A BUSINESS PLAN FOR TRADERS

Putting together a proper plan will force a trader to focus on his strengths
while letting him avoid conditions that are unfavorable. In High Probability
Trading, I refer to a trading plan as a trader’s business plan. Very few
businesses succeed without a business plan, so why should a trader think
he’s above it? Trading is a business and don’t ever forget it or take it as
less than that. Business plans are made either before going into business
or when trying to raise more capital once in business. This should hold
true as well for traders. Before you get serious about trading full-time, you
should take some time and put together your business plan.


Make believe you are going to raise money from people to trade with.
When a CTA (commodity trading advisor) or hedge fund manager makes
a disclosure document, he is in effect making an elaborate trading plan, as
everything that should be in a trading plan is in his disclosure document.
Basically it includes his objective, strategy, risk, costs, and expected returns.
Your goal should be to know the same and you should do it before
you risk a dime.

You won’t just say, “Hey Harry, I have an idea that will make us a lot
money in crude futures. Give me $250,000 and I’ll do my best, I think we can
make $2 million, with almost no risk.” Well Harry may have some colorful
and somewhat painful suggestions as to what you can do with your idea.
Instead you should give him a detailed plan of what you are going to do,
how you plan to do it, how much is at risk, and what are the chances of
losing his investment. Then let him make an intelligent decision based on
the information you gave him. Now, if this plan was important for Harry
to make a decision, it should be even more so for you as it’s your freaking
money on the line when you are trading.