Your Business Plan for Trading Is Essential
What is the first thing that you do when you want something with an intense desire? When you want it so bad you can taste it? When you can feel the desire in your bones? When you’re driven by a desire that leaves you hungry for it? With this kind of emotionally passionate focus, you automatically begin to think about “how” you can get it. In other words you begin to plan. The “how” or “plan” charts the way to achieving the desired item…no matter what it is and no matter how small or large. Planning is essential to the process of achievement and without it you would come as close to accomplishing the goal as you would if you were to be blindfolded and spun around and given a bow and arrow to hit a bullseye 100 yards away. Trading requires planning at both the macro level (the big picture or business plan) and the micro level (the small picture or plan for every trade).
Now, many of you reading this article are trading without a business plan. That’s very unfortunate … for you! If you don’t have a macro trade plan and you are trading then you are “out-of-sequence” in your trading process. Your success as a trader depends on a number of items that include market knowledge, a set of rules, money management and risk management, and self-discipline to explicitly follow these trading necessities. Your plan would include all of these elements and others to construct a vehicle that is designed for getting the results you want. Without a macro trading plan or business plan you lack the “big picture,” the overview map that holds the “how” you would proceed. Furthermore, what are you telling yourself to justify not having a macro trade plan? Here are some examples:
I have no idea how to write one,
I don’t consider it necessary,
It’s boring and time consuming,
Successful traders don’t have plans
I have a mental plan.
Of course, there are all types of excuses, but the bottom line is that they are excuses, and they are standing between you and setting yourself up for getting effective trading results.
Let’s take a look at some of the essentials that would go into your macro trade plan.
- Create a cover sheet with the name of your business and this will establish the intention of treating your trading like the real business that it is. Your cover sheet and name may seem inconsequential, but having an emotionally focused label is powerful.
- Establish your purpose for trading, the compelling reason why you want to trade. You’ll want to tie this to the what-matters-most in your life in order to “harness” the passionate energy associated with it. Things like family, friends, personal freedom, and those things you’re “hungry” for. Answer the questions: I want to be a trader because… My primary objective of being a trader is… These objectives are important to me because… I believe I can achieve my goals because…
- Identify your trading style in order to help you define your risk management strategy and the tools you’ll use to trade. Answer these questions: My trading style is… I have chosen this style because…
- One of the toughest obstacles in trading is not the market, but rather the trader, him or herself. A simple personality profile questionnaire will help you determine your strengths, weaknesses, how you handle losses and your expectations. There are many resources available on the web to help you evaluate your personality. Here is a link that can help: http://www.outofservice.com/bigfive/ Then answer these questions: My greatest strength is… My greatest weakness is… Potential problem areas are…
- Goals should be set to help you evaluate your progress, and give you a target for which to aim. These goals should be both mechanical data (direct and indirect information related to the markets) and internal data (mental and emotional) goals. An example of a mechanical data goal would be to beat the S&P 500 index in returns over a 12 month period. An example of an internal data goal would be to read 1 book every 2 months to sharpen your trading knowledge.
- Identify the markets you want to trade; that is, those markets that your personality resonates with. Also, determine the details of these markets for instance, Forex because you live on the West Coast and you’re a night owl and you particularly like the British Pound vs. the Japanese Yen pair. Finish these sentences: I will trade the following instruments… I am trading these instruments because… My trading times will be as follows…
- Make sure that your technology is up to date, free of bugs and with an IT (information technology) person on call in case your computer goes down. Trading online demands a powerful and reliable system. Ensure that you have one and that it is backed up. Additionally, get a strong internet provider…cable preferably. Going further you’ll want a trading platform that you trust both for data streams and for accurate fills.
- Effective routines lead to good habits. Create a routine for the beginning, middle and end of your trading session; i.e., pre-market routines for both mechanical data (research, news, zones, time frames, indicators) and internal data (meditation, taking your emotional temperature, and lowering stress levels in order to be focused and ready for the trading trenches.)
- Gauging your risk is critically important at all times. Categorize what you can control and determine how you will manage it. For example, having limits on every trade you enter.
- The prime directive is to protect your capital at all times. Limits such as having a max number of shares/lots/contracts per trade; having a max loss per trade; and identifying a max loss per day are very important. Complete these sentences: I will gauge my risk on each trade by… I will risk only _____ on any one trade… My daily stop loss will be… Once my stop is reached, I will…
- Have your protocols (strategies, procedures, setups and entry rules) spelled out. Many strategies exist for trading, and every one does something different. What will your approach be? What tools will you use when you trade (mechanical/internal)? Complete the following phrases: My primary reason for entering into a trade will be… My secondary reason for entering into a trade will be… My ideal setup would be…
- Your review process is just as important as what you put into your macro trade plan. Weekly, monthly, quarterly and yearly reviews would not be too much. Remember it’s a living document meaning that it evolves as you do and you’ll want to have an intimate relationship with it. It is your trusted vehicle for taking you and your A-Game to success. Ask yourself these questions:
What securities are you trading more consistently?
