Editor’s Note: Dr. Van Tharp’s content is timeless and our goal is to continue to share his material with our readers. Today’s tip is material from a past article, “Business Planning, An Important Consideration for Traders”.
Trading is a business. It’s a profession. It’s a skill to learn.
Most businesses fail because they fail to plan.
Business planning is the backbone of success. It shows you where you’re coming from and helps you to organize your thoughts and your objectives so you can create a plan to keep you trading successfully and in the markets for the long term.
Van’s work with many traders over the years revealed that every trader or investor benefited from a business plan to guide their trading. Even if you are trading well, it is still important to develop a planning tool. Those who are doing well will just have a little less work to do.
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.
- 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, then you have a chance of doing well. But your business plan becomes a tool for you to continually use to improve yourself and your trading.