consider the following when choosing a broker:

• Evaluating broker reputation, regulation, and financial security : Choose a broker with a good reputation, strong regulation, and financial security.
• Analyzing trading platforms and tools : Ensure that the broker offers a trading platform and tools that align with your trading strategy.
• Comparing fees, spreads, and commissions : Compare the fees, spreads, and commissions of different brokers to ensure that you are getting the best value for your money.

Creating a Trading Routine

Creating a trading routine is essential for consistent success in Forex trading. Consider the following when creating a trading routine:

• Establishing a daily schedule for market analysis, trade execution, and monitoring : Set aside specific times each day for market analysis, trade execution, and monitoring.
• Maintaining a trading journal : Keep a trading journal to track your progress and identify areas for improvement.
• Regularly reviewing and updating your trading plan : Periodically review and update your trading plan to ensure that it continues to align with your goals and strategies.

Education and Skill Development

Continuous education and skill development are critical to the success of your trading business plan. Consider the following when seeking education and skill development:

• Continual learning through books, courses, webinars, and other resources : Stay up-to-date on Forex trading trends and best practices by engaging in continuous learning through various resources.
• Networking with other traders and participating in trading communities : Join Forex trading communities and engage with other traders to gain insights and feedback.
• Utilizing demo accounts to practice and refine your strategy : Practice and refine your strategy using demo accounts before committing real money to trades.

Performance Evaluation and Plan Adjustments

Periodic performance evaluation and plan adjustments are necessary for continuous improvement in Forex trading. Consider the following when evaluating your performance and making plan adjustments:

• Periodic performance analysis and goal assessment : Regularly analyze your performance and compare it to your trading goals and metrics.
• Identifying areas for improvement and implementing changes : Use performance analysis to identify areas for improvement and implement changes to your trading strategy and plan.

By incorporating these elements into your trading business plan, you can create a comprehensive and effective roadmap for successful Forex trading.

Creating a trading business plan is essential for successful Forex trading . By setting clear trading goals, developing a solid trading strategy, managing risk, choosing the right broker, creating a trading routine, seeking education and skill development, and regularly evaluating performance and making adjustments, traders can navigate the dynamic world of Forex trading with confidence and consistency. Remember, a trading business plan is not a one-time task, but rather an ongoing process of learning, adapting, and refining your approach to achieve your trading goals.

• Forex Trading Education
• Trading Plan Articles

Forex Trading Business Plan and Risk Analysis

One of the best things you can do as a forex trader to assure your long term survival in the business is develop a sound and objective forex trading business plan and the discipline to stick to it.

Going through this important process will help you overcome the emotional responses to trading that have been the downfall of so many novice traders.

Once you have developed a good trading plan that you think you can trade in a disciplined way, another good idea is to put all of your trading-related plans and ideas together into an overall trading business plan.

Benefits of a Forex Trading Business Plan

Even if you have been trading for a while, but have not yet written down a forex trading business plan, you can still derive considerable benefits from doing so even now.

Producing a business plan will help you review and solidify your personal trading business activities and goals.

Another major advantage of having a business plan is that if your trading business plan still looks good after its initial testing and trading period, you might even be able to use it to find new investors to put money into your trading business.

Having more funds to trade with can help you access better trading spreads, information, customer service and ultimately, better and more profitable trading opportunities.

Components of a forex Trading Business Plan

Your forex trading business plan does not need to be complex. At a minimum, it should contain your forex trading plan, how you intend to manage any money invested, and a risk assessment of your engagement in the business.

Additional components of a trading business plan might include:

(1)   What the competition is doing.

(2)   Necessary start up and running costs of your trading business.

(3)   The equipment necessary for your business to start operating.

(4)   How you plan on running your trading activities in detail.

(5)   How invested money will be held and managed within your trading business.

(6)   What you plan on achieving with your trading business in terms of profits and meeting other goals.

(7)   An overall risk/reward analysis showing that your trading business makes sense.

Most of the above forex trading business plan items are relatively self-explanatory; however the risk/reward analysis mentioned in item #(7) will be covered in greater detail in the following section.

Assessing the Risks of Your Trading Business

If you honestly believe that your trading business is worth pursuing, then it really cannot hurt to take a closer look at it from a risk/reward perspective. You can do this by assessing as objectively as possible what risks the business might face and what rewards you can reasonably expect to gain from pursuing it.

Furthermore, since some risks might occur with a greater probability than others, they can be weighted in a risk analysis according to their probability of happening. You can then multiply that weight by the potential size of risk involved to get a probability weighted risk exposure.

To get the overall risk/reward profile of your business, you would then sum up all of the risks and compare them to the rewards to see if your business makes sense.

Not only is such a business risk/reward analysis well worth doing, but it makes up an important part of your trading business plan that would ideally be created before you even make your first trade.

Many potential investors will want to see this risk/reward analysis information to help them assess whether your trading business stands a good chance of success for the risk you will be taking.

We also recommend you to read about the basic forex trading plan and why you should have it.

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How to Build a Comprehensive Trading Plan: A Step-by-Step Guide

Experienced traders understand the importance of meticulous planning for successfully navigating the financial markets. A comprehensive trading plan serves as a roadmap and minimizes the impact of emotional biases that can lead to impulsive and irrational decisions.

Whether you’re a beginner or a seasoned professional, a solid trading plan will prove an invaluable tool for achieving your goals. Here’s a step-by-step guide to building a robust trading plan tailored to your unique style and objectives.

1. Assess Your Trading Goals and Risk Tolerance

This is the most crucial part of building a comprehensive trading plan as it lays the foundation for all subsequent decisions and strategies. It ensures that your trading activities align with your personal objectives and risk appetite.

Setting realistic trading goals is essential as it provides clarity and focus. It allows you to define what you aim to achieve through trading, whether it’s generating income, growing your wealth, or preserving capital. By establishing clear trading goals, you can develop strategies and make decisions that align with your desired outcomes.

Equally important is understanding and defining your risk tolerance. Each trader has a unique tolerance for risk, which determines their comfort level with potential losses. Some traders prefer lower-risk trades, while others may be more comfortable with higher levels of risk for potentially higher rewards.

Setting Your Trading Goals and Objectives

There are two types of goals – long-term and short-term objectives. Each serves different purposes and caters to various risk/reward profiles.

Long-term trading goals typically refer to the overarching objectives you aim to achieve over an extended period, usually spanning multiple months or years. These goals often focus on wealth accumulation, capital growth, or reaching specific financial milestones.

On the other hand, short-term goals are more immediate and concentrate on seizing shorter-term market opportunities. These goals tend to be more tactical, focusing on shorter time frames, such as days or weeks. Short-term goals require active monitoring of market conditions and advanced technical analysis skills to identify precise entry and exit points.

While traders can choose to focus on either long-term or short-term goals, it’s not uncommon for your trading plan to combine them. This approach allows for diversification of trading strategies and reduces risk exposure.

Defining Your Risk Tolerance

Understanding your comfort level with potential losses is crucial in determining the appropriate strategies for your trading activities.

To define your risk tolerance, it’s important to consider multiple factors that can influence your attitude towards risk, including:

• Financial situation: Your income, savings, and overall wealth can impact how much risk you are able and willing to take. Traders with substantial financial resources may have a higher risk tolerance, while those operating on a tight trading or investment budget may have a lower risk tolerance.
• Time horizon: Your age and investment timeframe play a major role in defining your risk profile. Younger traders with a long-term perspective may be more willing to tolerate short-term market fluctuations and accept higher risk levels. Conversely, older traders or those with a short-term trading strategy may prefer lower risk levels.
• Emotional resilience: Understanding your ability to control your emotions and their impact on decision-making helps define your risk tolerance. Your willingness to take risks is related to your emotional resilience. If you are less willing to take risks, you should opt for lower-risk investments.
• Investment knowledge and experience: Novice traders may have a lower risk tolerance as they are still learning and tend to be more cautious in their decision-making.

It’s important to note that risk tolerance isn’t static and can evolve over time. Regularly reassessing your risk tolerance in line with the changing financial goals and market conditions is crucial.

2. Trading Strategy Development

There are various approaches to trading, and the strategy you choose will primarily depend on your personality traits and profile.

If you have long-term trading goals and aren’t bothered by short-term fluctuations, adopting a position trading style or a simple buy-and-hold strategy may be more suitable for you. On the other hand, if you have short-term trading goals and are comfortable with potentially higher-risk exposure, swing trading or scalping might be your best fit.

It’s important to note that trading styles aren’t mutually exclusive, and you can often incorporate elements from different styles based on market conditions and personal preferences.

Choosing Your Preferred Trading Instruments

Your trading plan will be significantly influenced by the financial instruments you choose to trade. The financial markets offer a wide range of instruments, each with its own unique characteristics, risk factors, and dynamics.

Stocks, bonds, currencies, commodities, Exchange-Traded Funds (ETFs), and futures contracts are among the most popular securities available for trading. Your trading plan will likely vary depending on the instrument you choose. For instance, stock trading may involve analyzing company financials, while bond trading focuses on interest rates and credit quality.

It’s crucial to align the preferred trading instruments with your trading goals and expertise. Consider factors such as liquidity, volatility, trading hours, transaction costs, and regulatory implications when choosing what to trade.

Market Analysis Methodologies

There are two main methodologies – fundamental analysis and technical analysis:

• Fundamental analysis provides a broader context and helps understand the underlying forces driving the market. It involves assessing economic factors, company financials, industry trends, and other relevant information to evaluate the intrinsic value of an asset.
• On the other hand, technical analysis focuses on analyzing historical price patterns, market trends, and signals to gain insights into market sentiment, timing, and potential short-term price movements.

While each approach has its strengths and limitations, combining both often is a very comprehensive strategy for understanding market dynamics. Such a symbiosis can aid in making better trading decisions by considering both the fundamental factors that drive the market in the long term and the technical indicators that provide insights into short-term price movements.

3. Build a Risk Management Strategy

A strong risk management strategy is essential for avoiding or limiting potential losses, preserving capital, and ensuring long-term success.

Losses are an inherent aspect of trading, and even the most accomplished traders deal with them regularly. However, what distinguishes the pros is their ability to manage risks and limit losses.

Ultimately, a solid risk management strategy is built on discipline, patience, and the willingness to cut losses when necessary. It incorporates several key elements, including:

Identifying Entry Points

The entry point is the moment when you enter a trade. Various approaches can be used to identify the ideal entry points, including price-action analysis and indicator-based strategies.

The price-action analysis involves studying the behavior of the price itself. For instance, a trader might search for a bullish reversal pattern like a “double bottom,” where the price forms two consecutive lows, indicating a potential upward move. This pattern could serve as an entry point to initiate a long trade.