What indicators work best for you?
Are you adhering to your stop loss plan?
Are you achieving your trading goals?
What times do you trade best?
What is your optimal share size?
Yes, planning is of paramount importance and if you put the time in to construct a good macro (business) trade plan you will have laid out your road map to getting the results that you want. If you haven’t written your plan yet or if it is not a strong model, then stop trading and do it now. Your success is too important to trade by default; i.e., just doing what you feel without a plan…you want to design your path and include everything that you’ll need for that journey. Remember success is where preparation meets opportunity.
Happy Trading
Self-Discipline: The Backbone of Your Trading
Max had had enough, and in the words of the movie “Network” he was “mad as hell and he wasn’t going to take it anymore!” Max had taken several Futures classes from some very good instructors. He had a trade plan, and he had been told that it was fairly comprehensive. He knew the importance of having a set of rules, heck, he had a whole list; good rules too, he thought. He had learned the importance of money management and risk management; in fact, he had in his plan that he would only risk 2% of his portfolio at any particular time and that he would only take trades that were minimum 3:1 reward to risk ratio. And, his plan listed his appropriate position size for entering trades. Max had gotten fed up yesterday and in an almost fit of rage he “promised” himself that he wouldn’t “violate” his rules again. That was yesterday, exactly twenty-three hours ago. Here he was just having lost the most money he had ever experienced, 20% of his portfolio, in one trade and in one day all because half way through the trade he increased his size, took out his stop and doubled down in an ES Emini trade that wasn’t even one of his setups. It was a revenge trade as he tried to “get his money back” from a string of losers that morning. He no longer felt the rush of anger blood to his head with the rage that ate at him like a leech yesterday…today, he felt depressed, dejected, impotent, incompetent and quite stupid. “What is the matter with me?” He all but wailed to himself. “Why can’t I do what I know is right?” This wasn’t the first time that Max had promised himself that he would keep his commitments. Actually, it had happened more times than he cared to admit. But, Max was laboring under the “self-discipline myth.” He believed that he had to “force” himself to follow his plan and rules. Little did he know that even though this self-discipline strategy can help some people some of the time, it is solar systems away from the most effective method to achieve, preserve and prolong discipline; that is, tying your efforts to your passion.
Max, and let’s face it, many of you who are reading this article approach self-discipline from the same angle. You put your nose to the grindstone, your shoulder to the wheel, you suck-it-up, you bite the bullet, and you take the bull-by-the-horns. In other words you force yourself to follow-through with what you have deemed important, but unfortunately you run into conflict with yourself when you don’t “feel” like doing it. When you are in conflict with yourself, it is much easier to proceed by default thinking and doing. Let’s view that for a moment. Much of trading is counter-intuitive, and it is very difficult; not because it is hard to figure out but because of the emotions involved. For example, it is intuitive to stay in losing trades; it is counter-intuitive to have a stop loss and to embrace small losses. It is intuitive to get out of winning trades too soon; it is counter-intuitive to let your winners run. It is intuitive to enter a trade in the direction of the price action after an extended rally or sell-off; it is counter-intuitive to wait for the imbalance of buyer and sellers to go against the herd. And, it is intuitive to pile on multiple indicators in an effort to get as much information as possible; it is counter-intuitive to reduce and simplify incoming data. Default thinking is often intuitive; it follows naturally occurring biases, which make it difficult to follow-through with pre-determined objectives. Self-discipline that is driven by an “I’ve-got-to-make-myself-do-it” mentality is rife with issues. For instance, it leads to stress in the system due to the internal conflicts, it is distracting and it robs the system of both energy and the ability to focus. The system becomes out-of-alignment and works against itself.
On the other hand, discipline that is “intrinsic” or that comes from a deep internal desire to achieve catapults the individual into doing what it takes to accomplish the goal. Intrinsic motivation comes from an inner purpose or compelling reason why you want the goal. It is on your “what-matters-most” list. For instance, workplace studies have shown that extrinsic motivators, like money, do work some of the time, but not as well as intrinsic motivators like recognition, self-fulfillment, quality of experience and esteem. Now, let’s take this notion to the trading platform. One of the first things that traders put as a goal is to make a “lot of money.” It’s not that this extrinsic motivator is entirely ineffective, it is just not as powerful as trading for your family’s future, and your overall quality of life. See, when you identify a “compelling reason” in other words, that what-matters-most part of your life to the trading process you automatically invoke your passion. Passion, about any endeavor in life, is your most powerful energizer. It will get you up in the morning and attach you to a turbo-jet with a laser focus on keeping commitments and consistently doing what it takes to be successful.
