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This text was generated using a large language model, and select text has been reviewed and moderated for purposes such as readability.

Trading Business Plan Template

Written by Dave Lavinsky

Trading Business Plan

Over the past 20+ years, we have helped over 500 entrepreneurs and business owners create business plans to start and grow their trading companies.

If you’re unfamiliar with creating a trading business plan, you may think creating one will be a time-consuming and frustrating process. For most entrepreneurs it is, but for you, it won’t be since we’re here to help. We have the experience, resources, and knowledge to help you create a great plan.

In this article, you will learn some background information on why business planning is important. Then, you will learn how to write a trading business plan step-by-step so you can create your plan today.

Download our Ultimate Business Plan Template here >

What Is a Business Plan?

A business plan provides a snapshot of your trading company as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategies for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan

If you’re looking to start a trading company or grow your existing company, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your trading business to improve your chances of success. Your business plan is a living document that should be updated annually as your company grows and changes.

Sources of Funding for Trading Companies

With regards to funding, the main sources of funding for a trading company are personal savings, credit cards, bank loans, and angel investors. When it comes to bank loans, banks will want to review your plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to ensure that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Personal savings and bank loans are the most common funding paths for trading companies.

Finish Your Business Plan Today!

How to write a business plan for a trading company.

If you want to start a trading business or expand your current one, you need a business plan. The guide below details the necessary information for how to write each essential component of your trading business plan.

Executive Summary

Your executive summary provides an introduction to your trading business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your executive summary is to quickly engage the reader. Explain to them the kind of trading company you are running and the status. For example, are you a startup, do you have a trading business that you would like to grow, or are you operating a chain of trading companies?

Next, provide an overview of each of the subsequent sections of your plan.

Give a brief overview of the trading industry.
Discuss the type of trading business you are operating.
Detail your direct competitors. Give an overview of your target customers.
Provide a snapshot of your marketing strategy. Identify the key members of your team.
Offer an overview of your financial plan.

Company Overview

In your company overview, you will detail what type of trading business you are operating.

For example, you might specialize in one of the following types of trading businesses:

Retail trading business: This type of business sells merchandise directly to consumers.
Wholesale trading business: This type of business sells merchandise to other businesses.
General merchandise trading business: This type of business sells a wide variety of products.
Specialized trading business: This type of business sells one specific type of product.

In addition to explaining the type of trading business you will operate, the company overview needs to provide background on the business.

Include answers to questions such as:

When and why did you start the business?
What milestones have you achieved to date? Milestones could include the number of customers served, the number of products sold, and reaching $X amount in revenue, etc.
Your legal business Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry or market analysis, you need to provide an overview of the trading industry.

While this may seem unnecessary, it serves multiple purposes.

First, researching the trading industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your marketing strategy, particularly if your analysis identifies market trends.

The third reason is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section:

How big is the trading industry (in dollars)?
Is the market declining or increasing?
Who are the key competitors in the market?
Who are the key suppliers in the market?
What trends are affecting the industry?
What is the industry’s growth forecast over the next 5 – 10 years?
What is the relevant market size? That is, how big is the potential target market for your trading business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: individuals, schools, families, and corporations.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of trading business you operate. Clearly, individuals would respond to different marketing promotions than corporations, for example.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, including a discussion of the ages, genders, locations, and income levels of the potential customers you seek to serve.

Psychographic profiles explain the wants and needs of your target customers. The more you can recognize and define these needs, the better you will do in attracting and retaining your customers.

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Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other trading businesses.

Indirect competitors are other options that customers have to purchase from that aren’t directly competing with your product or service. This includes other types of retailers or wholesalers, re-sellers, and dropshippers. You need to mention such competition as well.

For each such competitor, provide an overview of their business and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as

What types of customers do they serve?
What type of trading business are they?
What is their pricing (premium, low, etc.)?
What are they good at?
What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

Will you make it easier for customers to acquire your product or service?
Will you offer products or services that your competition doesn’t?
Will you provide better customer service?
Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a trading company, your marketing strategy should include the following:

Product : In the product section, you should reiterate the type of trading company that you documented in your company overview. Then, detail the specific products or services you will be offering. For example, will you sell jewelry, clothing, or household goods?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your plan, you are presenting the products and/or services you offer and their prices.

Place : Place refers to the site of your trading company. Document where your company is situated and mention how the site will impact your success. For example, is your trading business located in a busy retail district, a business district, a standalone facility, or purely online? Discuss how your site might be the ideal location for your customers.

Promotions : The final part of your trading marketing plan is where you will document how you will drive potential customers to your location(s). The following are some promotional methods you might consider:

Advertise in local papers, radio stations and/or magazines
Reach out to websites
Distribute flyers
Engage in email marketing
Advertise on social media platforms
Improve the SEO (search engine optimization) on your website for targeted keywords

Operations Plan

While the earlier sections of your plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your trading business, including answering calls, scheduling shipments, ordering inventory, and collecting payments, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to acquire your Xth customer, or when you hope to reach $X in revenue. It could also be when you expect to expand your trading business to a new city.

Management Team

To demonstrate your trading business’ potential to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally, you and/or your team members have direct experience in managing trading businesses. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act as mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing a trading business.

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet, and cash flow statements.

Income Statement

An income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenue and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you charge per item or per pound and will you offer discounts for bulk orders? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.

Balance Sheets

Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your trading business, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a lender writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.

Cash Flow Statement

Your cash flow statement will help determine how much money you need to start or grow your business, and ensure you never run out of money. What most entrepreneurs and traders don’t realize is that you can turn a profit but run out of money and go bankrupt.

When creating your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a trading business:

Cost of equipment and supplies
Payroll or salaries paid to staff
Business insurance
Other start-up expenses (if you’re a new business) like legal expenses, permits, computer software, and equipment

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your facility location lease or a list of your suppliers.

Writing a business plan for your trading business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will understand the trading industry, your competition, and your customers. You will develop a marketing strategy and will understand what it takes to launch and grow a successful trading business.

Trading Business Plan Template FAQs

What is the easiest way to complete my trading business plan.

Growthink's Ultimate Business Plan Template allows you to quickly and easily write your trading business plan.

How Do You Start a Trading Business?

Starting a trading business is easy with these 14 steps:

Choose the Name for Your Trading Business
Create Your Trading Business Plan (use a trading business plan template or a forex trading plan template)
Choose the Legal Structure for Your Trading Business
Secure Startup Funding for Trading Business (If Needed)
Secure a Location for Your Business
Register Your Trading Business with the IRS
Open a Business Bank Account
Get a Business Credit Card
Get the Required Business Licenses and Permits
Get Business Insurance for Your Trading Business
Buy or Lease the Right Trading Business Equipment
Develop Your Trading Business Marketing Materials
Purchase and Setup the Software Needed to Run Your Trading Business
Open for Business

What is a Trading Business?

There are several types of trading businesses:

Retail trading business- sells merchandise directly to consumers
Wholesale trading business- sells merchandise to other businesses
General merchandise trading business- sells a wide variety of products
Specialized trading business- sells one specific type of product

OR, Let Us Develop Your Plan For You

Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.

Click here to see how Growthink’s business plan advisors can give you a winning business plan.

Creating your trading business plan

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This lesson will incorporate many aspects of trading that you are likely to be familiar with. We assume that you have already been trading and you are looking to make your approach more professional. If you are new to trading, then this lesson is still very beneficial to you, because you can start your education with a clear goal in mind.

This lesson serves as a hub for each aspect of trading, because in order to develop a business like approach, you now need to tie in all the different aspects of trading together.

Your trading business

If you are considering a career in trading, whether that career is full time or part time, you must view this as a business. A bank or a financial institution has hundreds of people working for them. This includes risk managers, analysts, accountants and of course the traders that execute the positions.

All of these people make up the business and they each specialise in their own area. You will be all of these people combined – you are the business.

Trading is like any other business

In order to begin thinking of trading as a business, you need to consider every detail about what can impact your success and what will affect your overall profitability.

You have costs that you need to cover, and in the case of full time trading, there needs to be enough left over for your living expenses. There are also tax implications, computer costs, possible fees for price data and use of trading platforms. Even your electricity bills need to be considered, because they all have an impact on your overall profit.

