Business Planning

 

The market does not owe you or anyone else great riches. The market does, however, occasionally tease a large number of people with seemingly easy gains (during bubbles and other manias), only to take them away again.

 

If you're serious about being a good trader, you need to approach the practice of trading with the same amount of effort you'd apply to learning any high-level endeavor.

VanBP
Business Planning

When people choose to trade the markets, they always want to rush in and get started straight away. They foolishly think they are going to miss the next “big wave.” But the market doesn’t know when you get in or when you get out. So don’t be foolish; take the time to plan.—Mel

Treat Your Trading Like a Business!

 

The entry price to being a trader or investor is fairly low. All you need is enough money to open an account. Your broker doesn’t care whether you understand expectancy or objectives. Your broker doesn’t care whether you understand that position sizing is the key to meeting your objectives. And your broker certainly doesn’t care that you must have your personal psychology in order for any of this to matter.

 

Your broker cares about two things:

  • That you have enough money to open an account, and
  • That you don’t lose many times the value of your account so that the broker gets in trouble.

That’s it!

 

You can easily open an account without knowing the first thing about trading.

 

Is this true of other professions? Can you become an engineer without understanding calculus? Can you become a doctor without going to medical school? Can you be an attorney without passing the bar? Of course not.

 

Similarly, could you play golf against a pro and expect to win if you'd never before stepped on a golf course? Would you compete in a chess tournament against a master player if you’d never played before? Obviously not, but even if you did, the worst that would happen is that you'd lose a few games (and perhaps a measure of pride).

 

But what do people lose in the markets? Anything from a few dollars to their life savings, and yet there are no rules about who should or shouldn’t be in the markets.

 

Day in, day out, people jump into the markets recklessly, without experience, without training, and most definitely without any type of formal plan. In fact, your broker may not even know the real nuances and fundamentals of safe and profitable trading herself. In fact, more often than not, people who open a brokerage account will lose money rather than make it.

 

If you are serious about being a good trader, you need to approach the practice of trading with the same level of rigor you would apply to any high-level endeavor. The market does not owe you or anyone else great riches. The market does, however, occasionally tease a large number of people with seemingly easy gains (during bubbles and other manias), only to take them away again.

 

Trading is a business. It’s a profession. It’s a skill you have to learn.

 

Have a Business Plan

 

Most businesses fail because they fail to plan.

 

Business planning is the backbone to success. It shows you where you’re coming from, allows you to organize your thoughts and objectives, and helps you come up with a plan to keep you in the markets and trading successfully for the long term.

 

Van recommends that traders and investors develop a thorough business plan to guide their trading—even if you're already trading well.

 

Your business plan should cover all of the following areas:

  • Your vision.
  • Your purpose.
  • Your objectives.
  • A thorough self-assessment of your strengths and weakness based on real trading logs that you collect (if you haven’t done so already).
  • A thorough assessment of the big picture and the fundamentals that might be behind any trend.
  • A complete understanding of your beliefs about the market.
  • Procedures for getting empowering beliefs and mental states behind you.
  • A documentation of your research procedure for developing new systems and determining how to analyze their effectiveness.
  • Your procedures for developing and maintaining discipline.
  • Your budget and cash flow systems.
  • Other necessary systems such as marketing, back office record keeping, etc.
  • Your worst-case contingency plan.
  • System 1—which is compatible with the big picture.
  • System 2—which is also compatible with the big picture.
  • System 3—which might come into play should the big picture change.

If you have all of those things, you have a chance of doing well. Your business plan is a powerful tool that will improve your trading and focus your life.

 

How to Handle Hot Tips:

 

What happens when someone gives you a tip or an idea about the market? Do you get excited about it and want to act, or do you become skeptical and suddenly distrust the person giving you the tip?

 

The only correct response to any “hot tip” is to integrate it into your trading game plan to see if it fits. If it does, you can evaluate it further, using your plan's criteria. If it doesn't, you can simply discard it. You should never just run out and buy some closed-end Thai mutual fund simply because “Van recommended it." You should always first consider whether the tips you receive harmonize with your plan.

 

Van discusses mental rehearsal as one of the ten tasks of trading. The point of mental rehearsal is to determine what could go wrong with your trading plan and determine how to deal with it in your mind. That way, when it does occur in the heat of the moment, you are ready to deal with any distractions that might come up. Think of the tips you receive as a possible distractions. How do you react?

 

This tip is a test in several ways. First and foremost, it is a test of whether or not you even have a game plan.

 

Do you have a plan that helps you deal with hearing about a “new, sure-fire, can’t-lose” investment? If not, it’s time you developed one. Do whatever it takes to come up with a thorough business plan to cover your trading or investing. Van ranks it among his top requirements for traders.

 

Every outcome is preceded by a process. You will not make money trading unless you follow a predetermined plan and continually stick to that plan. That’s why you should pat yourself on the back every day if you can honestly say that you totally followed your rules throughout the day. Every "Market Wizard" arrives at that stature by taking one trade at a time. The primary difference between that person and the average trader is that the Market Wizard probably continued to follow his plan every single day.—Van Tharp

The best place to start to learn more about this topic:

 

Blueprint for Trading Success Workshop

 

 

Your business plan will need to include three strategies that are compatible with the big picture. Although there are thousands of systems out there, there are not many types of strategies. Learn the essence of the key strategies that you could use, the general picture of how they work and how you can adapt them for yourself.

 

We hear from our students that they know business planning is important, but in some case they don’t even know what a trading business plan should look like. You’ll leave this workshop knowing what to strive for and with a template in hand to follow as you progress.

“Prior to coming to this workshop I had come to a realization in trading that I needed help structuring a business plan, knowing how to approach and measure strategy development and how to deal with personal traits that reoccur and are not beneficial to me and trading. These expectations were met and exceeded. Two things I found particularly valuable 1) How personal beliefs translate through market beliefs all the way to the specifics of each particular strategy. 2) The structure of materials and workbook is laid out to easily take home and continue with the work.” — Jim Sterk, Lynden, WA

Personal edges set you off from the crowd. Having an edge in the markets isn’t just a slight advantage; it could be the pivotal difference in your success. So it’s very important to list your edges in your business plan and to be able to capitalize on them. Learn the key edges that almost any investor has over market makers or institutional investors. Or if you are a CTA, hedge fund, or portfolio manager, learn your specific key edges.

 

“This course clarified for me how to get my business plan done and actually enjoy doing it.” —Paul, MD

 

"The workshop was excellent and did a very effective job of showing how to develop a business plan for trading. The balance between business planning, developing trading strategies and working on myself was just right." —M. McDowell

 

Learn More.

 

If you can't attend the workshop, consider our Business Planning for Traders CD set. Learn more here.

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