Your A-Game is what we are talking about and it is forged in the heart-space of your inner self. You’ll want to build an A-Game high rise with the foundation formed on a bedrock of passionate enlightened self-interests; for example, family, friends, community, charity and quality of life. This is not to the exclusion of money; but, remember, money is only a transient medium of exchange. You can’t do anything with money but spend it or save it; you can’t breathe, drink, eat or live in it. Once you have identified a compelling reason for why you are trading, not only will your passion be activated every time you read that purpose, but you will be setting in motion a powerful force that keeps the drive alive and promotes perseverance and persistence in the face of obstacles and set-backs.
Identifying and accessing passion releases a chain reaction, a magnificent obsession that rages deep inside. This is the self-discipline of being internally driven and attracting into your life that which makes your heart sing. And when you find joy in what you do, you are going ‘to play’ instead of ‘to work’. This kind of desire overwhelms fear, doubt, greed and worry in its flames. There is little room or energy for disruptive emotions or for anything to stand between you and your desired results. You simply must have it. Also, with passion, your focus is honed to a razor sharpness as your attention to detail rises. You find yourself thinking about it all the time. Do you remember when you first fell in love? You thought about every detail, you didn’t want to miss anything, and you thought about her or him all the time. This emotional fixation tunes the body, mind, and spirit to work in the same direction and on the same goal. It brings the creativity, and spontaneity of the subconscious mind to bear on the desired object. As the saying goes, you become “hungry.” You “want it so bad you can taste it.” You “can feel it in your bones” and “see” the outcome through a mental picture that keeps your drive alive.
There is a good reason why these sayings revolve around sensations. The mental image gives focus to the heartfelt dream by providing specifics, like sounds, sights, smells and tastes, making the whole brain come alive with desire. The subconscious is then working as hard for the goal as the conscious is. And it makes much of the accomplishment seem easy and effortless. In other words, passionate self-discipline sets a roadmap or blueprint in the subconscious to achieve the desire. The roadmap or blueprint to attracting what brings intrinsic joy involves and includes what is necessary to achieve it, and in the case of trading, rules and money management are woven into the fabric of consistent winning trades.
Actually, this concept of intrinsic self-discipline is age-old. Many years ago, Clement Stone wrote, “What the brain of man can conceive, his mind will achieve.” This quote forms the ideological foundation of the following two thoughts that are very important to the conversation:
1) The brain forms images and is governed by images of achievement, and the body cannot mobilize without them. Also, the development of an iron will is forged in the fire of emotion.
2) Neural blueprints are made by both physical and emotional images. This is also the basis for such books as Think and Grow Rich by Napoleon Hill, and Psycho-Cybernetics by Dr. Maxwell Maltz.
When you imagine, (either positively or negatively) your brain can’t tell the difference, and through the release of neurotransmitters and hormones in the brain, you either feel good or bad with the vision or thought. This is a gross oversimplification, but I trust that you “get the picture.” So, the more you want that new family yacht or that second house on the ocean or that fully paid college tuition for all of your children —and the more you can see, hear, touch, taste and smell it in your imagination—the more real the brain treats it. The more passion and emotion that is generated, especially when coupled with a specific vision, the closer you come to getting it. The subconscious is powerful; it can cause illness, and it can heal you. In Mastering the Mental Game-XLT and On-Location course we show you how to harness your subconscious power, and that is the foundation for you to attain, maintain and sustain your A-Game at your trading platform. Ask your Online Trading Academy Educational Counselor about these life-changing courses. Also, check out my book, “From Pain to Profit: Secrets of the Peak Performance Trader.”
Joyful Trading,
Written by Dr. M. Woodruff ("Woody") Johnson , Online Trading Academy Mastering the Mental Game Instructor.
Dr. M. Woodruff Johnson has actively and successfully traded stock options, forex and futures since 2000. He is the former Executive Director of the Kaiser Permanente, Watts Counseling and Learning Center. He holds certifications in Accelerated Learning, Neurosensory Development and hypnotherapy, and he is a Certified NLP Master Practitioner.
Dr. Woody is also an Associate Professor and teaches graduate psychology courses at Pacific Oaks College and Ryokan College. He has provided clinical staff services in hospitals and community clinics as well. He has a passion for helping others to achieve their goals and get the results in trading and life that they desire.
Dr. Woody has been using mind/body healing techniques both professionally and personally with much success for many years. He is the author of “From Pain to Profit: Secrets of the Peak Performance Trader."