Most importantly, you need to understand your goals and how you are going to achieve them.

Even if you consider trading as a part time job, you will still need to consider these factors.

What is a trading business plan?

A trading business plan, just like a normal business plan, is a document that details everything that you need to know in order to run your trading business.

It includes your goals and objectives, how you intend to make money, what your edge is, what you will trade and why, and how you will grow your trading business.

It should also include details about the technical and fundamental analysis you will use, money management, psychological ideals and how you will prepare, execute and then evaluate the trades you place.

A trading plan, in essence, holds all of the information, rules and practices you will employ.

Creating a trading plan

Before you set out to create your trading business plan, you need to first of all define your goals.

Define your goals

What are you looking to achieve both personally and financially?

Financial/trading goals

What are you looking to make in a year?
How much are you looking to reduce your drawdown by?
Will you use different strategies to deal with different market conditions?

Personal development

How will you work towards becoming more disciplined?
How will you deal with drawdown periods?
How will you adjust if your financial goals are not being met?

Creating your plan

Now that you have defined your goals, you can create your business plan.

What is your investment?

How much starting capital do you have?
What amount of capital are you going to initially invest?
How much capital do you have to initially cover your total costs? How long will this last for?

You should always only invest what you are comfortable with.

What are you going to trade?

Are you going to diversify into different asset classes or will you focus on one specific market?

Note that it is considered better to look at more than one asset class where possible, in order to maximise opportunity. At the same time you must be careful not to overextend yourself.

Some strategies are optimised for specific asset classes and so you will need to consider what you can and cannot trade.

What are your costs?

How much will it cost you for each trade in spread and commission?
Do you have to factor in overnight positions?
How much do you pay for your trading software?
How much do you pay for your data feeds?
How much do you pay in bills for your electricity?
How much do you pay to rent your office space/desk? Or what is your rent/mortgage?
Do you have to pay tax? If so how much? Do you have to pay an accountant?

You need to list every single expenditure that you have.

What technical strategy will you use?

This is at the heart of your trading business plan. First of all you will need to write down each aspect of your technical strategy.

What is your entry?
What is your stop loss?
What is your profit target?
What charting tools will you use to identify, enter and exit trades?
What charting patterns/candlestick patterns will you use?

You will also need to make sure that the strategy that you are using has been fully tested and that you have recorded your benchmarks in your plan:

Will you trade more than one strategy?
Will you trade more than one asset class? Have you tested each asset class?
What are the benchmarks of your strategy/asset class you are trading with?
What can you realistically expect in real live trading, based on the results of your testing?

What fundamental factors will you incorporate?

You need to decide if you are going to trade certain news events or not, if so, what fundamental news services (websites, newspapers etc) if any you will use?

Do you need to pay attention to specific earnings reports or bond auctions? Do you need to take into consideration economic reports? Will you simply be aware of certain news releases to stay out of the market?

Money Management

The effectiveness of your money management plan will determine whether you will be able to carry on after a drawdown period or difficult market environments. Money management will essentially keep you in business.

What will your average position size be?

What will you risk per trade and will you risk more on different trade types?

How many trades are you looking to take per day?

How do you intend to trade during winning and losing cycles? For example, will you cut the size of your position if you are losing? Will you increase it when you are winning?

Daily routine

The section on your daily routine should contain the plan you will use on a daily basis before, after and during your trading day to optimise your mental state.

It will include:

What you will do for your daily preparation/rituals before you trade.
How often you will take breaks.
The methods you intend to use for evaluating your trading day.
How you intend to optimise your end of day ritual to ensure you are in peak condition and organised for the following trading day.

Psychology management

How will you deal with emotion?
How will you recognise if you are in an emotional state and should not trade?
How will you break cycles of losses?

For example, you may decide to take regular breaks during the trading session. It may be that you are going to write a trading journal that encompasses a section on your emotional state during every trade. Either way, planning how you will deal with psychological issues is a great way to finish up your trading plan.

Evolution of your trading business plan

Once you have written your plan, you will need to continuously evaluate and amend it.

This is because the strategy you start with may not be the same strategy you trade with in the future. Your trading business plan is something that should constantly evolve, just as you do as a trader.

You will find that you may change certain aspects of your routine and you need to record this.Although it is not necessary to change things weekly, a monthly review of the plan may be beneficial in both refreshing yourself with your trading system and also for making any changes or additions.

In this lesson you have learned that ...

... if you are considering a trading career, you must have a business plan.
... banks and financial institutions have hundreds of people working for them. This includes traders, analysts and risk managers – you will have to be all of these.
... a trading plan includes all the rules and information you will employ to be a full time trader.
... you need to first define your personal and financial goals.
... after you have created your goals, you need to put together your business plan.
... you need to consider: the cost of trading, which technical strategy/strategies you will use, what fundamental factors you will incorporate and what your money management practices will be.
... you will also need to define your daily routine and how you will deal with the psychology of trading.
... you must keep in mind that your plan will evolve as you develop as a trader.

quiz: Creating your trading business plan

Daily preparation, quiz: daily preparation, evaluating your trading performance, quiz: evaluating your trading performance, the end of the day trading routine, quiz: the end of the day trading routine.

Tradimo helps people to actively take control of their financial future by teaching them how to trade, invest and manage their personal finance.

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Tradimo operates only under the following URLs: tradimo.com , learn.tradimo.com , de.tradimo.com , go.tradimo.com , news.tradimo.com . All other URLs containing 'tradimo' do not belong to Tradimo and might be fraudulent websites.

Risk warning: Trading in financial instruments carries a high level of risk to your capital with the possibility of losing more than your initial investment. Trading in financial instruments may not be suitable for all investors, and is only intended for people over 18. Please ensure that you are fully aware of the risks involved and, if necessary, seek independent financial advice. The educational content on Tradimo is presented for educational purposes only and does not constitute financial advice.

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Investment Website Business Plan

Start your own investment website business plan

Staryoo.com

Executive summary executive summary is a brief introduction to your business plan. it describes your business, the problem that it solves, your target market, and financial highlights.">.

Staryoo.com is a revolutionary concept that will provide a Web-based trading platform for Chinese equities and securities investors and institutions. Staryoo.com will change the way millions of people invest in China. Particular to Staryoo.com will be investment features that have recently not been available to the investor in China, including, real-time stock price quotes, technical and fundamental analysis, expert commentary on market action and recommendations, investment forums and chat rooms, online bank transfers, remote pager notification, and educational material including books and tapes. The platforms’ intelligent graphic interface will be fully configurable, thereby allowing users to optimize the interface to meet their level of experience and investing profile.

With both the development of the Chinese national super highway project and China’s imminent membership into the World Trade Organization (WTO), Internet use and Internet investing will grow very rapidly. According to a recent report by the China Internet Information Center, there were 4.5 million Internet users in China as of June, 1999. This number is double the 1998 estimate and is expected to increase to 20 million by the end of 2000. Among the 45 million investors in China, 40 million are individual investors. It is anticipated that as foreign equities markets (in particular the U.S. markets) are made available to the individual investor, their trading volume will increase enormously. According to Mr. Pen Reng, Vice President for Shanghai Securities Co., LTD., the second largest brokerage in China, it is estimated that the number of individual investors in China will increase to 250 million by 2005. Staryoo.com has anticipated this trend and will be the first to support international trading.

The U.S. market for equity securities has grown dramatically in recent years. The large increase in the average daily trading volume on NASDAQ has resulted from the combination of historic market highs and the growing number of issuers listed on NASDAQ. At the same time, technology has advanced to the point where more investors are trading online. This has created a new class of self-reliant and value-oriented investors who are comfortable with electronic commerce. We believe that these same trends will develop in China and that we will be well positioned to take advantage of the significant market opportunity that will exist for faster, easier, more reliable, and less expensive trading systems.

