I’m sure you have all heard the expression “trading is a business not a hobby” by now.
But what does this really mean?
Imagine a business with no plan, no understanding of its edges, and no systems to support it. You would not think a business like that is set up to be successful. It’s the same with trading. If you do now have a clear plan and systems in place, you will find it just as challenging to be competitive in the world of trading, as in the world of business.
One way to move yourself from the realm of hobby to the realm of business is to start a trading business manual.
What to put in your business manual
Your business manual is not your buy/sell rules for your trading (though those are important too), rather it is an in-depth document that outlines all the necessary ingredients for long-term profitability.
In his book Trading Beyond the Matrix (a must read btw) Van Tharp outlines the following elements that should be included in a trading business plan.
- Top 10 values. Some values are better aligned with trading than others. For example, if you value excitement highly, or if you prioritise your trading above your family it could cause a conflict that negatively impacts your trading.
- Strengths and resources you bring to trading. What are you good at, and what resources do you have? (Time, money, knowledge etc.)
- Your trading edges. What specifically gives you an edge over the market that will allow you to consistently generate a profit? Perhaps you are good at macro analysis, or have a variety of systems that perform well in different market types.
- Top five challenges to trading well and your plans to deal with them. What are your challenges to generating a profit? Perhaps you don’t have a working system, have limited time and resources, or are impatient and overtrade.
- Your dream life plan, financial freedom plan and your reasons to support it. What you want out of life. I cover this topic in lesson 3 of the Advanced Forex Course for Smart Traders.
- Goals and implementation plan. Get specific about your goals for: five years, one year and the next three months. Most importantly, plan your activities that will get you to your goals.
- Health and exercise plan. To achieve peak performance, you need to take care of your mind and your body.
- Belief assessment. Your beliefs shape your trading and will be the primary determinate of your trading success. I cover this in lessons one and two, and again in lesson 15 of the Forex Course.
- Business systems. What systems will you need to support your trading business?
- Cashflow and accounting
- Data analysis (Collecting and storing data about your trading that you can use to generate reports).
- Research and development plan
- Model for system design
- Trading Automation
- Education plan
- Plan for working on issues with your psychology that arise
- Contingency planning. Detailed plans on what to do when faced with various extraneous circumstances such as surprise market events, natural disasters and problems with your broker. (This is covered in lesson 14 of the Forex Course).
- Your entity structure. What vehicles will you trade with (Company, trust, individual etc.), and how will you minimise tax?
Tharp also includes a number of other factors around rules for the trading system: your decision-making process, market types and position sizing. For the purposes of this article, I prefer to separate out business plan and system planning. In theory your system plans are included as sections of your business plan.
Be a trading business person
By writing a business plan and setting up support systems for your trading, you are putting in place the building blocks to run a professional trading business.
This may seem like a lot of work, but you can do it over time.
Start by clarifying your values, beliefs and edges, and then spend some time on goal-setting and create an implementation plan. Put into your implementation plan when you will complete each element of your business plan. Perhaps you can spend a month on contingency planning, and another building your data analysis and reporting systems.
After a few months, you will find that you have made serious in-roads into what is a big project – small bites will eventually eat the whole cake.
This is the fourth article in our “significant importance” series about quadrant 2 activities to conduct for your trading. You may also like to review the first three in the series if you have not done so already:
About the Author
Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders (https://fxrenew.com/forex-course/). He is a part owner of Forex Signal Provider www.fxrenew.com (You can get a free trial). If you like Sam’s writing you can subscribe to his newsletter for free (https://fxrenew.com/newsletter-sign-up).