On the other hand, indicator-based strategies rely on technical analysis tools to generate signals and identify entry points. Popular indicators include moving averages, Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and Bollinger Bands, among others.

Note that both approaches have their advantages and limitations, which is why traders often combine them to determine entry points more accurately.

Defining Exit Points

In addition to identifying your ideal entry points, it is equally important to define your exit points or where you will close a position. It is crucial not to stay in a trade longer than necessary to prevent accumulating escalating losses.

Honoring exit points is essential because it helps you avoid making emotional decisions and enables you to stick to your trading plan. It allows you to maintain discipline and follow your predetermined criteria for exiting a trade. By having well-defined exit points, you can protect your capital, lock in profits, or cut losses at appropriate levels.

Order Controls

Order controls are essential as they help manage risk, protect profits, and automate trade execution. Incorporating order controls into your trading plan is crucial for effective risk management and disciplined trading. Some of the most important order controls include:

• Stop-Loss Orders: A stop-loss order is an instruction to sell a security when it reaches a specific price level. It helps limit potential losses by automatically exiting a trade if the price moves against the trader’s position.
• Take-Profit Orders: Take-profit orders are instructions to sell a security when it reaches a specific price level, allowing traders to lock in profits. This order control helps secure gains and prevents emotional trading that risks eroding your profits.
• Trailing Stops: Trailing stops are dynamic stop-loss orders that adjust as the price moves in the trader’s favor. They trail the price at a specified distance or based on a predetermined indicator, enabling traders to capture potential gains while protecting against reversals.
• Limit Orders: Limit orders are instructions to buy or sell a security at a specific price. They allow traders to specify the desired price for executing a trade, providing more control over trade execution.
• Market Orders: Market orders are instructions to buy or sell a security at the prevailing market price. They are executed immediately, ensuring certainty of execution but without a specific price guarantee.

Properly setting and adjusting these order controls is crucial, taking into consideration your individual trading strategies, risk tolerance, and market conditions. Understanding how to effectively use these order controls helps you manage risk, protect profits, and remain disciplined. Regularly reviewing and adjusting your order controls can enhance your trading performance and overall risk management efficiency.

Diversification and Position Sizing

Diversification and position sizing are crucial elements of a risk management strategy that can help mitigate potential losses.

Diversification involves spreading your investments across different assets or asset classes with low correlation. By diversifying your portfolio, you reduce the impact of any single investment on your overall portfolio performance. If one investment performs poorly, others may offset the losses, reducing the overall risk. Diversification can be achieved by investing in various stocks, bonds, commodities or across different sectors or geographic regions.

Position sizing refers to determining the appropriate allocation of capital for each trade. It involves evaluating the risk-reward ratio of a trade and allocating a portion of your capital accordingly. Position sizing helps control the amount of risk you expose yourself to in each trade. By allocating a smaller percentage of your capital to any single trade, you limit the potential impact of a single trade’s loss on your overall portfolio.

Diversification and position sizing work hand in hand to manage risk. Diversification spreads your risk across different investments, while position sizing ensures that you allocate an appropriate portion of your capital to each trade. 

4. Test Your Trading Plan 

Testing your trading plan enables you to assess the effectiveness of your strategy, identify potential flaws, and make necessary adjustments before putting real capital at risk.

One of the most valuable methods for evaluating your trading plan’s efficiency is backtesting it in a demo account or practicing paper trading. These simulated environments allow you to execute trades based on your strategy without risking actual money.

It is important to note that while backtesting is an invaluable tool, it doesn’t guarantee future success. Market conditions constantly evolve, and historical performance won’t necessarily translate to future success.

5. Monitor Your Trading Plan

Regularly documenting and reviewing your trades can offer valuable insights and assist in making informed adjustments to your strategy. One of the most effective methods for this is maintaining a trading journal. A trading journal is essentially a log that records your trades over a specific period.

Remember, maintaining consistency is crucial when it comes to monitoring your trading plan. Make it a habit to regularly update your journal, review past trades, and evaluate your performance. Doing so will give you valuable insights into your strengths and weaknesses as a trader, ultimately enhancing your ability to execute your trading plan effectively.

Conclusion: The Key to a Successful Trading Plan is Sticking to It

Now that you have learned how to build a trading plan, the next step, and arguably the most important one, is making sure that you will adhere to it. Maintaining discipline and consistency in following your trading plan can indeed be challenging, especially for beginner traders.

However, by staying committed to your plan, you can minimize the impact of emotions, establish a consistent framework for executing trades, effectively manage risk, and develop confidence in your strategy.

Therefore, commit to yourself and your trading success by recognizing the power of a well-crafted trading plan and the importance of staying dedicated to it.

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Trading Plan: 6 Steps to Create One + Examples

Trading Plan: Key Takeaways

• The keys to building a personalized trading plan…
• How to fit your plans to your unique trading style…
• Discover how trading plans help me find the day’s potential movers within 60 seconds of the market open…

See this BEFORE the market opens tomorrow! 

It can be hard to navigate the markets in today’s crazy world. Constructing a bullet-proof trading plan that will carry you through is a must … It can be the difference between surviving and fading out of the market.

How do you do that? Let me show you…

Table of Contents

• 1 What Is a Trading Plan?
• 2 Do You Need a Trading Plan?
• 3 Planning: The Key to Long-Term Trading Success
• 4 Trading Plan Essentials
• 5.1 #1. Set Goals 
• 5.2 #2. Focus on Risk 
• 5.3 #3. Do Your Research 
• 5.4 #4. Plan Your Entry and Exit 
• 5.5 #5. Write It Down 
• 5.6 #6. Review the Trade Afterward
• 6 Trading Plan Examples
• 7 Trading Plan and Trading System: What’s the Difference?
• 8 How to Combine Your Goals With Your Trading Style
• 9 Long-Term Benefits of Trading Plans
• 10 Frequently Asked Questions About Trading Plans
• 11 Who Uses a Trading Plan?
• 12 Can I Alter My Trading Plan Any Time?
• 13 What Key Elements Should Be in a Trading Plan?
• 14 What’s Next?
• 15 Conclusion

What Is a Trading Plan?

It’s your outline of a given trade. It defines why you’re making the trade and how you’ll execute it.

A good plan takes into account your trading style, risk management , and expectations. It lays out your entire approach to trade, from the ticker to your entry, exit, goals, stops, and more.

Traders who build thorough plans and follow them are more likely to keep a level head — and less likely to make big mistakes…

Do You Need a Trading Plan?

Trading plans aren’t sexy. Many traders are quick to dismiss them as unnecessary. They’d rather focus on the more exciting aspects of trading … like hot stocks, chart spikes, or catalysts.

Big mistake! While those things can help you choose stocks to trade, you need to combine them with a plan to get the best results.  

Technically, no, you don’t need a plan to make a trade … But if you want to follow the trajectory of consistent traders before you, you’d be smart to use one.

A good way to build a trading plan to fit your account is to use an all-in-one trading platform like StocksToTrade . It has the essential trading tools and features that can help you formulate a game plan for each day. Try StocksToTrade today — start your 14-day trial now!

Planning: The Key to Long-Term Trading Success

A trading plan gives you a clear-cut plan of attack for entering and exiting a trade.

It’s the difference between a calculated trade and the ‘hold and hope’ mentality that causes so many traders to lose money .

You know how I feel about bag-holding (DON’T DO IT)…

Without a plan, you’re pretty much gambling. You might win here and there, but your progress won’t be as reliable as it would be with a plan in place.

Many traders who don’t use plans begin to see their losses exceed their gains, and they ultimately give up on day trading.

Don’t become a cautionary tale … Make a plan every time!

Trading Plan Essentials

Your plan for a trade should cover essentials such as an entry/exit plan, risk management, and trading goals.

• An entry/exit plan should cover the key points at which you’ll enter a trade (buy) and when you’ll exit a trade (sell)… 
• Risk management is all about limiting your losses . The less money you lose — especially in your early trades — the longer you can stay in the game. This can help you build healthier long-term trading habits. Determine how much you’re willing to lose on every trade. Not every trade will be a winner.
• Stop-loss orders and limit orders are great ways to help minimize risk. Losses are part of the game. Be ready to cope with that.

Each trader’s plan is unique. There’s no one plan to fit all. Build one that best suits your trading needs and goals.

6 Tips for Creating a Useful Trading Plan

Now that you understand the benefits of building plans for your trades, here are some tips on how to do it…

#1. Set Goals 

What do you hope to gain from this trade? Do you want a 10%, 20% gain? Set realistic profit goals. 

And if you’re new, it can help to start small. Then increase your goals as you become consistent. Focus on gaining practice and experience.

Some of the best stock traders recommend starting small . You can size up once you learn and find some consistency.

#2. Focus on Risk 

What’s your risk tolerance? Only YOU can answer that. 

Before you enter a trade, consider how much of your portfolio you’re willing to risk on a given trade. Many traders stick to a rule of risking no more than 1% or 2% of their account. 

If you have a small account, you may decide to risk a little more to gain a bigger position… 

Or you may decide to risk less to try to nail down your process and avoid blowing through your account. Either way, only trade with money you can afford to lose. Trading is risky!

#3. Do Your Research 

Before you enter any trade, do your research. Seek out the big gainers , study the stock charts, and research potential catalysts. 

Be diligent! Research can help you determine how a stock might perform. You can never be 100% sure, but you want to be able to say you did all you could.

I find a lot of the big potential plays within 60 seconds of the market opening … But I wouldn’t know which ones I feel comfortable trading if I didn’t do my due diligence beforehand.

#4. Plan Your Entry and Exit 

Make a specific plan about when you’ll enter and exit a trade. 

Decide which buy signals will be your green light to enter a trade and only enter when you see them. StocksToTrade’s Oracle Scanner does a wonderful job of showing good entry and exit points.

The exit is just as important as the entry, if not more … Consider what you’ll do if a trade starts going south. 

What’s your stop loss? When will you get out if things don’t go your way? Resolve to get out at this point, and don’t take it personally. Never trade on your emotions. 

Using easily identifiable chart markers like the low of the day can be a good point of support to set risk. And certain resistance levels, like the high of day, can act as good points of entry.

Know your profit target, too. Get out once the trade hits your goal. Don’t get greedy.

#5. Write It Down 

Write down your plan. Literally. 

There’s a sense of accountability that comes with physically writing down your plan. And keep it where you’ll see it. 

It’s another way to hold yourself accountable. And you have that information to review for future trading…

Trading is a game of lessons. Knowing what works and what doesn’t helps guide your future trading.

#6. Review the Trade Afterward

After you make a trade, take time to consider how things went. 

Keep your notes from your plans and on how your trades play out in a trading journal or log. That can give you insight into what went right or wrong. And again, you can use that knowledge in future trades. 