Staryoo.com is based in Shanghai, China with a Sunnyvale, CA office. Initial seed capital and technical support has been provided by Starmile Systems Engineering, Co. LTD. (Starmile) located in Shuzhou, China. The goal of setting up Staryoo.com as a U.S.-based company is two-fold: the first is to facilitate the transition from a Chinese equities market to one allowing for the access of the U.S equities markets and, second, to quickly and efficiently allow Staryoo.com to go public in the U.S. To develop and market this trading platform, Staryoo.com will require heavy first and second round funding. Additional rounds of financing may be required by fourth quarter (Q4), Year 3 to achieve the objectives listed below.

Investment website business plan, executive summary chart image

1.1 Objectives

Alpha and Beta testing of Web-based platform, January 15, Year 1 and May 15, Year 1, respectively, with strategic partners in China.
Complete negotiations with two large brokerage firms for initial deployment of trading platform by June 1, Year 1.
Secure first round funding by June, Year 1.
Staryoo.com available for individual investors beginning June 1, Year 1 (without online trading).
Staryoo.com available for online trading beginning September 15, Year 1.
U.S. equities markets available in China via Staryoo.com in Q2 Year 2*.
Achieve revenues of $300,000 by year end, Year 1.
Sign up 18,000 members and 14 brokerages by Q4 Year 1.
Deploy Staryoo.com as a trading platform in the U.S. by Q3 Year 3.
Staryoo.com U.S. public company by Q4 Year 3.

* – anticipated WTO membership in Q4 Year 1.

1.2 Mission

It is Staryoo.com’s mission to provide investors with the most comprehensive Web-based trading platform available. We will devote ourselves to the constant evolution of this trading platform by listening to our users and enhancing our product mix to satisfy their requirements. Staryoo.com is committed to providing an exceptional customer experience that will ensure investor trust and confidence. First class image, first class quality, and first class service will be our goals while making a fair profit for employees and investors. Recognizing that our employees are our most valued resource, Staryoo.com will nurture and reward its’ employees as milestones are achieved, technologies are developed, and the company flourishes.

1.3 Keys to Success

To succeed in this business we must:

Differentiating Staryoo.com’s Web-based trading platform from all others with increased functionality and features required by investors for advanced Internet trading.
Provide 100% customer satisfaction with Staryoo.com order transmission and customer service to ensure repeat and consistent usage.
Provide 100% brokerage satisfaction with Staryoo.com online trading implementation and cost effectiveness.
Leverage Starmile’s technical expertise and client base to ensure that a wide range of customers are informed about Staryoo.com’s equities trading platform and the advantages of using this platform.

1.4 Strategic Advantage

Staryoo.com will have a competitive advantage over competing Web-based trading platform providers due to the following strategic reasons:

Starmile has extensive technological knowledge in the fields of bank information processing including transaction processing, account inquires, and settlements.
Starmile has developed a payment cryptography system certified by the National Cryptography Administration Committee and ISO9002 compliant.
Starmile has developed an online non-Web-based security trading system for China JiangQian Tide. This system includes most of the functionality being proposed for the Staryoo.com trading platform, including: transactions and trading of Shanghai A shares, statement of account transactions/balance, Windows NT based, online retrieval of market reviews and exchange information, downloading of historical data, input of stock symbol and lookup, network security/firewall implementation, and built-in analysis systems.
An experienced and diverse management team and Board of Directors. With backgrounds in the technology, banking and securities industries.
Being a U.S. company with a solid relationship with Starmile provides a lower barrier of resistance for achieving market penetration in China: American companies will find it difficult to obtain market share due to cultural preferences.

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Disaster Avoidance 101

Building the perfect master plan, 1. goal definition, 2. trading style selection, 3. strategy development, 4. realistic expectation setting, 5. comprehensive market analysis, 6. risk management rule development, 7. trade management plan, 8. trading discipline maintenance.

9. Keep Excellent Records

10. Continuous Education

Why should traders develop a plan, how to determine risk tolerance when trading, how to analyze trading performance, what benchmarks can be used for trading, what are the best timeframes to use for trading, the bottom line.

Trading Skills

Trading Basic Education

10 Steps to Building a Winning Trading Plan

There is an old expression in business that, if you fail to plan, you plan to fail. It may sound glib, but people that are serious about being successful, including traders, should follow those steps as if they are written in stone. Ask any trader who makes money on a consistent basis and they will probably tell you that you have two choices: 1) methodically follow a written plan or 2) fail.

If you already have a written trading or investment plan, congratulations, you are in the minority. It takes time, effort, and research to develop an approach or methodology that works in financial markets. While there are never any guarantees of success, you have eliminated one major roadblock by creating a detailed trading plan .

Key Takeaways

Having a plan is essential for achieving trading success.
A trading plan should be written in "stone", but is subject to reevaluation and can be adjusted along with changing market conditions.
A solid trading plan considers the trader's personal style and goals.
Knowing when to exit a trade is just as important as knowing when to enter the position.
Stop-loss prices and profit targets should be added to the trading plan to identify specific exit points for each trade.

If your plan uses flawed techniques or lacks preparation, your success won't come immediately, but at least you are in a position to study and modify your course. By documenting the process, you learn what works and how to avoid the costly mistakes that newbie traders sometimes face. Whether or not you have a plan now, here are some ideas to help with the process.

Trading is a business, so you have to treat it as such if you want to succeed. Reading a few books, visiting webinars, buying a charting program, opening a brokerage account , and starting to trade with real money is not a business plan —it can be a recipe for disaster.

A plan should be written—with clear signals that are not subject to change—while you are trading, but subject to reevaluation when the markets are closed . The plan can change with market conditions and might see adjustments as the trader's skill level improves. Each trader should write their own plan, taking into account personal trading styles and goals. Using someone else's plan does not reflect your trading characteristics.

Investing After the Golden Age

No two trading plans are the same because no two traders are exactly alike. Each approach will reflect important factors like trading style as well as risk tolerance . What are the other essential components of a solid trading plan ? Here are 10 that every plan should include:

Firstly, if you are new to trading, you should determine financial objectives, risk tolerance , and time horizon. These items need to be clearly articulated to ensure that your trading activities can be achieved.

A trading style needs to be identified. This style should reflect your personality, culture and preferences. The plan can include day trading , swing trading , position trading or long-term investing . The chosen style should align with one's goals and time availability.

A detailed strategy needs to be created. This strategy outlines an approach to the markets. Also a criteria for trade selection needs to be defined. This can include technical indicators , fundamental analysis or a combination of both. Finally when building the strategy, entry and exit tactics, risk management techniques, and position sizing rules need to be specified.

Trading is not a guaranteed path to wealth and involves inherent risks. Realistic expectations for returns need to be set and the potential for losses needs to be recognized. You should avoid the trap of chasing quick profits or risking too much capital on a single position or trade.

You need to conduct thorough market analysis to identify potential trade opportunities. If they are part of your plan, analyze charts, market trends should be studied, news and economic indicators have to be monitored. Take a step back and consider the overall market condition.

In order to protect capital, risk management strategies should be implemented. Allocate a percentage of your portfolio for each trade and don't go above the amount you have determined is right for your account. This amount should be equivalent to the amount that you are willing to lose per trade. Make use of stop loss-orders to limit potential losses and establish clear take profit targets to secure gains.

Determine how you will manage open positions . You should determine when to adjust stop-loss orders, take partial profits (possibly through the use of trailing stops ), or exit the trade entirely.

Once you have written your trading plan down, stick with it, Avoid situations where you abandon your trading plan impulsively because the market is doing something that elicits an emotional response from you like fear or greed. Train yourself to embrace discipline and consistency when executing and exiting trades.

9. Monitoring and Trade Evaluation

A detailed record of trading activity, including entry and exit points, reasons for taking the trade, and the outcomes are essential. A frequent review and evaluation of trades is necessary to becoming a good trader. The evaluation and review of your past trades will allow you to identify patterns, strengths, and areas for improvement.

The percentage of day traders that quit within two years, according to a 2017 paper titled "Do Day Traders Rationally Learn About Their Abilities" by Barber, Lee, Liu, Odean, and Zhang.

Stay updated on market trends, economic news, and new trading techniques. Read books, attend seminars and webinars, follow reputable financial news sources, and interact with experienced traders to enhance your knowledge and skills.

Traders should develop a plan in order to maintain a disciplined and systematic approach to their trades. Also, a well defined trading plan helps remove subjectivity from trading decisions.

