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Trading is a business and any business that expects to succeed has a business plan. Lets be honest, day trading is not your typical start up, but I am from the school of thought that business should have a business plan to help guide it in the right direction.
I’m in the process of moving from paper trading to live trading in the next month. I have my trading plan with rules, daily P/L and so forth, but I do not have a business plan. I would like to write one, but I have been stumped on what to include/exclude from the business plan.
I am looking for input on crafting a business plan. Also if there is anyone that would care to share their plan or a sample, that would be great too. Just something to get me moving in the right direction.
I have searched the board and not have come across anything covering this subject matter.
According to the Small Business Administration, two-thirds of new businesses survive for at least two years, and only 44 percent survive at least four years. Why some businesses fail and why some succeed is a matter of debate, although there are some common mistakes that can sink a business in no time.
Give your new business venture a fighting chance by taking care to avoid these fatal errors:
Overexpansion. Wanting to be the first to market with a new product, taking on added overhead, and the need to demonstrate revenue growth to anxious investors can all induce businesses to overextend themselves financially. Rather than head down this path, start with realistic goals and allow yourself to grow as needs dictate. Let your revenue, not pie-in-the-sky projections, dictate your hiring practices.
Poor capital structure. Look at the businesses that fail and you'll find that many of them took on too much debt. Learn to pay strict attention to your finances and keep careful records of all money coming in and going out. Even if everything's coming up roses today, trouble can still be right around the corner.
Overspending. Many startups spend their seed money before cash has begun to flow in at a positive rate. This often happens because of misconception about how business operates. If you're just starting out in business, seek out seasoned veterans you can bounce your ideas off of prior to making big financial commitments.
Lack of reserve funds. Failing to prepare for volatile markets and uncontrollable costs like energy-rate increases, materials, labor, natural disasters, and the like is another top reason many businesses fail. Make sure you protect your investment and keep enough reserve cash to carry you through market downtrends and seasonal slowness.
Bad business location. Don't let a cheap lease tempt you into opening your doors in the wrong neighborhood if your gut is telling you it's not right. Key factors to consider include competition (how many other similar businesses are located nearby?) and accessibility (is the area well served by freeways, public transportation, and foot traffic?).
Poor execution and internal controls. Poor customer service, accounting controls, and overall employee incompetence can all combine to bring down the ship. Make sure you and your employees place a premium on customer service to generate repeat business, establish protocols for how tasks should be accomplished, and remain continually in the know on all things accounting.
An inadequate business plan. Your business plan is your blueprint for success. A well-thought-out business plan forces you to think about the future and the challenges you'll face. It also forces you to consider your financial needs, your marketing and management plans, your competition, and your overall strategy for coming out on top.
Failure to change with the times. The only constant in business is change. Once mighty behemoths fall to earth while unknown upstarts rise to prominence. The ability to recognize opportunities and be flexible enough to adapt to changing times is a key ingredient to surviving and even prospering in the toughest business climate. Therefore, learn how to wear multiple hats and to generate new interests and areas of expertise.
Ineffective marketing and self-promotion. Customers can't walk through your front door if they don't know you're there. Learn how to cost-effectively advertise and promote your business through such tried-and-true methods as direct mail, ads in local newspapers, Web sites, blogs, even by sponsoring a local little league team. The number of advertising and promotional ideas that exist is only limited by your own creativity.
Underestimating the competition. Consumer loyalty doesn't just happen; you have to earn it. If you don't take care of your customers, your competition will. Watch your competition as closely as you do your own employees.
Location and marketing are probably the only ones on that list that DON'T apply to trading IF you are only using your own capital.
I have found that trading plans are pretty personal and have seen them vary a lot from trader to trader. However, all good trading plans should address the following:
1. What are your goals (annual, monthly, daily, etc.)
example - My yearly trading goal is to . . . (something along the lines of becoming a better trader winning more than losing and knowing the reasons for my success). This will consist of three parts:
1. I receive coaching from _____________, who is one of the best trading resources of the strategies that I employ.
2. I am well prepared and know why I am trading because I have a written, clearly laid out trading plan.
3. My strategies are well developed, tested and monitored extensively to ensure that they remain tradable, practical and profitable. I expect to achieve these goals because . . . (in addition to the coaching, I also do the following. . .). When I achieve my goal, my reward will be . . . (a family vacation in Hawaii).