You’ll get an idea of where you need to be more diligent.

Trading Plan Examples

Here are a few examples of a potential trading plan with some recent runners…

EZFL 2-day chart (Source: StocksToTrade)

EZFill Holdings, Inc. (NASDAQ: EZFL) was a great example of one of my favorite patterns to trade — the dip and rip . It checked off a lot of boxes:

• Early-morning press release
• Low floater

EZFL dipped before the market open and continued up. Your plan could have been to set your entry at an appealing premarket level and your exit close to that premarket high.

I personally would wait for it to reclaim premarket highs. But my plan doesn’t work for everyone. Some like to buy off the initial bounce.

EZFL tried that level a few times and failed, showing why it’s important to stick to your plan and not get greedy.

Another good example is ChemoCentryx, Inc. (NASDAQ: CCXI).

CCXI 5-day chart (Source: StocksToTrade)

This was a swing trade idea as a weak open red-to-green …

It ran in previous days and was holding up despite a weak open. This showed it had the buyers to support its current level despite the huge gap-up days before.

It ended up running the next morning before finally seeing a sell-off…

You could have used a current day or prior day level of support as your risk and that well-defined top as your exit point.

Remember, write down all of these decisions as well as WHY you make them.

Trading Plan and Trading System: What’s the Difference?

Trading systems don’t rely on individual decision-making whatsoever … It relies on algorithms to determine everything.

This isn’t necessarily a bad thing. A lot of traders use this style. 

A trading plan is more personalized. Also, algorithms can’t account for traders’ emotions.

Doing research and understanding how the market might react to a stock can give you a huge edge. It’s not just indicators and trading signals like a trading system.

How to Combine Your Goals With Your Trading Style

Every trader has different goals. Some want to day trade. Others want to hold long term. You may have to tinker around to find what suits you.

Do you know what kind of trader you are and what your goals are?

How often do you want to trade? What kinds of stocks do you want to trade? What’s your risk tolerance? 

These are all important questions to ask yourself before you begin trading.

If you hold a 9-to-5 job, day trading may not work for you. You may want to swing trade or even hold stocks longer term. 

The type of trading you choose should play a big role in your plans.

Long-Term Benefits of Trading Plans

Trading plans can change your relationship with trading. They can help you stop chasing ‘bright and shiny’ stocks and start making calculated trades.

So much in trading is beyond your control. But you can control when you exit and enter of trades. 

Learning how to create a plan is essential to your trading education.

Frequently Asked Questions About Trading Plans

Here are some common questions about trading plans…

Who Uses a Trading Plan?

Any trader can and should make plans — new traders, long-time traders, day traders, swing traders. It’s a key step. If you want to be a smarter trader, consider using one.

Can I Alter My Trading Plan Any Time?

Of course! Don’t set your plans in stone. They’re something you’ll work on and improve throughout your trading career. That said, stick to your plan once you’re in a trade. Remember your entry/exit and risk management.

What Key Elements Should Be in a Trading Plan?

At a minimum, set your entry and exit, risk management, and trading goals. Those are the key elements of any plan. You can include as much detail as needed for your research. Remember, the details you track for every trade can help your analysis down the road.

What’s Next?

Using the tips I just gave you, take the time to learn how to craft your trading plan. Test strategies to find what works best for your trading goals. 

And if you’re looking to take your trading to the next level, consider joining the SteadyTrade Team. It’s a community of dedicated traders from around the world, run by seasoned pros. 

Our SteadyTrade Team mentorship program is all about helping traders learn to navigate today’s volatile markets. Sign up for the SteadyTrade Team today!

Adaptation is a key to surviving the markets. Building a trading plan around the ever-changing market can help you find your edge.

That’s why it’s important to study up and continue to learn. 

Adapting doesn’t have to mean changing your risk levels or goals. Keeping those in mind will help you stay true to yourself while finding your way forward.

Now, time to get your trading plans in order!

How do you plan your trades? What’s essential for your plans? Let me know with a comment below!

Creating a Winning Trading Plan: A Comprehensive Guide (FREE Template)

Author - TradeZella Team

As traders, we all want to be successful and achieve our financial goals. But the reality is that many traders fail to achieve the level of success they desire.

One of the main reasons for this is the lack of a solid trading plan.

A trading plan is essentially a roadmap for your trading journey. It helps you to stay focused, stay disciplined, and make better trading decisions.

Without a plan, you're likely to become easily swayed by your emotions, and you'll be more prone to making rash and unwise decisions.

In this article, we'll go over the importance of a trading plan and how you can create one that works for you.

We'll also discuss the role of discipline and consistency in trading, as these are key factors in your success.

We've also included a FREE downloadable Trading Plan template at the end of this article to help you get started!

The Importance of a Trading Plan

As mentioned earlier, a trading plan is essential to your success as a trader.

It provides you with a systematic approach to finding, executing, and managing trades. It's like a playbook that you can refer to no matter what the market throws at you.

Having a plan in place helps you to trade objectively, with less emotional involvement. It also gives you confidence, knowing that you have a predetermined response to different market scenarios.

But perhaps the most important benefit of a trading plan is that it helps to keep you focused and disciplined.

Trading can be a stressful and emotional pursuit, and it's easy to get caught up in the excitement of it all. A trading plan helps to ground you and keep you on track.

Before we jump into how to create a trading plan, you might want to check out our trading plan template . It’s a spreadsheet trading journal that’ll help take your trading to the next level without having to invest in any trading software.

How to Create a Trading Plan in 5 Steps

Discipline and consistency are essential qualities for any successful trader.

Without these, you'll struggle to stick to your plan and make consistent profits.

To be successful in trading, you need to be able to follow your plan even when things aren't going your way.

This means being disciplined enough to stick to your rules, even when it's tempting to deviate from them.

Consistency is also key.

If you're inconsistent in your approach, you'll find it difficult to build a track record of success.

You need to be consistent in your execution, risk management, and trade review process to ensure that you're continually improving and moving closer to your goals.

So, how do you develop discipline and consistency in your trading?

One way is by creating a pre-market routine. This is a set of activities that you perform every day before you begin trading.

It could be something as simple as making your bed, or as involved as reviewing economic data and key support and resistance levels.

Having a pre-market routine helps to set the tone for your trading day and get you in the right mindset . It also helps to build discipline and consistency, as you're following the same routine every day.

Step 1: Premarket Routine

Creating a pre-market routine is an important step in developing discipline and consistency in your trading.

It helps to set the tone for your trading day and get you in the right mindset to tackle the markets.

But what should this routine consist of? It really depends on your individual needs and preferences.

Some traders like to start their day with physical exercise, while others prefer to spend time reviewing economic data and key support and resistance levels.

Here are a few examples of activities that you might include in your pre-market routine:

Neatly making your bed :

This may seem like a small and insignificant task, but it can actually have a big impact on your mindset. A neatly made bed gives you a sense of accomplishment and sets the tone for a productive day. Plus, it just feels good to start your day off with a clean and organized space.

Brushing your teeth :

This is a no-brainer, but it's still worth mentioning. Taking care of your personal hygiene is important for both your physical and mental well-being. Plus, it's just plain gross to trade with dirty teeth (not to mention, bad for your breath).

Doing a 15-minute stretch and workout :

Physical activity has been shown to improve cognitive function and boost mood. Plus, it's a great way to start your day off on a healthy note. You don't have to do a high-intensity workout – even a quick stretch or some yoga poses can make a big difference.

Preparing a snack for the day :

Trading can be mentally and emotionally draining, so it's important to fuel your body with healthy snacks. This can help to keep your energy levels up and your mind sharp. Some good options might include nuts, fruits, or protein bars.

Showering :

Again, this seems like a basic task, but it's important for both your physical and mental well-being. Taking a shower can help to wake you up, refresh your mind, and boost your mood. Plus, it's just plain nice to start your day feeling clean and refreshed.

Reviewing yesterday's trade journal :

It's important to reflect on your trades and learn from both your successes and your mistakes. By reviewing your trade journal, you can identify patterns and areas for improvement. This will help you to become a better trader over time.

Viewing economic numbers for the day :

Knowing what economic events are coming up can help you to make informed trading decisions. By reviewing the economic calendar, you can get a sense of what's likely to impact the markets and how you should position your trades accordingly.

Reading your trade plan :

This might seem obvious, but it's important to actually read and review your trade plan before you start trading. It will help you to get clear on your goals and your rules for finding and executing trades.

Notating key support and resistance levels :

Knowing where key support and resistance levels are can help you to identify potential entry and exit points for your trades. By noting these levels before you start trading, you can be more prepared to take advantage of opportunities as they arise.

Remember, the key is to find activities that help you to get focused and prepared for the day ahead.

You might want to experiment with different activities to see what works best for you.

Step 2: The Trader's Vow

Once you've developed your pre-market routine, it's time to take the next step and make a commitment to your trading plan. This is where the "vow" comes in.

The vow is essentially a promise that you make to yourself to follow every rule in your trade plan. It's a way of reinforcing your commitment to your goals and your plan.

Here's an example of a vow that you might make:

Making this vow is a powerful way to reaffirm your commitment to your trading plan and to your success as a trader.

It helps to keep you focused and motivated, even when things get tough.

Remember, trading can be a challenging pursuit, and there will be times when you're tempted to deviate from your plan.

Having a vow in place can help you to stay on track and stay committed to your goals.

It's also important to note that your vow should be personal and meaningful to you.

Don't just copy someone else's vow – take the time to write your own, using your own words and motivations.

This will make it more powerful and meaningful to you.

So, take same time to think about what your vow might be.

Write it down and keep it somewhere visible, like on your computer or on a post-it note on your desk.

This will help to keep you focused and motivated as you work towards your trading goals.

Step 3: Set your Trading Goals

When it comes to trading, it's important to have specific and measurable goals in place. These goals should be aligned with your overall financial and lifestyle goals, and should help to keep you motivated and focused.

Here are a few examples of trading goals that you might want to consider:

Create the lifestyle you want :

For some traders, the goal of trading is to create a lifestyle that allows them to turn work off when they're done and enjoy everyday life. This might involve achieving financial independence, or having the freedom to travel or spend more time with family and friends.

Provide for your family and loved ones :

For other traders, the goal might be to provide for their family and the people they care about. This could involve saving for your children's education, or creating a comfortable retirement for yourself and your spouse.

Enjoy your career and find fulfillment in your work :

For some traders, the goal might be to find fulfillment and enjoyment in their work. Trading can be a rewarding and exciting career, and setting this as a goal can help you to stay motivated and engaged in your work.

Achieve financial independence :

For many traders, the ultimate goal is financial independence – the ability to live off the profits from their trading. This can be a challenging goal to achieve, but it's certainly possible with the right mindset and approach.