A trading plan incorporates risk management strategies such as setting stop-loss orders and determining position sizes based on risk tolerance. Without a plan, traders may expose themselves to excessive risk or fail to implement appropriate risk management measures.

Some key factors when traders assess risk tolerance are the financial situation of the trader, the investment goals, risk appetite as well as experience and knowledge of the financial markets. A risk tolerance questionnaire or even a meeting with a financial advisor will help determine your risk tolerance.

There are a number of ways to analyze trading performance. A few common methods include calculating the total return of the trades, determining the profit factor as well as using the Sharpe ratio . Other metrics include analyzing the win rate, the average win amount, the average loss amount, the drawdowns and the recovery rate. In this case, the recovery rate is the percentage of the drawdowns that the trades recovered.

Benchmarks serve as reference points or as performance indicators to assess the success and effectiveness of one's trading strategy. Some common benchmarks include: market indices , professional fund managers, mutual funds or even absolute return targets.

The best trading timeframe is dependent on the trader's style, personal preferences, time availability and the specific market or instrument. There are different time frames for different styles of trading, for instance the following all have very different time frames: position trading , swing trading , day trading and scalping .

Successful practice trading does not guarantee that you will find success when you begin trading real money. That's is because trading real money is when emotions come into play. But successful practice trading does give the trader confidence in the system they are using, if the system is generating positive results in a practice environment. Deciding on a system is less important than gaining enough skill to make trades without second-guessing or doubting the decision. Confidence is key.

There is no way to guarantee a trade will make money. The trader's chances are based on their skill and system of winning and losing. There is no such thing as winning without losing. Professional traders know before they enter a trade that the odds are in their favor or they wouldn't be there. By letting their profits ride and cutting losses short, a trader may lose some battles, but they will win the war. Most traders and investors do the opposite, which is why they don't consistently make money.

Traders who win consistently treat trading as a business. While there is no guarantee that you will make money, having a plan is crucial if you want to be consistently successful and survive in the trading game.

Barber et. al. " Do Day Traders Rationally Learn About Their Ability? ," Page 1.

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Online stock trading business plan [license investments].

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Table of Contents

Stock market is also known as the equity market. It is the hub of stock traders and brokers, who take part in the purchase and sale of bonds, shares, stocks. Both business houses and normal people can take part in the stock market, with the expectation of earning a handsome profit. People who have a good business sense will be able to become good stock traders. Apart from big stock brokerage firms, people can trade in this market personally.

How does the stock market work?

The business procedure simple, yet complicated. If you get into the nitty-gritties of the trade, without attaining a good understanding about the basics, then you will find yourself in heap of troubles. It is same as purchasing something from a shop. The shopkeeper sells the item and you purchase it by paying the price. The stock markets allow you to perform similar functions, but here, each stock trader will be able to resell the bonds, when the market price of each bond goes up. The price of the shares increases when the host company makes profit. The shareholders can sell the bonds or stocks when the price is high. Thus, if the initial price of one share was Rs. 100, and later it rose to Rs. 200, then the shareholder stands a chance to make a profit of Rs. 100 on each stock. There is also the possibility of the stock process going down. In that case, the shareholder may incur a loss.

Stock exchanges in India

There are 28 stock exchanges in India. Most of them are located in each state. But the two primary stock exchanges, which control the stock market in the entire country, are the Bombay Stock Exchange and the National Stock Exchange of India. BSE was founded in the year 1875 by Premchand Roychand. The NSE was started way later in 1992. It is also located in Mumbai. All big players of the stock market have their representation in these two exchanges.

Getting the basics

After the preliminary knowledge about share market and trading, it is time to talk about the accounts that each share trader needs. If you are interested in trading online in the share market, then you need to open a trading account as well as DEMAT account. The trading account will form a link between the savings account and the GEMAT account. Monetary transactions will primarily take place between the savings and the Trading accounts. The money will first be deposited in the trading account. From there it will reach the company’s account or the shareholder’s account, depending on whether you are buying or selling the stocks respectively. All bonds, stocks or shares will be stored in the respective DEMAT account, in electronic format, for better online transactions.

Steps to start the journey

Plan your online trading business.

If you desire to carve your niche in the online share trading industry, then you need pertinent knowledge. It is not mandatory to open a big share trading organization. You may do it independently as well. You will not be able to stay afloat in the share trading business, unless you have a proper plan. Planning not only prepares you for risks, but also offers you better insight in the business. Share trading is rather unpredictable, and planning also offers you a cushion to fall back on in case anything goes wrong.

Collect necessary information

In case you do not have necessary and bankable information about the process, then you will not attain success in the venture. It might simple when you have the grip on it, but it will not be so in the preliminary days. Read books, search online, and consult with seasoned brokers to prepare your foundation. If your base in strong, then you may get success in your online stock trading.

Arrange capital for the business

There is no set amount that will bring you achievement in the stock exchange. The Indian stock market has various kinds of shares. The prices depend on the market status of the company. Some organizations sell their shares at premium rates, while others keep their process rather low. In India, you will find stocks, which are less than Rs. 100, as well as those which range in thousands. So, you can start stock trading with as much as you want. It is not important how well the stock is doing in present scenario, but how high their prices may go up in future. Only an experienced eye can spot a company with low share prices, but

Open necessary accounts

Online transactions, buying and selling of stocks or bonds have become easy with the introduction of the online trading sites. If you have an interest in online trading, then you need to ensure that you have an active savings account in a registered bank, and a DEMAT account. Apart from this, a third account, Trading account is a must for online stock trading. These accounts can be opened online, and all you need is to scan and upload the necessary documents, and your accounts will be activated.

Keep an eye on the stocks

Before purchasing stocks or shares, you need to study the market trends. It is not wise to sell stocks when the market it dipping. But purchasing shares can be lucrative, provided you get hold of good shares. Only sell the stocks when the market is up. That will put more money in your pocket. Study the market, company activities, and listen to what the experts have to say, until you have acquired enough experience to predict the stock market nature.

Trade to acquire profit

Once all necessary aspects have been taken care of, and you have acquired a decent knowledge about the lucrative shares, then it is time to get on board. Independent traders often make use of official online sites to get hold of the preferred shares. In case you find it challenging to locate profit yielding stocks, then take help from seasoned brokers.

Don’t be bogged down by loses

Share market is rather volatile, and one cannot predict the outcome. Is it possible to say whether the share price of a company will go up or come down? You can only wish that it increases, so that your chances of making a profit surge. But the reverse is also possible. Investing in the stock market is like gambling. You never know what will happen the next moment. Losses are common when you are trading online. But these should not deter you. One tip that all seasoned brokers swears by is never to invest a huge amount on shares. Only gamble with the amount that you are ready to lose. You must always have funds to fall back on. Investing in long-term shares is safe as they tend to give you profit over a certain time. Volatile shares may not be a good idea if you desire to invest a huge sum.

Proper license is a must

Whether you have an online brokerage firm or you desire to take part in the trade single handedly, you will require some essential documents. The DEMAT and the trading account are a must for any person who wishes to trade in shares online. These are some of the necessary documents that one must possess:

PAN Card – To open a DEMAT and Trading account in India, the person must have a PAN Card. The PAN Card number will allow the authority to keep track of the transactions happening through the DEMAT and Trading account.
Identity Proof – The identity proof documents are also a must for opening the DEMAT and trading accounts. The PAN, voter card, ration card, or any such document will be accepted. It must have the picture of the person.
Address proof – Whether you open a bank account or a DEMAT account; the authority will require your permanent and current address proof. Most photo ID documents, like voter card or pan card, have the address as well.
Income proof – When you start trading in the share market, you will have to offer proper proof of income. The tax papers, salary documents, ITR Acknowledgement certificates or bank statements will come in handy offer a pertinent proof.
Savings Bank Account Details – As the presence of an active savings account is a must, the person opening the DEMAT and Trading account must submit the related details. Cancelled cheque or bank statement photocopy will be enough.

The stock market may seem complex to start with. With proper research, and guidance of the experts, you will be able to get a grip on stock trading. Shares and stocks will only bring in profit if you take the correct decision at right time. A novice might falter in this department, but once you gather enough experience, things will fall in place easily.

