A Goal without a Plan is just a Wish.
-Antoine de Saint-Exupery.
Let’s say you want to open a Bakery …you have saved some money to get it started, but will need to get a loan from your local bank for equipment and working capital. It’s not likely that you could walk in to your bank with some notes scribbled on a napkin and expect them to give you a loan. The bank is going to expected you to come in prepared…..to have a business plan to present to them…so they can make an informed decision on whether or not to give you a loan……are you a good risk/reward for them. There is no guarantee of success, but the bank wants to see that you have the skills, some skin in the game, and a solid plan to help you succeed.
Trading is no different……it is a business, and like any business there is no guarantee of success………but you must come prepared.
I think an important question to ask yourself is…… Why do you want to trade?
-You want to get rich quick, really the quicker the better…..I will save you time and money…Do Not Try Trading.
-You hate your job and are looking for something easier …please refer to the response above again…….skip trading.
-You have a sincere interest in the markets…you are self motivated and take personal responsibility for your decisions and their consequences….you don’t mind paying your dues and understand success does not come over-night, but through hard work……Trading may be for you.
I have listed below some things to consider before you start trading, these are a good starting point for your Trading Business Plan.
Educate Yourself BEFORE you start:
-What type of trading do you think fits you? Day, Swing, Hybrid?
-Will the Pattern Day Trading (PDT) rule apply to me?
-What instruments will you trade? Stock, Options, Futures, etc?
-What tax consequences are there for me? Wash sales, Mark to Market, Trader
tax status, trading in an entity.
-Technical or Fundamental, or some of both?
-Will you have a Mentor or be part of a Trading Community?
Develop a Written Trade Plan:
- How will I scan and find setups, how will those be tracked.
- What time frames will I use …Daily, 60 minute, 15 minute, etc.
- What tools will I use to help guide me in my trading?
-Technical Indicators: slow stochastic, moving averages, trend lines,
MACD, VWAP, etc.
-Fundamental: Float, short interest, insider buying, etc.
- Where and Why will I enter a trade.
- Where and Why will I set my risk level.
- How will I manage an active trade…tools to help me make decisions about
how the trade is acting.
- What are my options for exiting the trade…..scale out or exit completely, trail
stops up or specific targets.
- What is my review process …journal, spreadsheets, software
- How will I handle draw-downs
- How will I balance trading/life…..having time to decompress.
- What is my process for homework/education.
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