2. What kind of trader are you?
position trader, swing trader, scalper?
aggressive, conservative?
discretionary or system trader?
3. What are your income objectives
4. What markets & instruments will you trade
5. What timeframes will you trade
6. What is your software & hardware plan? What is your back-up systems for redundancy purposes if your computer or Internet connection goes down?
7. What is your daily, weekly, monthly routines - for preparation, analysis, reviews, etc.
9. When will you stop trading - ex). - 1. Upon reaching my daily target I will stop trading . . . (after the first losing trade). 2. Before reaching my daily target I will stop trading . . . (after two losing trades). To ensure further that my losses are kept to a minimum, I will . . . (have a maximum daily stop of 3% of my equity). 3. I will not trade at all on days where . . . (I do not see the setups and entry triggers, exactly as specified in my plan).
I'm in the process of writing a business plan and the way I've approached it is to answer a few simple questions.
1) How much money will it cost to start-up the business?
This means my initial capital, equipment and software.
2) How much money will it cost to run the business?
This means expenses, such as commissions, software, data feed and other resources I may need, eg books, information services,, etc...
3) How will I know that my business is working?
I'm in it to make money, but I don't want my performance to be measured by how much money in absolute terms I'm making or losing. I want to pay closer attention to other stats, most importantly Expectancy.
4) If the business isn't working, at one point should I call it quits?
I may have confidence that the business will succeed, but I also need to know when I should close it down if it is failing. Whether it is a 40%, 50% or 60% drawdown, the business needs a maximum loss limit. There should also be a time limit. How much time do I give the business to work? If I've given it my best shot full-time and am still not making any significant income after 12 months, am I better off doing something I know I will be better paid for?
Lastly, on a general note, I think a good business plan needs to be convincing to other people. If it makes sense to someone else, it's more likely to be workable.
Trading: Mini and micro US Indexes/ DAX/ FX/VIX/GOLD
Posts: 180 since Apr 2010
Thanks Given: 53
Thanks Received: 164
Whether trading can be classified as a business is a moot point. The skills involved are more akin to the professions. Some people are great teachers (I wasn't one of them, unfortunately) or nurses. They need the technical skills but to be good you need to have additional traits that are difficult to aquire in a traditional sense such an ability to organise and control others or a bedside manner that lowers anxiety etc. I think the technical aspects can be learn't by anyone who is reasonably intelligent (although the visual perception skills are very difficult for those who don't perceive data easily this way). The success comes from the 'bedside manner' component: a feel for the market and an ability to control often conflicting impulses are only two and as any trader knows there are lots more and they have to be constantly kept in check and improved upon. Starting a grocery round is not too difficult but you need skills like sales and marketing to grow it. As long as money is coming in then you have the freedom to do all sorts of things to expand but the bottom line is customers or profitability. Most businesess allow you time to do this with seed capital but trading is pretty savage if you can't hit the road running. It's nice to compare trading with a conventional business model, low overheads, work from home (or anywhere) tax advantages etc but I think you'd be comparing malamuts to spaniels. If your trades over time are 70/80% winners then doesn't everything else take care of itself? This is what I think should be the sole focus for a trader- excellence, because you can be a poor teacher or an average businesman you'll get paid but if you're a poor or even average trader then you'll probably fail, unfortunatley. Another point is expansion in trading equals more risk so you have to have a rock solid performance table before you can grow. Often with a business if you find more money from somewhere you can open another shop etc with less risk (cheaper wholesale costs etc). Trading is more an art than a business.
Email me at << j a y AT l o n e l y t r a d e r DOT c o m >> and I will give you a link and password to a draft business plan that I put together a few years ago. I can't show you my current plan for contractual reasons, but the old one will show you some unique aspects of a trading business plan that most people skip.
I'd rather not, because I have password protected my old blog and don't want a bunch of random people crawling over it and stealing my content! (Have had problems with that in the past. I had a guy selling a template for a trading journal for $20 that he lifted right off of my current blog, which I've also now protected.) I'm not selling anything, don't get me wrong, but there is a huge problem with plagiarism in this industry -- as you are probably well aware. If I've done something inappropriate, let me know. The last thing I want to do is disrespect this excellent forum.