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Answers to all your questions about how to get started with your trading business..

What Is A Trading Business?

Why You Need A Trading Business Plan?

Your Trading Purpose
Your Trading Process/System
Risks/Costs of a Day Trading Business
How Much Starting Capital Do You Need For Your Trading Business?
Define Your Trading Team
How To Grow Your Trading Business

How to Start a Stock Trading Business

What is a trade book, what to include in your trade book, day trading computers and monitors, parting thoughts on starting a day trading business.

PARTING THOUGHTS

How To Set Up A Stock Trading Business From Home

Not many people approach stock trading like an ordinary business. Sure, they want to make gobs of money, and fast. But, rarely do you see the budding day trader plan out his trading business like he would any other brick and mortar startup. Perhaps this is why there are so many casualties in this industry – because very few treat day trading as a serious business.

It is no surprise. There are a myriad of advertisements across the internet offering get-rich-quick opportunities in the market. Gurus and furus offer their services for a nominal fee and promise millions, just like their best students have made. Heck, they even show you their brokerage statements to prove it!

But is it that simple? And what structure do these services provide for you? Do they teach you how difficult the path to success will be? Do they tell you how many students have dropped out of their programs on account of failure?

Better yet, do they provide a structure and a framework for how to plan your career, much like you would a business?

Day trading without a true business plan is a lot like gambling. You say to yourself, I’m going to throw my life savings at these internet gurus’ wisdom and hope for the best. A year later, you’ve probably coughed up half your savings, if you’re lucky to still have any.

Let’s just hope you kept a side gig in the process.

Such is the plight of many aspiring entrepreneurs in the trading world, unfortunately. So, in this post, we’ll lay out for you just how treacherous the path can be, and offer you a better structure to kick-start your trading business.

What Is a Trading Business?

A trading business is like any other business. You may decide to incorporate or act as a sole proprietor. Regardless, starting a day trading business is very simple. All it takes is applying with a brokerage and loading money into your trading account. For that reason, it can be a dangerous business to start, with such a low barrier to entry.

Just like any other endeavor, you’ll be required to pay taxes on your profits. However, there are certain limitations to the tax rules for day trading that you should be aware of. We will touch on these in a moment, but suffice it to know that like other businesses, you will need to be aware of what write-offs can apply to your business along with the short and long-term capital gains you’ll be responsible for.

Unlike a brick-and-mortar business, you don’t need anything but a computer or mobile device to start a trading business. You won’t have the expense of restaurant equipment, medical malpractice insurance, or the headache of managing employees. These days you can place a stock order with iPhone apps or more advanced trading software on computers. That and an internet connection are all you need to get started. Literally.

But just as buying stoves and ovens, tables and chairs, and having the best recipes in the world won’t guarantee a successful restaurant business, so having the best computer, broker, or guru won’t guarantee you’ll make money in the market.

improve your odds in day trading tradingsim

Why You Need a Trading Business Plan?

One of the most overlooked, yet most important parts of a successful trading business, is the trading business plan. Why do you need a trading business plan? For a handful of reasons:

It will force you to research your business and the likelihood of success.
A trading business plan will help you stay grounded with realistic expectations.
During the rough times, it will guide you into re-evaluating your process.

What Are the 6 Elements of a Good Trading Business Plan?

Every business needs a business plan. Usually, you’ll have an executive summary, description of your team, products/services, market outlook, financials, etc. But for trading, the variables are a bit different. Your team is really just you, with some exceptions. Your product is your trade plan, and your financials are just your available capital. Let’s look at each of the 6 elements of a good trading business plan more in-depth:

1. Your Trading Purpose

We’re big proponents of purposeful trading. Everyone’s “why” is going to be different, but it’s important to lay this out. It doesn’t have to be for anyone but you. That being said, the more you think about why you want to trade, the more it should motivate you to succeed at it. Every entrepreneur has a why or a purpose for what they do. Could it be as simple as “making more money?” Sure. But we’d encourage you to dig a little deeper and find more than just that. Here are some examples of why you might want to start a trading business:

To work for yourself
Increase wealth
Learn a new skill
Spend more time at home
Be available to your family and friends
Have the ability to give more
Pay off debts

There are many reasons why people trade. Spend some time thinking about why you want to start a day trading business and write this down, mull it over, and expound on it. The more concrete your reasons become, the more tangible your efforts will be to achieve success.

Think of them like outcomes. Sure, profitability is the ultimate goal. But what does profitability afford you? Time? Love? Charity? This should be the start of your trading business plan.

2. Your Trading Process/System

Would you open a new restaurant without a menu? How about a proven recipe? Would you just run to the grocery store every day and cook up whatever you felt like that night? Absolutely not. Restaurants work well if they are scalable in a very systematic way. It all starts with the layout of the kitchen. The grill is on one side, the sauté in the middle, and the food prep, washing and storage in another area. Depending on how fancy you get, you’ll have a salad prep, dessert, coffee area, etc. It’s all designed to flow in a cyclical rhythm to keep things running smoothly.

The menu also very rarely changes in restaurants, unless the chef adds a special here or there. And the recipes are often guarded secrets that never change. Perhaps seasonal offerings will vary, but the staples of the restaurant are usually known and predictable. So should your trading system be . In your trading business plan, you must lay out not only the strategies you will use, but in what type of market those strategies will work well. Get the seasonal allegory there? You see, trading the markets is a lot like other businesses in that the more systematic you are the more consistent you’ll be, and the more your patrons (your profits) will want to come back and dine with you. Screw around with too many recipes (strategies) at once, come to the market disheveled, unorganized, and unprepared, and you’ll end up with a kitchen in chaos, customers walking out the door, and your profits disappearing. It has to be a well-oiled machine. To avoid chaos, this section of your trading business plan should involve a Trade Book. We’ll discuss your trade book more in-depth below.

3. What Risks/Costs Are Involved in a Day Trading Business

Starting a new business is risky. There’s no way around it. If you want to get ahead in life, you’re going to have to risk something: money, time, failure, other opportunities. Humans crave security. But trading markets doesn’t provide that. It provides uncertainty. Now, you may be thinking that if you make a million dollars in the stock market then you’ll have security. And that may be true. However, the odds of success are not in your favor. And as a rule of thumb, the market is a game of uncertainty at its very core. In order to win, you must learn the science of probability and the need to overcome your own human emotions . Couple that with an artistic sense of intuition and discretion, along with a favorable market condition, and you might be successful. As part of that, outlining what risks and costs are involved in your day trading business would be a good place to start. We recommend that you consider the following when calculating your risk/costs

Computer and other hardware costs
Software fees, charting tools, scanning software, etc.
Broker fees: commissions, short locate fees, ECN fees, etc.
Educational courses, books, and materials
Chat room/mentorship subscriptions or service fees
Maximum drawdowns in your account
Time associated with being in the market (9:30am - 4pm EST)
Extra time devoted to review, study, and analysis
Re-investment of capital
Funds to top up your account
Time frame needed for profitability (Most traders, like businesses, take 2-4 years.)

These are just some of the costs and risks associated with trading. If you end up with a catastrophic loss, how will that impact your trading business plan?

While there are many free resources available to traders, we’d venture to say that most traders will spend many thousands of dollars just learning how to trade – not to mention how much they lose in the markets.

Obviously, we’re big proponents of learning how to trade the safe way – in a simulator . Unfortunately, most new traders like to learn the hard way. Whichever way you go, we encourage you to keep your costs and risks in check. Outline them and budget for these items long before you pull the trigger on your trading business.

4. How Much Starting Capital Do You Need For Your Trading Business?

Before we answer this question, we cannot stress enough how important it is to first PROVE that you can trade consistently in a simulator for many, many months. Funding your trading account is not the first thing you need to be thinking about. Spending time in a simulator is the first thing you need to think about. Period. Spend the time necessary to backtest and outcome test your strategies in our analytics here at TradingSim. You can trade the market for the past 3 years at any time, testing your strategies. Once you’re successful and consistent, then think about funding your account. There, now that we’ve gotten that out of the way, let’s talk about funding your account.

