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If you prepare yourself well for your trading business, you will progress much faster. Your business plan may look like a detour, but in the end it will let you progress faster. But what is a business plan anyway?
In order to understand what a business plan means in trading and what it should look like, we need to look at the typical learning process of traders. This is usually not complicated. For each of us there is a first point of contact with the stock market. Mostly these are stocks whose strong return chances make the mouth water for beginners, especially in extended bull market phases. Nowadays, accounts are quickly opened and the first shares are quickly transferred to the portfolio. If you are lucky, which depends largely on the stage of the bull market at which you start trading, things go relatively well for a while and the account grows. At this point there is hardly any learning effect on the part of the beginner. And why should there be, because you are in profit.
The first insight!
But sooner or later the market behaviour changes. What you could earn a lot of money with before, suddenly doesn’t work anymore and our newcomer loses money. On the same learning level are the traders who had their difficulties from the beginning. Both notice that it is probably not so easy to earn money on the stock market all the time. They realize that there are certain things to learn.
Now the great search begins. On this one it is only too understandable that you start from the point you were at that moment. The stock trader on a daily basis, who has held his positions “longer” so far, will look for professional help in exactly this area. What do I have to pay attention to? How do I recognize the trend? When do I have to get in and where do I have to get out? And where to stop?
In the search for answers, the beginner quickly ends up with the professional. Suppose the first thing he reads is a book on stock trading. We assume that it is even a good book on the subject and that the apprentice learns how the pro works. He learns about entry levels, stop setting, risk & money management and psychology. After he has learned the book by heart, so to speak, he gets down to work again. Now the professional’s strategy is followed – at least in theory.
From here on, the actual trading process is quite differentiated. The one trader can follow the signals of the strategy he has just learned, but may be dissatisfied with the performance of this strategy or the hit rate. Another trader deviates again and again from the rules of the professional strategy, often to his disadvantage. He too is ultimately not satisfied with the result in the broader sense. What always remains is the feeling: I am still missing something!
The endless loop is running!
With this feeling the apprentice takes the next book, attends a seminar or webinar or simply reads on the internet. Mentally, he is already a little bit broader. It does not necessarily have to be a trend strategy as before. Shares are also no longer a must and he had read something about day trading on the side.
What happens in the following months and years can be roughly summarized as a “trial and error” process. The trader learns from Profi X, tries it out, is dissatisfied and turns to Profi Y to start from scratch. This process can actually last for years, although the performance during this time is highly variable. Some people trade badly in the red, others may not face horrendous losses, but you are not really one of the winners.
Not everyone can keep up this trial and error process until the end, but those who stay on will sooner or later get to know an area of the stock market through books, seminars, webinars & co. where things are really going better. Finally you have arrived where you always wanted to go. You become more successful! It’s just a pity that it took so long and you could have saved yourself the sleepless nights in between.
What is the problem?
The central questions at this point are: what is the problem and how can I protect myself from this endless loop? Before we come to the causes and solution, let me summarize the Trian and Error process described here:
Beginners learn a specific profession from a professional, take the exam, fail and then turn to the next professional with a new/different profession. This process can keep traders trapped for years without changing their performance and satisfaction with their trading. In the training package I supervise and at seminars I regularly meet traders who have been dealing with the stock market for 10 years or more in the learning process outlined here. You may consider for yourself how far you fit into this pattern. How many books have you already read? How many seminars have you attended and how many professionals have you looked over the shoulder? And, where do you currently stand?
The business plan
Exactly at this point your very personal business plan provides a horrendous shortcut. You can save not only time but also money and probably the question will be burning under your nails, what exactly is the business plan and what belongs in it?
For this purpose we look at the traders who managed to escape the trial and error process – that is, EVERY successful trader – and ask ourselves just one question: When did the searching stop?
The answer is very simple: The moment the trader got to know an area of the stock market where he felt comfortable, where he could use himself and his strengths and weaknesses perfectly, professionals ended their search and from here on only learned in depth in this very special segment of trading. This is exactly the reason why you can sit down 20 professionals at one table and find out that each of them trades differently, sometimes even contrary to each other.
Being in the wrong place is the reason why not all Turtle Traders became (equally) successful! To be in the wrong place is the reason why not everyone can make the training to become an own trader of a bank and this although in all these cases one learns from the best and other participants of the learning group show that one can be highly successful with every segment of the stock exchange.
With this insight, it should become clear what benefits a business plan has. It should give you an indication of where you are likely to find the right place. To do this, you need to be just as aware of your external and internal requirements as of your wishes and dreams. Once you know these, you can start the learning process in the area of the stock market that suits you best. The area where you can best use your strengths and weaknesses as well as your time and capital. Even then, you will of course still go through a learning process, but you will no longer jump wildly through all the subject areas that the stock market has to offer, only to accidentally end up in your trading niche at some point.
Will we be concrete
Let me mention a few points that I think are important for a business plan. Please refer to figure 1 and do not be afraid to expand it with your own things that you consider important. Just keep your goal in mind, what you want to achieve with the plan (abbreviations & trading niche) and everything that is helpful for you to achieve this belongs in your FIRST business plan. The following figure contains some important keywords. Unfortunately, the scope of this article does not allow to describe each one in detail. For this purpose you can have a look at the training package or simply google for the keywords in self-study.
The business plan is ready – and now?
Having a business plan does not make you successful, of course. The important thing now is to work with it. To do so, ask yourself the following questions:
- What from the big wide world of the stock exchange (stocks, indices, currencies, commodities, trend trading, swing trading, scalpt trading, investing, intraday trading, chart technique, fundamentals…) represents the greatest intersection with my personality? Where are the fewest compromises to be made? This is your starting trading niche!
- Where are there already today recognizable points of friction? These could become topics that could cause difficulties in the future. How can I eliminate these points of friction?
You should also remember that a business plan is not a rigid structure. You change, your life circumstances change, you learn and much more. All this means that your business plan can also change over time. The business plan is a working paper that should help you to orientate yourself – both during the learning process and later when your basic trading is in place.
I have to admit that it is not easy, especially for a beginner in trading, to work through the points mentioned here on your own. After all, you may not even know what the stock market can offer you and what might suit me as a trader with my qualifications. If you don’t want to go this way alone, you might want to take a look at the training package I supervise. There we will tackle each of the points together. But whether with or without help, whether as detailed as described here or only in rough outlines, to think about yourself and your prerequisites in the form of a business plan will help you to become a successful trader faster and more goal-oriented. In this sense.