It's important to note that these are just a few examples, and your goals will likely be unique to you.

Take some time to think about what your goals are, and how trading can help you to achieve them.

Plan Your Trade - The Importance of Clear and Defined Rules

In addition to having specific goals in place, it's also important to have clear and defined rules for finding and executing trades.

These rules should be based on your trading strategy and should help you to stay disciplined and consistent in your approach.

Here are a few examples of trade rules that you might want to consider:

Only enter trades that meet your criteria :

It's important to have a clear set of criteria that you use to identify potential trades. This might include factors such as trend, price action, volume, and/or technical indicators. By only entering trades that meet your criteria, you can increase your chances of success.

Use stop loss orders :

Stop loss orders are an important risk management tool that help you to limit your potential losses. By setting a stop loss order, you can protect yourself from large losses if the market moves against you.

Trade with a plan :

Before you enter any trade, it's important to have a clear plan in place. This should include your entry and exit points, as well as any risk management measures you will take. By having a plan in place, you can trade with more confidence and reduce the chances of making impulsive decisions.

Only trade with capital you can afford to lose :

Trading carries inherent risk, and it's important to only trade with capital that you can afford to lose. This will help to prevent you from taking on too much risk and potentially jeopardizing your financial stability.

Be willing to cut your losses short :

No one likes to take a loss, but sometimes it's necessary in order to protect your capital. By being willing to cut your losses short, you can prevent small losses from turning into bigger ones.

Let your profits run :

On the other hand, it's also important to let your profits run when they're in your favor. This means not taking profits too early and giving your trades room to grow. By letting your profits run, you can maximize your returns.

Remember, these are just a few examples of trade rules that you might want to consider.

It's important to customize your rules to fit your individual trading strategy and goals.

Step 4: Risk Management

Risk management is an important aspect of trading, and it's essential to have clear and defined risk management measures in place.

These measures should help you to protect your capital and reduce the chances of large losses.

Here are a few examples of risk management measures that you might want to consider:

As mentioned earlier, stop loss orders are an important risk management tool that help you to limit your potential losses. By setting a stop loss order, you can protect yourself from large losses if the market moves against you.

Set position size limits :

It's also important to have limits in place for how much you're willing to risk on any given trade. This can help you to prevent overtrading and protect your capital.

Use diversification :

Diversification is a risk management technique that involves spreading your capital across a variety of different assets. This can help to reduce the impact of any one asset on your overall portfolio.

Have a plan for managing your emotions :

As a trader, it's important to have a plan in place for managing your emotions. This might involve setting aside time to review your trades, or finding a mentor or accountability partner to help you stay on track.

By implementing these risk management measures, you can help to protect your capital and reduce the chances of large losses.

Remember, risk management is an ongoing process, and it's important to continuously review and adjust your measures as needed.

Step 5: Trade Review Process

Continuous improvement is key to success in trading, and an important part of this process is regularly reviewing and analyzing your trades.

By reviewing your trades, you can identify patterns and areas for improvement, and make adjustments to your approach as needed.

Here's an example of a trade review process that you might want to consider:

Set aside time each week to review your trades :

It's important to carve out dedicated time to review your trades. This might be once a week, or once a month, depending on your trading frequency.

Use a trade journal to record your trades :

A trade journal is a valuable tool for tracking and analyzing your trades. It should include details such as the date, instrument, entry and exit points, and any notes on the trade.

Identify patterns and areas for improvement :

As you review your trades, look for patterns and areas for improvement. For example, are you consistently taking too large of a position size? Are you missing key entry points? By identifying these patterns, you can make adjustments to your approach as needed.

Seek feedback from a mentor or accountability partner :

It can be helpful to get feedback from someone else on your trades. This could be a mentor, accountability partner, or even a group of fellow traders. By getting an outside perspective, you can gain valuable insights into your approach and identify areas for improvement.

By regularly reviewing your trades and making adjustments as needed, you can improve your performance over time and become a more successful trader.

Conclusion: The Value of a Solid Trading Plan

In conclusion, a solid trading plan is essential to your success as a trader.

It helps to provide clarity and objectivity in your approach, and can help you to trade with confidence and less emotional involvement.

A good trading plan should include a pre-market routine, a vow to follow your plan, specific goals, clear rules for finding and executing trades, risk management measures, and a trade review process.

By following these guidelines, you can increase your chances of success and improve your performance over time.

If you're interested in taking your trading to the next level, we invite you to sign up for early access to TradeZella, a powerful trade journal platform that helps you to create, backtest, and optimize your trading strategies. With TradeZella, you can take control of your trading and achieve your financial goals.

Sign up for access today and start building the ultimate trading plan for your success.

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• Order Types
• Money Management
• Day Trading Salary
• The Pattern Day Trading Rule
• Stock Earnings
• Trading Patterns

Chart Patterns

• Candlesticks Explained
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• 8 Bearish Candlesticks
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• Head and Shoulders

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• How to Trade The Head and Shoulders Strategy
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10 Elements of a Winning Trading Plan

Mar 18, 2019

Written by: Al Hill

Ask 100 traders if they can send you a copy of their sample trading plan and I guarantee you it will be the highest rejection level event of your life.

Unlike business owners who generally have a business plan in order to provide a strategic vision to employees and to stay focused on their primary line of business, most traders never take the time to create a business, a.k.a trading plan.

What is a Trading Plan?

A trading plan is your roadmap for what you are going to do in the markets. It’s something that you have to create and is not optional.

The trading plan can be whatever works for you, but it needs to be written down. For me, at times it has been illustrations, while other times it has been a technical manual of sorts.

You want the plan to be a page. Now, I’m not suggesting you over complicate your strategy, but you should have a detailed idea of what you are doing. This should go beyond the standard trading setup and needs to touch on items like money management, trading discipline and your overall purpose for trading.

Now, let’s dive into how to create a trading plan using the 10 elements of a winning trading plan you can create to help improve your performance.

#1:  How Many Trades will You Use to Evaluate Your Performance?

How Many Trades?

In most lines of business, time is the main driver for evaluating performance.  Companies report on a quarterly basis to the street, which fundamental analysts then feverishly work through the data to assess a company’s future growth potential.

Well, how long should you wait to evaluate your trading performance …yearly, monthly, daily?

The answer to this question is very simple.  Base your evaluation period on the number of trades placed and not by the amount of time passed.

Time is irrelevant in the world of trading.  Trading is one of the few areas in this realm, where the space-time continuum are of no relevance.

Those of us that have been trading for some time know that one-year’s stellar trading performance can lead to a 2-month binge of destruction, which can easily eradicate everything you’ve worked so hard to create.

The way to address the tracking of your performance is to create a set number of trades that you will evaluate against key performance metrics, which we will touch upon next.

You will need to identify the right number of trades for you to evaluate, but this number needs to be high enough that you have a decent sample set, but low enough where it prevents you from going on a destructive trading binge.

For me, that number is 10 trades.  This applies to both my swing trading and day trading activities.  On average, it will take me approximately 3 months to place 10 swing trades and about 4 days to place 10-day trades.  I only mention the time element so you can see how long it takes me to place that number of trades based on my trading style , but you can easily perform the same math in your head.

So, what is the number of trades you will use when evaluating your trading activity?

#2:  Identify Your Key Performance Metrics

Performance Metrics

I use the KISS method or Keep It Simple, Stupid (for those new to the term) for measuring my trading performance.   To that aim, I only care about the following two metrics:

This is a ratio of your profitable trades divided by your losing trades.  Over a 10 trade cycle, I would take, for example, $15,000 (winners)/$5,000 (losers), which would equal an R of 3.  This essentially translates to the fact I profit three times more than I lose.  You will want to measure R over every cycle.  There is no set minimum or maximum R value; however, you will want to track your performance over time and quickly identify when you are below your historical average.

• This is the lowest intraday dollar value of your account within a trading cycle. Most max drawdowns require a new high to take place in order to mark the drawdown.  I, however, feel this is not the right approach, because it could take you a series of trading cycles before you hit a new portfolio high.  I recommend that you determine how low your account has gone from the starting point of the cycle in percentage terms. For example, if I have a starting portfolio value of $100k for a 10-sprint cycle and my account value hits $80k, then my max drawdown was 20%.  Just like R, there is no hard and fast rule on maximum drawdown.  Over time, you should aim to reduce your drawdowns, as this will ultimately lead to a portfolio balance that continues pointing up and to the left, with very little pullbacks.

#3:  What Time of Day will You Trade?

For my day traders, I highly recommend you limit your trading activity.

For me, I trade from 9:50 am – 12:00 pm. Any trade activity occurring before or after this zone, I am purely a spectator on the sideline.

#4:  Define Your Trading Edge

Similar to the times of day you will trade; keep your trading edge down to one or two setups when starting out.  The more strategies you hope to master, the more difficult it will become to consistently make money in the market.

Below are the details of my trading edge:

• Early Range Breakouts
• High Volume
• Tight Spreads
• Consolidation prior to the breakout
• Only enter new positions between 9:50 am and 10:10 am

That’s it.  If you feel your list bubbling up to 20+ criteria, you will drive yourself crazy trying to respect all of your rules

#5: Identify Stocks to Trade

Develop a standard methodology for identifying plays. You will have to first ask yourself the question, what is my time horizon for this trade? Day traders will want to focus on stocks in the news, while long-term traders will want to focus on stocks that are developing new business models that show the potential for multi-year growth. Whatever your trading style, make sure you identify the plays that have the highest odds of profitability.

For day traders, you will want to focus on the market movers.  This provides you with the greatest opportunity for locating stocks that are trending hard with high liquidity.  Within TradingSim, our market movers component provides you the top list of gainers and losers in real-time.  This way you don’t have to navigate through hundreds of charts manually.

TradingSim – Market Movers

Once you have found a stock you like, you will need to add the stock to your watchlist, so you can keep an eye on the security.

TradingSim – Watchlist

#6:  Place Your Stop Loss

Stop losses are not a negative thing; they are what keep you in business over the long haul

My stop loss is once the position goes against me by 2%.  The 2% threshold is based on the volatility of the stocks I trade and may not be suitable for your trading style.  The point here is just to make sure you have a stop loss.  If you find your stop is consistently being hit, then you need to take a deeper look into the volatility of the stocks you are trading .

#7:  When to Exit

You have heard all the market wizards say, “Let your winners run”.  Well, once you figure out what that means please let me know.

The greed in you will prevent you from closing your winning trades, even after you hear that little voice in your head tell you the run has come to an end.  The way to avoid this scenario is to have a clear exit strategy.

Again, keep it simple.  The exit strategy should be as simple as when the stock crosses below a moving average or the VWAP.