What Is the Pattern Day Trading (PDT) Rule?

Assessing how much money you need to start with depends largely upon your financial standing. The Pattern Day Trading rule was enacted shortly after the bull run of 1999-2000. It limits how many day trades you can make within a 5-day period to only 3 — that is, if you’re account is below $25,000. This is something to consider when you fund your account. If you plan on day trading, starting above $25k might be wise. That being said, we’re big proponents of proving to yourself what you can do in the market before you add to your account. We’ve written before about the PDT rule and ways around it . There are options like offshore brokerage accounts, opening multiple US-based cash brokerage accounts, etc. We won’t dive into that here, but if you’re unfamiliar with these options, be sure to check them out. As a general rule, start small. Start small enough that your account can grow without the headaches of forced errors due to having a small, restricted account. But not big enough that it will cost you dearly if you make rookie mistakes. And trust us. You’re going to make rookie mistakes. Plenty of them.

Generating Income During Your Early Trading Days

For your business trading plan, be sure to outline what you will do for income. It takes most traders many years to reach consistency in the markets. And by consistency, we mean being able to not only make a living but also continue to bankroll your trading account. To that end, take the stress off your shoulders by trading part-time until certain goals are reached. Or, if you decide to go full-time, be sure to outline your expenses, and the amount of savings you will need to set aside for 1-3 years of ups and downs in the market. In addition, lay out your contingency plan. Define ahead of time what you will need to do if certain milestones aren’t reached. Lastly, discuss this with your partner. There’s nothing worse than having your family responsibilities jeopardized because of a whimsical and ill-planned trading business. As the saying goes, err on the side of caution. Imagine the worst, then double that, then add a little more on top. That’s the kind of “risk” cushion you need for your trading business.

5. Define Your Trading Team

Every good business has a good team. Whether it is a board of directors, consultants, or management team; the best businesses have good leadership. Organize your trading business the same way. Granted, your trading business won’t be structured the same way your normal business is structured. You’re the only one responsible for clicking the buy and sell button in the market. However, there are people you can add to your team to help you along the way.

How To Find a Good Mentor for Trading

Finding a good mentor in stock trading is easier to find nowadays. There are a lot of “mentorship” services available online. Not all of them are created equally, though. When you’re searching for an educational service or mentorship, we recommend taking your time. Think of it like car shopping. The best car buyers do their research online first, narrow down what they want in a car: brand, price, color, miles, trim level, etc. Then, it is a matter of heading to the dealership to test drive, ask questions, etc. Just like a dealership, you’re going to find hungry salesman wanting “to do business with you today!” But you need to be on guard. It’s your money, your experience, and ultimately your decision. Stand your ground and always take everything with a grain of salt. Look at online reviews like TrustPilot. Ask around on Twitter. Look under the hood with “trial” memberships. Really do your due diligence. Yet, understand that no mentorship or educational service is going to be perfect. In fact, you should go into each educational service expecting to learn something new from as many mentors as possible. In this way, you’ll learn that your biggest asset is being your own trading coach. Now, to bring this full circle for your trading business plan, do your research first. Outline the top 10 trading educators you can find. Exhaust yourself with the effort, then narrow down your results to the top 5. Start there, and give yourself time to work through your list. In your trading business plan, identify which services you will try and which ones you might avoid. Also, include non-trading mentors in your business plan. Perhaps your spouse, a close business friend, or a confidant can provide a fresh perspective. And one of the best ways to find a team is by picking up trading buddies along the way. All of these educational services have tons of people just like you. Reach out to them and try to connect! We would also be remiss to not recommend a good psychology coach. We’re big fans of Dr. Brett Steenbarger and his books. Don’t go without them.

6. How To Grow Your Trading Business

This section of your trading business plan may not fully materialize until you are well on your way to consistency in trading. You see, the path to success in trading looks something like this:

Make a little
Profit more
Make big money

You won’t really know how to make big money unless you find a system that is scalable. In fact, many millionaire day traders find themselves at a place in their career where they have to adjust their strategies because their accounts have become too big for the strategies they used when their accounts were smaller.

While this isn’t something you should worry too much about early in your career, it should be in the back of your mind.

Typical businesses require some form of marketing to grow, right? Not only that, but they need a scalable system. Build a successful restaurant, systematize its operation, then you can turn it into a franchise. Voilá!

Trading is very similar. The market is all about compounding your profits. When you find a scalable trading system, you’ll want to spend the necessary time growing it. This requires having the right strategy, the right risk management , proper experience, and the emotional capacity to trust your system despite larger account swings up and down.

Keep this section of your trading business plan open. Add to it as you evolve as a trader and your strategies evolve. Conduct research on what the largest players in the market do to compound their large gains.

Now that we’ve outlined the 6 best elements of a successful trading business plan, let’s get into the nitty-gritty of creating your day trading business. We’ll uncover topics like how to create a trade book, the best tools for your trading business, and more.

Create A Trade Book for Trading Strategies

Essential to your trading business is your trade book. Aside from your trading business plan, this is hands down the most important part of your trading business. Every trader should have one.

A trade book is a compilation of your trading education, style, strategies, statistics, rules, and more. It is a road map for where you want to be as a trader, and how you are going to get there. It will take a lot of the guesswork out of trading and ground you in a tested strategy. That is not to say that your trade book is set in stone. It will undoubtedly evolve as your career progresses. Along the way, you’ll want to add bits of information, evolved strategies, and more. A trade book should be a document that you keep handy and consult frequently to ensure that you’re trading according to the process you have outlined for yourself. This will keep you from the pitfalls of overtrading, trading less than stellar setups, and falling off the bandwagon into “style drift”.

Everyone’s trade book will be different. However, at a minimum, you should have all the criteria and information you need to execute trades successfully each and every day, from start to finish.

Here are a handful of items you should have in your trade book:

Your trading “why”
Education materials
Current areas of improvement needed
Your trading edge/strategy
Trading rules for your strategy
Money management rules
Trade management rules
Best trade examples with annotations
Worst trades with annotations
Any data or statistics to support your trading edge

Let’s take a look at a few examples of these 10 trade book chapters and how you can flesh them out for your own purposes.

1. Areas to Improve and Maintain Discipline

This section of your trade book will need to be updated from time to time as you grow as a trader. The goal here is not to be hard on yourself, but to be realistic with the weaknesses you are showing in your trading.

Here is a snapshot of a personal list of things that this author wrote in his own trade book:

Tendency to enter trades before technical criteria are met
Exhausting myself before the move I want occurs
Limiting my profits by being happy with getting back the money I lost on the trade
Going in with too much size without the A+ setup revealing itself
Lack of patience and management once a trade is going in my favor
Impulsive entry or exits based on time frames that are too low to base decisions off of
Making decisions based upon p/l
Internalizing bad performance
Overtrading in an effort to time the entry perfectly
Being aware of the Alpha mindset that wants to force trades
Resetting after every trade
Breathing exercises for calmness and relaxation

As you can see, there are a lot of issues facing traders. Some of these may affect you, or you may have your own set of struggles to overcome. As you trade, keep a journal to jot down the weaknesses you want to work on, and set a goal each week to tackle those issues.

2. Explaining Your Edge/Strategy in the Market

This is another important aspect of your trading book, perhaps the most important. The goal of your trade book is to define how you trade, what you trade, and when you trade so that you stay rooted in a systematic approach to your trading business.

Your edge will vary, but here is an example of what your edge description might look like in your trading book:

My edge is a combination of things that involve a certain sentiment on the daily time frame, followed by smaller time frames. Here are a handful of what I consider my edges:

Reversals off daily/weekly moving averages, usually in bear or bull flag formations.
Trading Range springs and upthrusts, or Mean Regression trades
Wyckoff Wave Patterns that consolidate into a tight price action with Volume Dry Up (VDU) and pocket pivots as entry points waiting to take off.
Parabolic reversals intraday
Shorting manipulated low float stocks that are very extended

Within these, my trading strategies for entries remain the same as outlined below in the Trading Plan section. I am looking for the exact same entries on any time frame.

