The Importance Of Developing A Trading Business Plan

One of the most popular lessons I’ve taught over the years has been on how to develop a trading business plan. So many traders go into each and every day without a solid plan of action, and many will suffer the consequences of not having a trading plan. I know, because I was one of those traders for many years.

I would often times want to sit down and write out a plan, but I would make excuses not to. First, it was “what do I need to write a plan out for? I’m making money!” Then that became, “I don’t have time for a plan, I’m losing and have to focus on finding the next best thing to make the money back!” Have you had similar conversations with yourself, or is it just me? I heard you aren’t crazy unless you start answering yourself. Yeah, I heard that too. Wait, what? Who was that?

Anyway, what’s amazing to me is that people plan their vacations down to the smallest detail, and yet they don’t think it necessary to construct a trading plan to help them earn their living, or at the least, provide a supplemental income. Imagine how nice those vacations would be if you had a successful trading business.

Every year in late December, I write my trading plan out. I don’t type it; I actually get a legal pad and starting writing. I use the previous year’s plan as a reference, but I make sure I scratch off anything that did not prove to be profitable for me the prior year. I then take that trading plan and type it out into a word document. This further re-enforces the rules I’ve written down and allows me the opportunity to make changes if need be. Yes, these are rules. I know everyone is on the “trading gives you freedom” trip, and that’s great. It doesn’t matter when or how often you trade, as long as you have your rules to stick by and follow.

There are many benefits to having a trading plan. First, it starts you on your way to forging the discipline needed to be a winning trader. By taking the time to sit down, Put the effort in and actually write the plan out, you are building the discipline that you must have every single day in this business. I know that may sound a little abstruse, and I’m not claiming to be a Zen master or anything close to it, but by putting in the effort to come up with a plan and thinking it through, and writing them down, you take ownership of them. That gives them a much better chance of being respected and followed.

Second, having a trading plan helps you curb your emotions when taking a trade. I don’t think you can EVER take the emotion completely out of trading, but following your trading plan is the closest thing to it. Having and following a plan builds confidence, and confidence is what is needed to fight all the feelings of impulsiveness that creep into your trading day after day. A professional trader will always come into the day prepared and confident. A trading plan assists you in both of these areas.

Finally, a trading plan sets your routine up day after day. This is so critical to becoming a consistent trader. The allure of big money and fast action may have attracted you to the trading business, but if you have had any kind of success, it was probably from stalking your setups and grinding out your gains. Trading should be as boring as any other job you have had in your life. Lack of excitement = diminished emotion. Let the traders that are overly emotional feed your account, but be sure that you aren’t feeding theirs very often. Once you get too excited about taking a trade, go back and re-read your trading plan and come back to center.

If you are new to formulating a trading plan, you should be able to write a quick and easy one in a matter of 30 minutes. Once you start following it, you will be inspired to put the time in and write a more thorough one. From there, the sky’s the limit in your trading.

Michael “tiny Saul has been trading for over 15 years, and has been assisting traders attain their goals for the last 11. He runs two websites: http://tinystmv.blogspot.com, which is focused on intra-day updates, and http://stockmarkettrendsx.com, which is educational, based. You can contact Mr. Saul at tiny@stockmarkettrendsx.com