If you would like more insight into my own exit strategy for swing trading please take a look at the article I wrote titled ‘ How to Let Your Winners Run – 7 Tips for Success’ .

#8: How Much Money Can I Use per Trade?

Without money management, you will not stand a chance of making it in the business of trading.  For me, the amount of money I can use per trade largely depends on how well I am performing.  If I am going through a rough patch and my key performance indicators are down, then I use less money to minimize the damage to my account balance.

However, for keeping it simple in this article, I only use 10% of my available day trading buying power per trade.  For example, if I have $250,000 cash, this would translate to $1,000,000 in day trading buying power; hence, I would use $100,000 per trade.

#9:  When to Take Breaks

Take a Break from Trading+

This is something you will not see in other trading plans on the web.  When will you take a break from trading?  Sounds like a no-brainer, but you will be surprised how many traders I talk to that never take breaks.  Whether the trader has just had the best series of trades or an all-out massacre of their account, the vast majority of traders just keep placing trades, day after day.

I take a break after I have placed 100 trades.  I will take a day off just to give myself time to relax and reflect on my trading activity.  You could be asking yourself; couldn’t I just take a break on the weekend or over federal holidays?  Very true, but taking a self-imposed break goes back to discipline and exercising my control of the market.  While the market is always there, I don’t always have to respond to her every move.

#10: Limit Up/Limit Down

The major exchanges and prop firms think in terms of limit up and limit down.  This concept of curbs in was originally created after the 1987 crash and like everything else has become so complicated, it’s not worth trying to explain in less than 5,000 words.

For prop firms, their risk management rules will closely monitor how much a trader is up or down for the day.  Once a trader reaches a particular extreme based on their past trading performance, this trader is not allowed to place any additional trades for the day.

Why do we as traders not think in terms of limit up or limit down?

For me, if I lose 2% of my trading capital at any point of the day, I need to exit all positions and go fishing.  Conversely, if I make 7.5% of my trading portfolio in one day, it is time to go fishing.

Have you ever thought in terms of limit up/limit down?  What are your limit up/limit down targets?

Sample Trading Plan

Now that we have covered the 10 inputs of a trading plan, below is a sample trading plan for your review.  While this is a sample trading plan for day trading, you can simply change the parameters and apply them to any trading period for success.

Beach Photo by Trish Hartmann

Time Photo by Sean MacEntee

Performance Metrics by Alan O’Rourke

Tea Cups by Clyde Robinson

Tags: Day Trading Basics

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Trading Plan: Definition, How It Works, Rules, and Examples

What Is a Trading Plan?

A trading plan is a systematic method for identifying and trading securities that takes into consideration a number of variables including time, risk and the investor’s objectives . A trading plan outlines how a trader will find and execute trades, including under what conditions they will buy and sell securities, how large of a position they will take, how they will manage positions while in them, what securities can be traded, and other rules for when to trade and when not to.

Most trading experts recommend that no capital is risked until a trading plan is made. A trading plan is a researched and written document that guides a trader's decisions.

Key Takeaways

• A trading plan is a roadmap for how to trade, and no trades should be placed without a well-researched plan.
• The plan is written down and followed. It is not altered unless it is found not to work (make money) or the trader finds a way to improve it.
• A basic trading plan includes entry and exit rules, as well as risk management and position sizing rules. The trader may add additional rules at their discretion to control when and how they trade.

Understanding the Trading Plan

Trading plans can be built in a variety of different ways. Investors will typically customize their own trading plan based on their personal goals and objectives. Trading plans be quite lengthy and detailed, especially for active day traders, such as day traders or swing traders . They can also be very simple, such as for an investor that just wants to make automatic investments each month into the same mutual funds or exchange traded funds (ETFs) until retirement.

Automatic Investing and Simple Trading Plans

Brokerage platforms allow investors to customize automated investing at regular intervals. Many investors use automated investing to invest a specific amount of money each month into mutual funds or other assets.

While the process is automated, it should still be based on a plan that is written down. This way the investor is more prepared for what will happen each month, and the planning process will likely also force them to consider what to do if the market doesn't go their way.

For example, a 30-year old may decide to deposit $500 each month into a mutual fund. After three years, they check their balance and they have actually lost money. They have deposited $18,000 and their holdings are only worth $15,000.

The trading plan outlines not only what to do to get into positions, but also states when to get out.

Buy-and-hold investors may simply automatically invest and they don't sell anything until retirement. They may even have a rule of not looking at their holdings.

Other investors may choose to automatically invest only after the stock market has fallen by 10%, 20%, or some other percentage. Then they start to make (larger) monthly contributions. Or, other investors may choose to automatically invest every month, but have sell rules for if their investments start to decline too much in value.

Automatic investors should also decide how much capital they are going to allocate to each investment. This isn't a random decision. It should be well-thought-out and researched, then written down in the plan and followed.

While automatic investing is simple, a trading plan is still required to navigate the ups and downs of the investments.

Tactical or Active Trading Plans

Short-term and long-term investors may choose to utilize a tactic trading plan. Unlike automatic investing where the investor buys securities at regular intervals, the tactical trader is typically looking to enter and exit positions at exact price levels, or only when very specific requirements are met. Because of this, tactical trading plans are much more detailed.

The tactical trader needs to come up with rules for exactly when they will enter a trade. This could be based on a chart pattern, the price reaching a certain level, a technical indicator signal, a statistical bias, or other factors.

The tactical trading plan must also state how to exit positions. This includes exiting with a profit, or how and when to get out with a loss. Tactical traders will often utilize limit order s to take profits and stop orders to exit their losses.

The trading plan also outlines how much capital is risked on each trade, and how position size is determined.

Additional rules may also be added which specify when it is acceptable to trade and when it isn't. A day trader, for example, may have a rule where they don't trade if volatility is below a certain level, as there may not be enough movement or opportunity. If volatility is below a certain level, they don't trade, even if their entry criteria is triggered.

Altering a Trading Plan

Trading plans are meant to be well-thought-out and researched documents, written by the trader or investor, as a roadmap for what they need to do in order to profit from the markets. Plans shouldn't change every time there is a loss or a rough patch. The research that goes into making the plan should help prepare the trader for the ups and downs of investing and trading.

Trading plans should only be altered if a better way of trading or investing is uncovered. If it turns out a trading plan doesn't work, it should be scrapped. No trades are placed until a new plan is made.

Example of a Trading Plan—Position Sizing and Risk Management

A trading plan can be quite detailed, and at minimum should outline what, when, and how to buy; when and how to exit positions, both profitable and unprofitable; and it should also cover how risk will be managed. The trader may also include other rules, such as how securities to trade will be found, and when it is or isn't acceptable to trade.

To give an example of what one of these sections could look like, let's assume a trader has determined their entry and exit rules. That is, they have determined where they will enter, and where they will take profits and cut losses. Now, they need to come up with risk management rules.

Rules or topics to include in the trading plan may include:

Only Risk 1% of Capital Per Trade

That means that the distance between the entry point and stop-loss point, multiplied by the position size, can't be more than 1% of the account balance. This rule governs position size, because position size is the only unknown and needs to be calculated. The trader may opt to risk 2%, 5%, or 1.5%.

Assume a trader has a $50,000 account. That means they can risk $500 per trade (1% of $50,000). They get a trade signal that says to buy at $35 and place a stop loss at $34. The difference between the entry and stop loss is $1. Divide the total amount they can risk by this difference: $500 / $1 = 500 shares. If they buy 500 shares and lose $1, they lose $500 which is their maximum risk. Therefore, if they want to risk 1%, they buy 500 shares.

Leverage or No Leverage

The trading plan should outline whether leverage can be used or not, and how much if it is allowed. Leverage increases both returns and losses.

Correlated or Uncorrelated Assets

Part of the risk management process is determining whether correlated assets are allowed to be traded, and to what degree. For example, an investor must decide if they are allowed to take full positions in two stocks that move very similar. Doing so could result in double-risk if both hit the stop loss, but also double-profits if the targets are reached.

Trading Restrictions

A trading plan may include curbs that stop trading when things aren't going well. For example, a day trader may have a rule to stop trading if they lose three trades in a row, or lose a set amount of money. They stop trading for the day and can resume the next day. Other trading restrictions may include reducing position size by a set degree when things are not going well, and increasing position size by a set amount when things are going well.

The risk management section of the trading plan may include all these rules, customized by the trader. It may also include other rules that help the trader manage their risk according to their objectives and risk tolerance .

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• Trading Basics

Having a Trading Plan: Treat Your Trading Like It’s a Business

Learn how to approach your trading like a business with these five essential components.

Key Takeaways

• Know the five components that should be part of any trading plan
• When creating a trading plan, make sure it aligns with your financial goals
• Having a trading plan and following it can help you avoid making emotional financial decisions

As Benjamin Franklin wisely said in the 1700s, “By failing to prepare, you are preparing to fail.”

Fast-forward to 2021 and apply this to your trading or investing approach. How much have you prepared?

Any small business owner knows a business plan is essential. No bank is likely to give you a loan without a business plan. The goal of trading is to potentially grow your wealth, similar to that of a small business investment. So, if you haven’t taken the time to write a trading plan, carve out some time this weekend. By the way, this is something you can share with your partner.

(Hint: Good communication with your significant other about trading plans can help keep everyone on board with the approach, desired goals, and time investment needed for successful trading.)

Five Essential Components of a Trading Plan

Set specific financial goals. Write down your specific objectives, but try to dig deeper than simply “saving for retirement.” This could be a dollar amount within a specific time frame. For example maybe you want to make a profit of $1,000 a month from your trading. Or it could be a specific percentage gain you want to see in your portfolio within a specific time period. The financial decisions you make should align with your objectives.

Determine your buy criteria. This could take weeks or months to refine and could evolve over time as market environments change. Spend time studying, learning, and developing an approach that works for you. Do you buy stocks based on fundamental or technical analysis, or a little of both? Are you a fundamental stock picker, but like to use charts to fine-tune entry points?

• Write down a specific fundamental criteria to look for in a stock. This could include P/E ratio, annual earnings increases, or rising dividends. It’s a good idea to know earnings and dividend dates ahead of time.
• What indicators do you use and what signals do you need for confirmation? Do you want to follow trends, or do you want to invest in specific asset classes? Develop a plan and paper trade it. Once you’re comfortable, write it down and adhere to it. This is an important step because you’re looking to get the necessary information that can help you make your investing decisions.