Once you broadly define your edge like this, you will also create a solid trade plan on how you execute these strategies. But before we get to that, you should also take the time to set your trading rules.

3. Trading Book Trading Rules

For your trading rules, we suggest you take time to think about what time you’ll trade, your position size, any mental hacks you need, stop loss criteria, and more. These can be broad or very specific. It will be up to you to tweak this over time to find the set of rules that work best for you.

A great example of a set of rules for trading is found in a book called The Complete Turtle Trader by Michael W. Covel. In this book, Covel uncovers the amazing story of how a small group of traders became millionaires by applying to Dennis Richards's experiment for training traders to become successful by following his strategies.

Richards was a floor trader for the Chicago Mercantile Exchange who made 10s of millions of dollars in the 70s and beyond. His “turtle traders,” as he called them, were given a set of rules to follow that looked like this:

Entry: Buy when the price breaks above the 20-day high
Stop loss: 2 ATR from the entry price
Trailing stop loss: 10-day low
Risk management: 2% of your account
Vice versa for short trades

They were trend traders and the rules were very simple. However, your rules might be very different and more involved. Here is an example of a few typical rules that traders like to follow:

Always cut your losses quickly
Never average down on a losing trade
Take profits at 20-25%
Maintain at least a ⅓ risk/reward ratio

Again, this is just a small sampling of rules. It will be up to you to determine the rules you need in place for not only your strategy but your mindset and personality as well. This will help you keep your trading business going for the long haul.

4. How to Create a Trading Plan

Daily Max Loss
Daily Profit Goal
Stock Change %
Stock Catalyst
Volume Metrics
Average True Range
Relative Volume
Indicators needed
Confirmation of strategy
Entry Signal
Trade Management Rules

Fill out all these metrics and you’ll be well on your way to having a solid trading plan. Be sure to really flesh out the details of each criteria, and then give examples of trades that fit these criteria.

To help visualize this, here is a snapshot of a trade book trading plan:

5. Money and Risk Management for Your Strategies

No trading plan is complete without defining your money and risk management protocol. Every trade might be slightly different, but as a rule of thumb, we recommend only risking about 0.5-2% of your entire capital on any given trade.

Here is an example of how you might define your risk management strategy for shorting a head and shoulders pattern:

Risk Per Trade : $450 or HOD, whichever comes first

Profit Target Per Trade : $1000 +

Max Loss Per Trade : $750

Trade Limits :

Give the stock enough time to bounce and fail and return back into the trading range.
Look for a squeeze before a drop if the stock feels weak
The earliest entry can be on an “undercut and rally” or “overthrow and drop” if momentum is really waning.

Time Constraints : Pre/Post and Normal hours depending on volume, after 10:30am usually the best

Stop Loss Mechanism : Hard stop just above High of Day (HOD) and LOD on early entry. Hard Stop just above higher low / lower high on “right shoulder” entry.

Break-even Win% : This will depend on your statistics with the trading strategy.

6. Use Statistics in Your Trading Book

One of the absolute best ways to determine your chances of success on a strategy is to test it in a simulator by outcome testing your results. At TradingSim, we have the analytics that allow you to do just that.

As you test your strategies and begin to populate your trading book, be sure to include the statistics you’ve found in the simulator for each edge that you document.

trading simulator analytics | TradingSim

Studying your winners and losers based upon the specific strategies you use will give you the confidence to take these trades in real life. So be sure to specify your win rates and any caveats for your strategy by testing these outcomes in a simulator first.

If you’re going to be a day trader, you’ll need a decent computer and a monitor. While we’ve heard of people day trading on their phones or iPads, it’s less than ideal. The reason for this is that you need to not only be able to analyze charts in real-time, but you may need to check other data as well. You’ll need screen space for your broker, your charting platform, any newsfeeds or chat rooms, twitter, etc. A solid computer and multiple monitors make this more efficient. Likewise, you’ll probably want multiple chart windows up simultaneously. This helps you keep track of the movements in individual stocks as the day progresses. Not having screen space for this might result in missed trades. And we wouldn’t want that!

Day Trading Stock Brokers

While we are not in the business of recommending stock brokers, this will be a key component of your trading business, so the decision shouldn’t be taken lightly. We recommend that you try many different brokers and do your own research before pulling the trigger on one.

When you are picking the right broker for day trading, you want to consider the type of trading you want to do. For example, many day traders like to short. In order to do this, you will need a broker with a solid list of shortable stocks. Not every broker will have this.

Consult with your broker and ask around the net for answers to some of the following questions:

Do you have a good list of hard-to-borrow stocks?
What trading platform do you provide?
Are pre-market and after-hours trading allowed?
What are trade cut-off times?
Do you have margin, and what are the rates?
What is customer support like?
Does the platform include a mobile app?

At the very least, you should be able to demo their product to get a feel for it and decide whether or not it is a good fit for you and your trading style.

Charting and Trading Platforms

While many brokers will include a charting and trading platform, you may find that their charts don’t satisfy your needs. After all, there are quite a few standalone charting services available that cater specifically to charting, regardless of brokers or trade execution. Many traders will run their charting platforms as a standalone so that they can employ unique trading indicators and technical analysis tools that their broker might lack. This can empower your trading, enabling you to dive deeper into volume and price action without needing a clunky brokerage chart. It also frees you to choose which broker might provide the best service or execution independent of their software.

Trader Tax Accounting

There are two things guaranteed in life, death and taxes, right? Well, day trading has the potential to rack up a lot of taxes, so you’re going to need an accountant who knows what they are doing. Making a few investments here and there can easily be handled by your typical CPA. However, there are a lot of rules and regulations involved with actively trading. Wash/sale rules, what constitutes an active trader, marked-to-market rules, and many other things can affect your status and tax liability as a day trader. For that reason, we recommend you hire a professional who knows what they are doing before you jump into trading. Be sure to consult with them on your other businesses, how much you plan to trade, and any other income sources you have. While we don’t recommend any specific accountant over another, there are a few trading-specific accountants that we know of: https://tradersaccounting.com/ https://tradertaxcpa.com/ https://greentradertax.com/ Use them at your own discretion and risk, but understand that reconciling thousands, if not hundreds of thousands of trades, takes specialized software and accounting. You might be able to figure it out on your own by using https://www.tradelogsoftware.com/ . But the help of a knowledgeable accountant is always advantageous.

Finding a Day Trading Community

Day trading is a lonely business. You’re sitting at your desk for hours on end, pouring over charts and data. Not only that, but you will experience emotional highs and lows during this process. To that end, we recommend that you find a good day trading community to support you. We’ve written before on chat rooms and how to make the most of them, so be sure to check that article out. In it, we discuss the role that chat rooms play in the market and in trading development. Not all chat rooms or educational services are created equally, though. So, be sure to vet services properly and as inexpensively as possible until you find one that resonates with your style of trading and social interaction. Being a part of a community also serves as an accountability tool in the market. A good business will likely have some type of review board that oversees and provides accountability for the business. In trading, you’re responsible for your own actions. And, for that reason, it would be ideal for you to have a trusted group of trading partners that you can bounce ideas off, conduct review sessions, and keep yourself on track both mentally and professionally.

The Best Simulation Software for Your Trading Business

While we may seem biased, we truly believe that this piece of the puzzle is one of the most important and overlooked aspects of day trading. So many traders are willing to risk their hard-earned cash before they have a proper understanding of how markets work. It is irresponsible and risky, at best.

Here at TradingSim, we offer the best simulator for market replay , simulation, and analytics. Unlike most stock market simulators, we allow you to replay Level 2 and intraday data for up to 3 years. As a day trader, you’ve got the ability to “relive” the market as much as you want, and when you want.

Because day trading can be both systematic and discretionary, you’ll enjoy the built-in analytics software that TradingSim offers. In order to test your trading skills and outcome test your performance on a specific strategy, you’ll need this. Any great trader knows the power of statistics. Be sure to spend time in the sim testing your process before entering the market with real money.

Not convinced? Don’t take our word for it. The most prolific trading psychologist in the world has this to say about simulation trading:

Indeed, it’s often because of our need to make money and our overconfidence that we pursue shortcuts in our learning processes as traders and take too much risk. That leads to volatility of P/L and losses, which in turn trigger our nervousness, tension, stress, fear, and worry.

