One of the best pieces of advice I received in my trading career was to treat trading as a business. It sounds simple but it is a key difference in the mindset between successful and unsuccessful traders.
Before starting up any business it is always important to ask “Why?” Why am I doing this? What am I trying to achieve?
For most traders the answer is “money” but it needs to be more specific than this. Perhaps you want to increase your income by a few hundred dollars each week. Or perhaps you know that over time, an extra $500,000 would be enough for you to retire on. Perhaps you are young and want to set yourself up for life and would like several million dollars.
It is a good idea to have short term and medium term goals. At the Trading Tactics workshops students are encouraged to write down two long term goals and two short term goals for their trading. How are you tracking compared to these?
Once you have decided to start the business, you need to work out your strategies. How are you going to make your money? Just as a business owner has a multitude of options, like opening a restaurant or selling collector coins or operating a car wash, traders also have a multitude of different ways to make money.
This is an advantage for traders however sometimes the overwhelming number of choices can cause confusion and actually end up hindering a trader.
A trader needs to decide which strategies they will use and which strategies they won’t use. Will they take only trades in the direction of the big picture trend or will they also look to take some more aggressive trades around trend changes?
You will also need to decide how many hours you would like to trade. Over the past few years in Sydney we have seen several McDonald’s restaurants opening 24 hours. There are markets such as the currency markets that are open 24 hours, but do we want (or need) to follow them all this time?
Perhaps a trader might only follow the markets for a few hours per day during their busiest times. Or they might consider employing another trader to watch the market during other times. Now there is the ultimate test of your trading plan, if you are able to write it out so completely that another person could operate it successfully!
These are just a few suggestions to get the ball rolling for a new trader just starting out or for an experienced traded looking to finetune their existing setup. Remember, as you get more experience in the markets you will be in a better position to make these decisions and to alter your plan according to what it is you are trying to achieve.