Know when to sell. One of the cardinal rules of successful trading is knowing where to exit before getting in to a trade . If the market starts moving against you, you should be prepared to take your losses and exit your position. So, it’s important to plan your exits. If you’re a technical trader, you could use potential resistance levels from long-term charts (think weekly or monthly) or chart pattern targets such as a break in a head and shoulders neckline. Make a plan for exiting profitable and losing trades, write it down, and automate an exit point. You could include the following:

• Stop orders. Sometimes markets can move against you by quite a bit. Placing a stop order at the time you place your entry can help protect your positions. Where you place the stop is related to how much you’re willing to lose on a trade. It could be a percentage or dollar amount. It’s a personal choice and could involve analyzing past price moves to find what works best for your comfort level.
• Trailing stop orders. These are a type of stop order that dynamically follows market prices and can be used to protect long and short open positions. For a long position, a trailing stop can be set at any value below market price, and for short positions, a buy-to-close order can be placed above market price. For example, say you want to buy a stock at $25 per share and would like to protect it with a trailing stop. You could place a trailing stop order of $2, which means the stop order will rise as the stock price rises, but if the stock price falls $2, the stop order becomes a market order to close the position.

Stop market orders do not guarantee an execution at or near the activation price. Once activated, they compete with other incoming market orders.

Plan for tomorrow by setting financial goals today.

Identify your trading or investing time frame.  Determine your trading time frame. Are you a short-term swing trader, looking for two- to three-day opportunities, or do you want to hold positions for multi-month moves? Maybe you do both, i.e., have some longer-term investments and some that are shorter term. Write it down.

Develop a risk management plan.  Trading is about taking risks, so it goes without saying that risk management is very important to successful trading and investing. Consider setting specific risk parameters that you’re comfortable with, such as when to protect your capital, when to take profits, and the size of your positions. Remember: You’re operating in an uncertain environment, which means you’re likely to have losses. The key is to minimize those losses, and that means you should be ready to take action when necessary. There are different ways to manage risk. Here are a few examples.

• Some traders look for a risk/reward ratio of about 1:3, which means they’re willing to risk $1 to potentially earn $3.
• Some traders follow the so-called 2% rule, which means they’ll never risk more than 2% of an entire portfolio in one trade.
• Some traders allocate specific percentages of their portfolio to different assets for better diversification.

How to Measure Trading Success

When it comes to trading, hard work can pay off. What’s work when it comes to trading? Keeping a trading journal and reviewing trades on a weekly or monthly basis can be helpful. Write down the five essential components of a trading plan and compare your trades against them. What went right? What went wrong? Did you risk too much? Are you following your trading plan, or did emotional trading take over? A review process can help keep you accountable and allow for adjustments as needed to help you pursue your goals and approach trading like a business.

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Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

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TJS Trading Plan

You’ll find a trading plan example and   template (below), but first…, your trading plan  should be used as a guide for the type of information that you may wish to include in your own detailed trading plan. however, each of the following sections should be addressed in some form..

A trading plan can be as simple or as complex as you want (or need) it to be. Of course, if it’s too simple, you may not have enough information to successfully implement key points, rules (and/or) strategies during each trading session. Conversely, if it’s too complex, you may find it hard to adhere to and forego using it altogether.

The main point of a trading plan is to keep you calm and relaxed during a trade, as all thinking should have been done prior to your entry – not during your trade. Professional traders are relaxed and composed when trading. Amateurs are nervous before the trade and reckless during the trade.

Keep your trading plan dynamic! Modify it (only) when your experience and knowledge of the markets (grows), and your trading activities & data analysis tell you to do so… never during a trade or trading session!

Once your trading plan is complete, you’ll find that trading will become more objective, you will be less emotional, and your trades will be more selective. It will add structure and organization to each trading session. It will be your ally when dealing with unexpected moves in the market, rather than making unjustified decisions when a trade does not go as expected.

Abide by the classic market saying, “Plan Your Trade and Trade Your Plan.”

Trading plan - example.

This is an “example”, used for illustration purposes only. Please take any ideas that you feel are a good fit for your own trading business, but know that each traders ‘plan’ should be unique and individualized based on their own future goals and past experiences.

Why am I trading:

I recognize that Trading is one of the most challenging and rewarding professions on earth. I welcome the challenge, and through: education, consistency & persistence, a specific trading plan, proper mindset and the right tools, I will overcome the challenges and succeed and prosper in the financial trading arena. This will allow me to govern my own path and destiny without having to rely on anyone else for my well-being.

What is my Approach:

My beginning approach is to take advantage of short-term trends in the Equity market, while using the daily (chart) time-frame to scan for potential “Swing” trades that will be held for one to a few days, possibly weeks or until the trend has ended or my target objective has been reached. Once I find consistency in this less frequent time-frame, I will seek to duplicate my success on the more frequent intraday time-frames.

What are my Goals :

• Monthly – To never let a ‘planned’ opportunity pass. To follow my trading plan without reservation. To hit “singles & doubles”, knowing that “home-runs” will come over time. Above all else, I will be consistent!
• Yearly – To steadily increase my risk amount when my data tells me it is advisable to do so. To continue learning through my day-to-day activities of being in the market and through continued education. To keep trading business expenses to a minimum. To see a steadily rising equity curve!
• Long Term – To trade for life! I would like to have multiple accounts; One for Income, via Day trading and one for Wealth, via Swing trading. This will allow me to eventually build up a retirement account where I can trade within a Roth 401K Plan.

What are my Objectives:

Being a trend-trader, I will seek to attain no less than a 50% win percentage, with an overall Profit Ratio of no less than 1.5.

What Markets will I trade:

My focus will remain on the Equity markets, but I will look to duplicate successes in other market arenas when my time allows for greater trade frequency.

What Timeframes will I trade:

Daily setups (only) during my initial trading phase.

What Setups will I trade:

I will scan for the following two “trend” setups: 1) Basing/Breakout near 20ma, 2) Pullback to Minor Support or a rising 20ma.

Entry rules:

All orders will be limit orders at the Ask price once a trade confirmation has been achieved. If my full share lot was not executed, I will seek to add liquidity by buying the remaining shares at the currently displayed bid price.

Where will I place my Stops:

My stop-loss prices will always be determined prior to entry, and will be at logical major-pivot locations on the chart that I’m trading from.

Exit take profit (and/or) trail-stop rules:

Half profit will be taken nearing a predetermined point of support/resistance, which must represent a 2:1 reward/risk ratio. Final profits will be taken after a confirmation of the end of the current trend (from chart of entry), unless ultimate target has been achieved first.

Risk Management rules:

My trade risk (1R) will be 1% of current (daily adjusted) trading capital. I will not have more than 4R at risk at any one time.

Pre-market activities, or routine:

Log in to trading platform. Review index charts for short-term bias. Use my chosen finance website to review earnings reports, and then log into Trade Ideas scanner for new trade opportunities. Load potential trades into Long and Short watch lists. Set alerts near entry points.

Post-market activities, or routine:

Update TJS Journal. Take screenshots of closed trades and hyperlink to its corresponding trade journal entry. Review all open trades for possible next day action. Review any closed trades to determine whether plan was followed (or not). Mark up SPY and Q’s chart for next day bias. Clean-up trading platform.

What Tools will I use for my trading business:

• Falcon Trading Computers – trading computer
• Super Trader Pro – charting platform
• Yahoo Finance, Trade Ideas – scanning software and opportunities
• Trading Journal Spreadsheet (TJS) Elite, for trade Analysis and Record-keeping

Review process:

Review the notes and screenshots of each trade 5-8 days after closure and after all biases and emotions have subsided. Write notes in the journal sections of the TJS as to how future trade executions, management and exits can be improved. Bi-weekly, check TJS Analysis sheet to see what sub-categories are producing positive expectancy (with frequency). Modify ‘plan’ according to updated information.

Continuing Education:

Read one new trading book a month from my selected group of trading (mentors / authors). Attend two seminars / conferences a year when/if my chosen trading (mentors / authors / educators) will be teaching or broadcasting.

Discipline & Mindset notes:

I will abide by the (5) Fundamental Truths & “Trader” Mindset, from author Mark Douglas of “Trading in the Zone”.

• “Anything” can happen
• I don’t need to know what is going to happen next in order to make money.
• There is a random distribution between wins & losses for any given variable that defines an edge.
• An Edge is nothing more than an indication of a higher probability of one thing happening over another.
• Every moment in the market is unique.

My Golden Rules (and/or) Trading Commandments:

• Be disciplined every day, and in every trade.
• I will be my own trading “self”, never trading another’s plan.
• I love taking small losses.
• I’ll always earn the right to trade bigger.
• I am not addicted to trading just to see what happens.
• I only trade high reward setups that have the probabilities in their favor.
• Be a bricklayer – make the same type of trades over and over again.
• Once I find a setup, I do not hesitate; once in a trade, I do not over analyze.
• A detailed Trading Journal will be kept at all times, and I will act upon what it tells me.
• Everything I do will be for the success of my business!!!

This is a living document . . . It may change as my experience increases, (and/or) my knowledge of the markets increase.

Trading plan - download, click image to download.

• this is a Microsoft Word template.

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TJS Trading Plan – template / example /download

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How to develop a trading plan

“Many people think that trading can be reduced to a few rules. Always do this or always do that. To me, trading isn’t about always at all; it is about each situation.” – Bill Lipschitz, Market Wizard.

As the age-old adage goes, if you fail to plan, then plan to fail. Trading is a risky business.

“Risky” means that, like other endeavours in life, you need to plan ahead in order to manage the inherent uncertainty of the markets, and make sure that your risk capital (which, after all, is what allows you to stay in the game) is never depleted. Notional funding, proper position sizing, and discipline are key to this part of the equation.

“Business” means that you are to treat this endeavour as a business and not as a gamble. If you had a business plan to show Warren Buffett, would he approve and invest in you? Buffett invests in businesses that will be around for the next 100 years—or at least for the foreseeable future. Businesses that are strong, with a clear strategy, with a competitive moat. You need to structure your trading business in the same way.

Developing a clear edge (your moat), sitting on your hands until your edge is in play (patience), diversifying your bets without diworsifying them, and managing correlations are key to this part of the equation. But also being in a personal position to make trading work for you. Don’t think about paying the bills with your trading. Rather, make sure you have diversified income streams that allow you to learn, survive, and then thrive, without being pressured to perform.

You need a clear and concise plan to guide you along your path to consistent trading, as your plan becomes the foundation for rational decision-making, instead of reckless emotion-driven mistake-making. But not any old plan will do. It needs to be unique and special to you. It needs to be your plan—one you own deep down.