What I’ve long liked at TradingSim is the focus on learning trading–and doing that in safe ways where we can’t trigger and traumatize ourselves.

Think about every performance field: athletics, acting, music. In none of those do we start out by following people online, doing some reading, and then trying to make a living from our performance. Rather, we recognize that it takes years of practice and mentoring to become a professional athlete, movie star, or recording artist.

When we take shortcuts in the development process, our unrealistic expectations set us up for disappointment, frustration, and pain.

Many, many times the answer to emotional disruptions in trading is to work on our trading.

Dr. Brett Steenbarger, Ph.D.

What Are the Best Day Trading Courses?

Day trading courses abound on the internet. You can find free ones on YouTube, or pay tens of thousands of dollars to join “exclusive” day trading clubs, services, and challenges. There are also many books written on day trading and the many different styles of trading. Though we won’t recommend one over the other, what we do recommend is that you spend as little money as possible to begin with on education. The internet abounds with free resources. We’re even dedicated to helping the cause here at TradingSim with our blog and educational material. That being said, once you’ve scoured the net and read as much as you can, we do recommend trying as many services as you can comfortably afford that cater to your desired style of trading. If it is shorting small-cap stocks and momentum, find a good trading service that teaches you how to do this. Regardless of the style of trading, we recommend that you use discretion to find a trading course that offers an approach to tape reading, volume and price analysis, and trader development. Study some of the great ones, like Richard D. Wyckoff. You won’t go wrong with an understanding of sound technical analysis, which you can apply to any style of trading.

Finding a System for Your Day Trading Business

Keeping a Routine Schedule - Just Like Normal Employees

If you’re going to be a professional day trader, you need a professional routine. The markets open and run from 9:30am until 4pm EST every single day. You need to be there, obviously.

Routines may stifle creativity or balance if taken to extremes, but your need for routine in the markets will depend largely on your trading system. For example, if your system requires you to be present at the opening bell, then you might need to wake up early, have an exercise routine, do some meditation, then research the morning movers for that day in the pre-market.

This kind of routine will allow you to come to the market prepared. Less preparation = Less profits in the long run. Without plans, your system is really just a series of impulsive and reactionary trading ideas that may or may not work. In essence, don’t be a gambler.

The more routine you become in your trading business, the more disciplined you will become. Likewise, the more disciplined you become, the better chance of success you will have.

Here are some tips we recommend you adopt in your routine:

Rise early in the morning
Feed your brain and your belly
Exercise before the day begins
Arrive at your desk at routine time each morning
Give yourself plenty of time to research the day’s trades
Plan your trades before you take them
Allow for breaks midway through each day
Balance your work life with family time
Leave room for review each day
Become self-aware as to how healthy your routines is
Be willing to change certain aspects of your routine

No matter the routine, it is imperative that you treat yourself well and pay attention to your mind and body. Day trading can be a destructive career if you don’t.

Parting Thoughts on How to Start a Trading Business

We hope this has helped you gain a proper understanding of what it takes to run a day trading business. While many different factors can affect the success of a new business, giving yourself the best chance of success from the outset can make a huge difference. Take great care that you don’t embark on this journey lightly. Treat it with utmost respect and diligence, just as you would any other endeavor as an entrepreneur. And if we can help you along the way, please reach out to us. We wish you the best!

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Trading Basics

Having a Trading Plan: Treat Your Trading Like It’s a Business

Learn how to approach your trading like a business with these five essential components.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Person looking at stock chart on phone while also using laptop at a desk: How to be successful at stock trading

Key Takeaways

Know the five components that should be part of any trading plan
When creating a trading plan, make sure it aligns with your financial goals
Having a trading plan and following it can help you avoid making emotional financial decisions

As Benjamin Franklin wisely said in the 1700s, “By failing to prepare, you are preparing to fail.”

Fast-forward to 2021 and apply this to your trading or investing approach. How much have you prepared?

Any small business owner knows a business plan is essential. No bank is likely to give you a loan without a business plan. The goal of trading is to potentially grow your wealth, similar to that of a small business investment. So, if you haven’t taken the time to write a trading plan, carve out some time this weekend. By the way, this is something you can share with your partner.

(Hint: Good communication with your significant other about trading plans can help keep everyone on board with the approach, desired goals, and time investment needed for successful trading.)

Five Essential Components of a Trading Plan

Set specific financial goals. Write down your specific objectives, but try to dig deeper than simply “saving for retirement.” This could be a dollar amount within a specific time frame. For example maybe you want to make a profit of $1,000 a month from your trading. Or it could be a specific percentage gain you want to see in your portfolio within a specific time period. The financial decisions you make should align with your objectives.

Determine your buy criteria. This could take weeks or months to refine and could evolve over time as market environments change. Spend time studying, learning, and developing an approach that works for you. Do you buy stocks based on fundamental or technical analysis, or a little of both? Are you a fundamental stock picker, but like to use charts to fine-tune entry points?

Write down a specific fundamental criteria to look for in a stock. This could include P/E ratio, annual earnings increases, or rising dividends. It’s a good idea to know earnings and dividend dates ahead of time.
What indicators do you use and what signals do you need for confirmation? Do you want to follow trends, or do you want to invest in specific asset classes? Develop a plan and paper trade it. Once you’re comfortable, write it down and adhere to it. This is an important step because you’re looking to get the necessary information that can help you make your investing decisions.

Know when to sell. One of the cardinal rules of successful trading is knowing where to exit before getting in to a trade . If the market starts moving against you, you should be prepared to take your losses and exit your position. So, it’s important to plan your exits. If you’re a technical trader, you could use potential resistance levels from long-term charts (think weekly or monthly) or chart pattern targets such as a break in a head and shoulders neckline. Make a plan for exiting profitable and losing trades, write it down, and automate an exit point. You could include the following:

Stop orders. Sometimes markets can move against you by quite a bit. Placing a stop order at the time you place your entry can help protect your positions. Where you place the stop is related to how much you’re willing to lose on a trade. It could be a percentage or dollar amount. It’s a personal choice and could involve analyzing past price moves to find what works best for your comfort level.
Trailing stop orders. These are a type of stop order that dynamically follows market prices and can be used to protect long and short open positions. For a long position, a trailing stop can be set at any value below market price, and for short positions, a buy-to-close order can be placed above market price. For example, say you want to buy a stock at $25 per share and would like to protect it with a trailing stop. You could place a trailing stop order of $2, which means the stop order will rise as the stock price rises, but if the stock price falls $2, the stop order becomes a market order to close the position.

Stop market orders do not guarantee an execution at or near the activation price. Once activated, they compete with other incoming market orders.

Plan for tomorrow by setting financial goals today.

Identify your trading or investing time frame. Determine your trading time frame. Are you a short-term swing trader, looking for two- to three-day opportunities, or do you want to hold positions for multi-month moves? Maybe you do both, i.e., have some longer-term investments and some that are shorter term. Write it down.

Develop a risk management plan. Trading is about taking risks, so it goes without saying that risk management is very important to successful trading and investing. Consider setting specific risk parameters that you’re comfortable with, such as when to protect your capital, when to take profits, and the size of your positions. Remember: You’re operating in an uncertain environment, which means you’re likely to have losses. The key is to minimize those losses, and that means you should be ready to take action when necessary. There are different ways to manage risk. Here are a few examples.

Some traders look for a risk/reward ratio of about 1:3, which means they’re willing to risk $1 to potentially earn $3.
Some traders follow the so-called 2% rule, which means they’ll never risk more than 2% of an entire portfolio in one trade.
Some traders allocate specific percentages of their portfolio to different assets for better diversification.

How to Measure Trading Success

When it comes to trading, hard work can pay off. What’s work when it comes to trading? Keeping a trading journal and reviewing trades on a weekly or monthly basis can be helpful. Write down the five essential components of a trading plan and compare your trades against them. What went right? What went wrong? Did you risk too much? Are you following your trading plan, or did emotional trading take over? A review process can help keep you accountable and allow for adjustments as needed to help you pursue your goals and approach trading like a business.

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Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

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