A Trading Plan Template

When experienced traders talk about trading plans, aspiring traders usually start to yawn and get distracted. After all, isn’t it only about “learning a setup” and “executing the setup”? Unfortunately, it isn’t that simple at all. Actual setups are only the tip of the iceberg. A real trading plan is much more like a well-prepared game of chess. You need strategy (the goals and the objectives), tactics (how to achieve the goals), and psychology (stress management). Here is a blueprint for a solid trading plan:

• Secure multiple income streams (i.e. get a part time job or remain on your day job while you learn and perfect your method; make sure your risk capital is capital you can afford to lose without changing your lifestyle).
• Understand how the markets work. (Learn about market structure, market dynamics, macroeconomic news events, and their implications).
• Understand your edge (and there are many edges to be exploited; so long as you find a set of conditions that are based on actual participation, you will be just fine).
• Accept uncertainty. (You will have losses, especially early on in your trading career, so plan for them, and don’t try to win every trade; try instead to select quality trades and let them work for you).
• Understand probabilities. (Anything can happen in the short term; your edge will reveal itself in the medium term as the distribution of wins/losses is rather random).
• Contingency planning. (Always have a plan B; if you cannot make your trading work within a determined time horizon—for example, one year—then seek coaching or help if you want to pursue this business; do not throw good capital after bad).
• Understand when your edge is in play, and keep tabs on it. (How many trades per week do you have? How many per month? This way, you can plan your month in advance).
• What is your system’s aim? (Examples might be to maximize short-term gains within a momentum move; to scale into potential long term trends as they develop; to fade range extremes; etc.)
• Define the appropriate market environment. (What constitutes a trend? What constitutes a range? Where are the transition points? Which situation is ideal for my strategy?)
• Define a low-risk setup. (Breakouts or pullbacks are classic examples of ideal setups in a trend environment.)
• Define your risk per trade. (Usually, it’s best to not risk anymore than 1% of consolidated equity per trade, and that 1% should be “fit” to the amount of pips from entry to stop loss, so that larger positions are possible when stops are tighter and vice versa).
• Define how to deploy your risk. (You don’t have to enter with a full stake; you can scale-in as the price moves in your favour; you can enter a portion at market and leave a limit order to catch a retracement, etc.)
• Define your trade management criteria. (When to hold, when to fold? When to scale out or add? The objective here is to ride winners and cut losers as soon as logically possible. Unfortunately, there is no magic formula for this, and you will need to experiment.)
• Define your exit criteria. (Pre-defined targets? Volatility targets? Trailing stops? Once again, there is no magic formula and you will need to explore what works best with your method.)
• Performance monitoring. (Keep detailed statistics on your trades, especially in the beginning. Beyond the cold hard maths, keep tabs also on the approach and setups you use, because if you have a record of 50 trades, but you’ve done something different in each one of them, in reality you don’t have a statistically valid track record, because you’re using a repetitive process.)
• System improvement. (Based on your performance monitoring, you will be able to identify key areas to work on and key areas that are working well. For example, if you win frequently, but your winning trades are small compared to your losing trades, you might consider keeping tighter stop losses or finding ways to let your winners run further.)
• What are your core beliefs (about the market, about yourself, about how the world works)?
• Do your core beliefs match those of the top market participants? (Since we tend to trade based on what we believe to be right, we need to be in tune with the markets, and reading through Market Wizards might prove to be a better exercise than reading through ZeroHedge, for example.)
• Do you have performance anxiety? (Are you afraid to lose? Are you under pressure to win? Do you feel like trading is your last hope? Any mental blocks that you have, whether you are aware of them or not, will emerge when you start to risk your capital in the markets. Be prepared to accept your mental issues and perhaps seek professional help to work through them—but do not avoid them, because it will block your performance.)
• Are you in good shape? (It’s no secret that good physical health leads to better mental health and vice versa. Avoid trading when you’re not in peak shape.)
• Work on yourself. (Mindfulness is a great practice to adopt.)
• Have iron discipline in your trading plan.
• Be grateful. (This tends to promote relaxation and appreciation, and also keeps greed away.)

The quest is not finding the Holy Grail that unlocks the secrets to market success, but rather finding an approach that fits your personality. That is the reason you need to have clear answers to all the questions above. You cannot succeed in the markets by copying someone else’s approach, because the odds are remote that their method will fit your personality. You have to know yourself, and not try to be somebody you’re not.

The Power of a Side Income

“I’m extremely well diversified. My thought process is if I screw up in one place, I’ll always have a life preserver someplace else.” – Marty Schwartz, Market Wizard.

Much of trading effectively is about stress management. A highly stressed trader makes mistakes, and has trouble trading his plan. And stress comes from many places, so it is imperative that you stabilize your personal situation first, and then attempt to tame the markets!

Here are the main perils of trading under pressure:

• Lack of discipline.
• Looking for trades as opposed to waiting for setups to appear.
• Impossibility to treat losses like the cost of doing business and nothing more.
• Overtrading.
• Cutting winners short.
• Riding losses.

Like any endeavour in life, you need to be fully committed. For limiting mental pressure in trading, this means that it does not matter what you do, even if it involves stacking shelves part-time. It’s just important to make sure you have another source of income if you want to be a trader. Cashflow is king, as it helps you manage stress.

Build your Trading Plan

With all this said and done, it is time to get our hands dirty and build a trading system from the ground up. If you view your trading plan as an expensive sports car, aimed at taking you from point A (aspiring trader) to point B (consistent successful trader), then evidently the core component of your trading plan— the “motor”, so to speak—is the actual trading system. The psychological aspect can be seen as “how you drive the car”. It is very possible to trade a successful system poorly. That’s why you also need the psychological components to make it work.

System Overview

• What is the system’s concept? Remember that simplicity trumps complexity, in trading. So keep your system’s concept simple, for example, “it is aimed at capturing a good trend”.
• What is the system’s objective? If the “background” to the system is a trending environment, then where does your edge appear, within a trend? Does it catch deep pullbacks? Does it play shallow breakouts? When is your edge “in play”?
• Why should the system work as planned? What components of market structure and market dynamics make logical sense if approached this way?
• What is the system’s edge, clearly stated?
• What markets will you trade with the system and why are these markets ideal? à For example, it is well documented how Forex & Commodities tend to trend more than stocks and may be a better choice for a trend system.
• Is the system mechanical or discretionary? Usually, having clear rules to abide by will assist in making rational decisions.
• Is the system purely technical or does it include outside information? à Outside information can be, for example, sentiment indicators, macroeconomic news, etc.)
• What time frames does the system work with? Is it a multi-time frame approach? Or does it work off one single time frame?
• How often does the system need to be monitored? Intraday? Once per day? Else?
• Potential Problems? When does the system NOT work? What situations are most difficult to assess?

Once you have the system overview completed, it might be a good idea to start demo-trading the system, so you can gradually take note and keep records on the performance and the average number of trades per day/week/month, and take note of the potential problem areas. Remember, attempt to be systematic in your decision-making process. Attempt to identify the same kind of situation time after time. That is the only way to really investigate the odds of your system, and generate meaningful statistics.

Trading Plan Example

Tools: 5-week simple moving average, 5-day simple moving average, 5-day RSI, market wraps/fundamental influences. What is the system’s concept? Trade a trending market; stay away from retracements. What is the system’s objective? Trade in line with an established trend, when momentum is aligned with the trend. Why should the system work as planned? When there are clear drivers pushing prices in a certain direction, it makes it easier to filter trends that should carry on for some length of time. Furthermore, we are adopting a multiple time frame approach and thus obtaining a wider-view of the landscape (avoiding short-sightedness). We are also letting the market deal us in and out of our trades, and thus not forcing anything on it. What is the system’s edge, clearly stated? Identify trend days within trending markets and avoid choppy markets.

What markets will you trade with the system and why are these markets ideal? Forex, Gold, Silver, and Crude Oil are ideal, because they are markets that tend to trend. Is the system mechanical or discretionary? The system is 80% mechanical and 20% discretionary. The trading rules are mechanical; the instrument selection is discretionary. Is the system purely technical or does it include outside information? Combination. What time frames does the system work with? Multi time frame approach (weekly, daily). How often does the system need to be monitored? Once or twice per day. Potential problems? Lack of discipline (attempting to trade in choppy markets); lack of evident drivers; lack of volatility.

"Weekly EURUSD Closing below 5SMA (1st rule confirmed)\u2014Pepperstone MT4."

"Daily EURUSD. So long as we remain below the 5SMA (2nd condition), now that the weekly is negative, and the RSI remains below 50 (3rd condition), we can look for entries."

"EURUSD 1H Chart illustrating the trigger. The price needs to fulfil the prior three requirements, and also needs to break the prior day\u2019s range to the correct side."

Stop Loss is placed at the high of the trigger day.

Exit condition. If a trade has been triggered, then exit the trade on the first occurrence of a neutral or counter-trend day. Usually, the candle-form of a neutral or counter-trend day takes the form of either a Shooting Star, a Hammer, or a Doji.

Probability enhancement. Attempt to take the first valid signal after a daily pullback within the broader (weekly) trend, or attempt to take the first valid signal after a weekly trend change.

Brief Idea on a Counter-Trend System

"Crude Oil, Daily Chart\u2014Pepperstone MT4."

The above example illustrates what could be a very specific system that is aimed at identifying potential reversals from prior month extremes. This means being very specific about the location of the reversal (prior month high or low) and the form of the reversal (particular candle action).

Being so specific will allow you to understand what constituted a high probability play, based on your rules. It should be there, staring you in the face when you turn on your charting software, and there should be no doubt that it is a valid setup.

Once you have established clear parameters for your system, you can start to record:

• Risk/reward ratio.
• Win/loss ratio.
• Max consecutive losses.
• Max consecutive wins.
• Most accurate currency pair (what you tend to get right).
• Least accurate currency pair (what you tend to get wrong).
• Time of entry.
• Trade duration.

This will allow you to generate an expectancy for your system, and hence structure adequate return objectives. But by doing this exercise, you will also understand, with very little margin of error:

• What time your trades usually appear.
• What a “good” setup looks like (confidence).
• What a “poor” setup looks like.
• Whether you have a trade or not.

Much of this process is about understanding when to stay flat. Too many aspiring traders (and also some experienced traders) are not clear on what constitutes a high-odds situation and what is not. By going through the same motions time after time, you can train your instincts if you are disciplined, and allow your “gut” to be in sync with your mind. Here is an example routine through which you can practice: Before going to bed: Read a market wrap for the day, and prepare a likely watchlist of the best looking two to three currency pairs that are likely to offer setups the next day. For our trending system, this could require filtering the most evident markets based on their respective fundamental picture. Then, you could also filter the best looking trends and place pending orders on the highest quality situations.

Before work: Read up on developments during the overnight session. Is there any important news to take into consideration? Is there any evident theme in play? Is the watchlist still valid? Have any orders been executed? At work: If possible, monitor developments around main market openings and manage open trades accordingly. So, depending on your timezone, make sure you catch a glimpse of the European Open, the New York Open, and the Wellington Open. How is price behaving at these key junctures? Does your trade need to be managed? Is everything proceeding well? Was there any unexpected news? After work: Monitor and manage open trades as above, read up on the daily macroeconomic developments, prepare a likely watchlist for the day ahead (if there are any changes to be made on your current watchlist).

Over to You

The final objective of your trading plan is to obtain a comfortable personal situation from which to trade with, with as little pressure as possible. Remember that 12-18 months’ exposure to the markets is not generally enough to become consistent. Becoming a consistent trader is more like a marathon, rather than a sprint. Once your personal situation is in order, focus on building repetitive habits that allow you to confront the markets in the same way, from the same angle, each day. This will allow you to obtain meaningful statistics that can tell you what needs improving and what is working well. But most importantly, by following a structured plan, you will become a specialist of your method. And that is possibly the most powerful attribute a trader can possess.

Get started with your Pepperstone account today.

The information provided here has been produced by a third party and does not reflect the opinion of Pepperstone. Pepperstone has reproduced the information without alteration or verification and does not represent that this material is accurate, current, or complete and therefore should not be relied upon as such. The Information is not to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. We advise any readers of this content to seek their own advice. Reproduction or redistribution of this information is not permitted.

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Before, trade was simple as exchanging pork for an amount of wheat. But now, you have tons of cargo paired with logistical intricacies, the science of economics, political climate, competitive markets, supply chain , and currency status. The primary goals of getting successful deals and gaining profit are not easy tasks since you are juggling with so many factors. That is why planning comes in as a crucial process in determining the course of action to take. And with the help of many plan templates online, what remains is generating the winning content for successful trade management.

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Two plead guilty to insider trading related to Trump Media merger

Two men pleaded guilty on Wednesday to insider trading in securities in the company that ultimately took former U.S. President  Donald Trump’s  media business public.

Michael Shvartsman, 53, head of Miami-based venture capital firm Rocket One Capital, and his brother Gerald Shvartsman, 46, each pleaded guilty to one count of securities fraud before U.S. District Judge Lewis Liman in Manhattan.

Rocket One’s chief investment officer, Bruce Garelick, is scheduled to face trial on related charges on April 29.

Prosecutors charged the trio  last year with illegally trading on inside information about Trump Media & Technology Group’s plan to go public through a merger with a blank-check company. TMTG operates Truth Social, Trump’s main social media platform.

Prosecutors said the trio signed confidentiality agreements in June 2021 when they were approached to become early investors in Digital World Acquisition, the blank-check company. The agreements required them to keep information they learned confidential and not trade the company’s securities in the open market, prosecutors said.

After hearing the company was in merger talks with TMTG, prosecutors said the trio tipped others and bought Digital World securities, selling them after the deal was announced on Oct. 20, 2021, to make a total of $22 million in illegal profit.

Michael and Gerald Shvartsman said in court that they knew what they were doing was wrong when they traded on nonpublic information.

“I’ve made a terrible mistake,” Gerald Shvartsman said at the hearing.

“Insider trading is cheating, plain and simple,” U.S. Attorney Damian Williams said in a statement after the pleas.

The Shvartsmans are scheduled to be sentenced on July 17. Securities fraud carries a maximum sentence of 20 years in prison, but any sentence would be imposed by the judge based on a range of factors. The average prison sentence in federal fraud cases in the U.S. last year was around two years.

TMTG was publicly listed in late March, and its shares have been on a  wild ride fueled by speculators  betting on enthusiasm for Trump, the Republican presidential candidate in  November’s election .

The stock shed early gains this week as Truth Social’s parent company disclosed it had lost more than $58 million in 2023.

TMTG shares were trading at around $51.60 on Wednesday morning, making Trump’s stake worth about $4 billion, though he is not allowed to sell or borrow against it for six months.

Trump Media is also embroiled in legal battles in Delaware and Florida with co-founders Wesley Moss and Andrew Litinsky, who have accused the company of trying to improperly dilute their stake. Trump Media has argued they failed to earn their shares and seeks to strip them of their ownership.

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How to Get Student Loan Forgiveness in 2024

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Student loan forgiveness has a mixed track record. Last summer, the Supreme Court struck down a broad plan that would’ve erased up to $20,000 per borrower. Still, student loan forgiveness is more accessible now than ever before. A handful of existing federal student loan forgiveness programs have erased $143.6 billion in student debt for 3.96 million borrowers as of March 21, according to the Education Department, with more to come this year.

The White House is currently trying to push through a narrower forgiveness ‘Plan B’ version of its failed broad forgiveness plan. The proven paths to forgiveness, however, include programs that range from income-driven repayment (IDR) plans — which cap monthly bills at a percentage of your income and forgive your remaining balance after 10 to 25 years — to niche programs for borrowers with certain loan types, jobs or school circumstances.

Here’s how to get student loan forgiveness in 2024 — and what you need to know before pursuing this path.

Check your eligibility

You must have federal student loans to qualify for a forgiveness program. Private student loans aren’t eligible.

To verify you have federal loans, go to StudentAid.gov , and try to log in or recover your account.

Next, check which types of federal student loans you have. If you have certain types of loans, like commercially held FFELP or Perkins loans, you may have to consolidate them before going after forgiveness .

Income-driven repayment

The newest IDR plan — Saving on a Valuable Education, or SAVE — is the most accessible path to forgiveness. All borrowers with federal direct loans are eligible to enroll.

The SAVE plan forgives remaining student debt in as little as 10 years if you have an original balance of $12,000 or less, and in up to 20 or 25 years for other borrowers. While working toward forgiveness, your monthly bills could be $0 per month if you earn less than $32,800 as an individual or $67,500 as a family of four; otherwise, they’ll be capped at 5%-10% of your income.

Public Service Loan Forgiveness

If you work for a qualifying government or nonprofit employer, you could be eligible for Public Service Loan Forgiveness (PSLF) . This program erases your remaining balance after a decade of repayment.

“Generally, the PSLF program is the best one if you have access to it,” says Scott Stark, a financial coach and certified financial planner at Financial Finesse, a workplace financial wellness company.

Other forgiveness programs

Outside of IDR and PSLF, your student loan forgiveness options may include:

Teacher Loan Forgiveness , if you work in a qualifying low-income school. 

Borrower defense to repayment , if you think your school defrauded you. 

Closed school discharge , if your school closed during or shortly after your time there.

Perkins loan cancellation , if you have Perkins loans and work in public service.  

State-based student loan payment assistance , if you work in health care or are willing to relocate to a new area. 

Do the math

Use the Education Department’s loan simulator to see how much debt you could get erased under various forgiveness programs and repayment plans, how much your monthly payments could be and how long you’ll be in repayment.

If an IDR plan will result in you paying more interest for a longer period or paying off your debt before getting forgiveness, then it may not be a good choice for you. (Public Service Loan Forgiveness also requires enrollment in an IDR plan.)

“It really is a case-by-case kind of thing, but generally speaking, for people whose income is relatively high compared to their student debt loads, the income-driven repayment plans can be pretty unattractive,” says Tisa Silver Canady, founder of the Maryland Center for Collegiate Financial Wellness. “It might behoove them to just stay on a balance-driven plan and pay extra when they feel it makes sense.” Making extra payments toward the principal while on a balance-driven plan — like the standard 10-year plan , which splits your loan into 120 payments — allows you to shrink your debt faster and reduce total interest costs.

On the other hand, if the math for IDR works out such that borrowers can have smaller payments and keep more of their money to reach other financial goals, pursuing forgiveness is a good option, Stark says.

Prepare for a future tax bomb

IDR student loan forgiveness is exempt from federal taxes through 2025. After that, any amount forgiven could result in a student loan tax bomb . A small number of states tax IDR forgiveness, too.

It’s important to plan for a tax bomb if your forgiveness timeline will extend past 2025. Put a small amount of money aside each month to cover your future tax bill, Stark says.

Use the loan simulator to determine how much forgiveness you could ultimately receive: Your taxable income will increase by that amount in the year you get forgiveness. In some cases, the forgiveness could push you into a higher tax bracket, which could further increase your tax burden. If the amount you have to set aside each month to cover the tax bill is larger than the amount you’d save on the IDR plan, it might not be worth it.

Loan balances forgiven through PSLF, Teacher Loan Forgiveness, borrower defense to repayment, closed school discharge and Perkins loan cancellation are exempt from federal taxation.

Change your repayment plan

If you decide IDR forgiveness is the right choice, you must switch to an IDR plan like SAVE.

To sign up for an IDR plan, submit an online application at StudentAid.gov/IDR or call your student loan servicer.

You must also sign up for an IDR plan if you’re striving for PSLF. Choose the plan that gives you the smallest monthly bill to maximize the amount you could get forgiven after 10 years. It’s a good idea to submit your PSLF employer verification form each year to stay on track for forgiveness, Canady says. You can do this through the Education Department’s online PSLF Help Tool .

On a similar note...

Internet providers have to start using this 'nutrition facts' label that breaks down fees

• Labels in a "nutrition facts" format for internet plans are finally a reality.
• As of Wednesday, the FCC requires internet providers to break down costs and services for customers. 
• The FCC says the move should encourage competition and help consumers take charge of their services. 

If you've ever had trouble figuring out exactly what fees your internet provider is charging you and what internet speed you're actually getting, the Federal Communications Commission has your back.

The FCC is now requiring internet providers to give customers a breakdown of all the costs, fees, and speeds associated with their plan in a simple "nutrition facts" format, just like you might see on the back of a bag of chips.

Beginning Wednesday, all internet companies that have more than 100,000 customers must display these labels at every point of sale, both online and in stores, according to a Wednesday press release from the FCC. That includes companies that provide both home, or fixed, internet services and mobile broadband.

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Providers with fewer than 100,000 customers have until October to roll out the labels.

And the labels aren't just designed for new customers — internet service providers must also make them available to current customers in their online account portals and provide the label when a customer asks for it.

Specifically, the labels must include a variety of detailed information, such as introductory rates, data allowances, contract length, early termination fees, and more. They also must include links to information about network management practices and privacy policies, the FCC explained.

"Broadband Labels are designed to provide clear, easy-to-understand, and accurate information about the cost and performance of high-speed internet services," the FCC said in its press release. "The labels are modeled after the FDA nutrition labels and are intended to help consumers comparison shop for the internet service plan that will best meet their needs and budget."

The labels have been eight years in the making.

The FCC first proposed the labels that resemble nutrition facts as a voluntary option in 2016, but didn't mandate them until 2022 following an order from Congress under the 2021 infrastructure law, Reuters reported.

Some ISPs got ahead of the FCC's Wednesday deadline — Google Fiber was one of the first ISPs to roll out the labels in October, and Verizon followed suit last month.

Watch: All the differences between Lays chips in the US and India

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