Scope
This paper is not meant to teach you trading, it is only a roadmap to get you to your goal as you learn to trade the market (with a few pointers on what not to do).
Credits
Most of this Trading Business Plan is centered around the Marshall J. Jones trading method Simple-as-123.
The primary author of this Trading Business Plan is :.Grady Lee Honeycutt, MPS.
Preface
Trading is no different than any other business, you're trying to make a profit, you have overhead, you pay taxes on it and you want it to be bigger tomorrow than it is today.
Most businesses that fail have no written business plan, keyword here “written”. Most businesses that come back from failure have a “written” business plan.
Why should Trading be any different than any other business? Just because you love to do it or maybe it's just a hobby or a part time job during retirement, it's still a business, and the sole purpose of it is to succeed.
A written business plan will increase your odds at success. Lord knows, as a Trader, you're going to need as much in your favor as you can get.
A business plan precisely defines your goals and how to get there. The importance of a comprehensive, thoughtful business plan cannot be overemphasized. Much hinges on the finances of your Trading, and the achievement of your goals and objectives.
If you want to Trade and can't put together a “Written” Trading Business Plan, you're in trouble, big trouble.
Don't put this off, a plan to get you to where you want to go needs to be done at the beginning of the trip, not during the middle of the trip when you find out you're on the wrong road and you're pretty much out of gas. Don't rush into this Trading venture without a map to get you where you want to be.
Enough said about the importance of the plan. Let's get down to the meat.
Before you begin writing your business plan, let's consider some factors
Trading Education: (What do I have to learn?)
1. Trading Strategies (All of these are covered either in Marsh's manual or in his workshop)
Channels
Flags
Bull
Bear
Pennants
Triangles
Ascending
Descending
Moving Average Crossover
Gap Strategies
The first hour high and low breakout
(And many more)
2. Confirmation
Confluence of indicators
Time of Day, high risk, low risk and reversals
Three strikes you're out, or when not to trade (Marsh covers this in his Classes)
3. Home Work
Daily things that need to be done, and information that you need to know before the market opens every day.
4. Please leave your emotions at the door
Emotions have no place in the trading room. You don't trade on what you think or feel, that's gambling. You trade what's in front of you, you trade the market, you trade the method. You do not begin the day with a preconceived notion that it's going to be an “up day” or a “down day”. You really don't care which way it moves. Let the market tell you where it's going to go and trade it.
5. Practice
Paper Trade
I will paper trade until I am comfortable with the market and start to achieve my goals.
The Next Level:
1. Trading
How do I pick a Broker?
How much capital do I start with in my trading account?
How much should I pay per round-turn trade?
When things go South (losing), what do I do?
2. Goals per trade
Profit Target
A set “profit” target that will automatically take you out of the market when reached.
Stop losses
A set “loss” target that will automatically take you out of the market when reached.
Trailing Stops
This is a “stop loss target” that moves with your profit. It is used in “Trending Trades”, they are not for the beginner.
The “win/loss ratio” and overhead
Just a quick word about this....If you think you can take a ½ point per trade and make a profit, think again. That only leaves you with one tick (because of the bid and ask price) and your broker is going to get most of that. So you go to ¾ point profit, that leaves you with one clean tick for yourself. Now, what is your stop loss? You're going to need at least a 1 point stop loss so that a pullback won't take you out of the market (and that's conservative, 2 points is a little more normal). So, for every 1 point loss (a losing trade) you're going to need 6 winning trades to stay ahead. If that's not enough, you must figure in your overhead, data feed cost, trading program cost, computer cost, taxes, etc.
3. How much do I lose before I quit this career?
The two main reasons for failure is lack of skill (experience) and under-capitalization.
These are factors and questions that you must ask yourself, and you must have the answers before you travel down this road, and it's best if you do it on paper (Written).
I read my Trading Business Plan every Monday morning before the market opens. If I lose money during the week, I read it again. It keeps me centered, focused and on track.
Let's start a Simple Trading Business Plan for the short term goals. We'll move on to the the mid-term and long term goals later. We will assume that you have found a broker that you are comfortable with, the commission price is acceptable, and that you also have charting software and a data feed.
Business Plan
My Short Term Goal is (Part 1): (There are some blanks that you need to fill in)
I will start “Paper Trading” with a simulated account (not real money). Many Brokerage Firms offer these accounts free, some charge a small monthly fee and they're worth every penny.
I will continue my trading education through books, seminars, on-line classes, or ___________.
I will start my simulated trading account with $___________.
My broker's commission is $__________ per round-turn trade.
I will only trade one (1) contract.
As a general rule, we trade one (1) contract per $5,000.00 in the trading account. Never the less, no matter how much you start your trading account with, you want to begin your trading with one (1) contract.
I will concentrate on using the following strategies:
__________________________
__________________________
__________________________
__________________________
(Work on a few trading strategies at first and do your best to perfect them before adding more)
I will have a weekly and daily schedule of all reports coming out that may affect the markets.
My Profit Target per trade will be __________ticks. (4 ticks = 1 point)
You are a scalper, don't get greedy. All you need is one (1) or two (2) points per day.
Let's do some math here; one (1) point of the ES contract is worth $50.00. If you're trading five (5) contracts and you take one point, that's $250.00 per day, ten (10) contracts at one (1) point profit equates to $500.00 per day. Don't forget to subtract commissions. Even at $8.00 commission per round turn, on a ten (10) contract trade with one (1) point profit, that's $80.00 commission subtracted from your $500.00, which leaves you $420.00, not bad for a days work. (The math is the same for losing trades, except you ADD the $80.00 commission to your $500.00 loss, that kinda' takes the wind out of your sail doesn't it?)
My Stop Loss per trade will be __________ticks.
Setting Stop Losses is an art in itself, learn it. They are adjustable to the conditions and the type of trade you are in, a high probability trade, an aggressive trade or a trade against the trend (sometimes called a “Power Trade”), etc.. But no matter what, use them. They will mean the difference between success and failure. Stop losses are different than Trailing Stops.
I will not use trailing stops.
The full explanation of Trailing Stops and how to use them is beyond the scope of this plan. But, we use trailing stops to lock in our profits when in a “Trending Market Trade”. At this stage of your trading, you should be concentrating on Scalping for small consistent profits. Do not get greedy, do not go after something that you're not ready for. It will just turn around and bite you.
I will continue to paper trade until I have increased my simulated account to $_____________.
I will continue to paper trade until my win/loss ratio is ________%.
I will stop searching for the “Holy Grail of Trading” and perfect my methods through practice.
I will keep a hand written daily log of the market conditions (NOT in a spreadsheet on the computer). This is covered in Marsh's manual and the reason why it is necessary.
I will take screen snapshots of the charts during the day and at the end of the day.
I will review the screen snapshots at the end of each day to see what I could have done differently and why. Look for setups that you missed during trading hours and figure out why you missed them. This is called “Continuing Education”.
I will continue to paper trade until I have _________ winning trades in a row.
I will continue to paper trade as long as I have _________losing trades in a row.
I will not put a time frame on meeting the above goals.
Now that you have filled out all of the above, Let's compare your goals with that of Marsh J. Jones. We asked Marsh what he thought you should begin with, here's the conversation:
What dollar amount should the "newbie" start his account with? $1000.00 This would get you through the first phase of live trading. $2500.00 would be the logical next phase and some brokerage firms won't let you start without this as a minimum. Third phase would be to let the $2500.00 grow until it reaches $5000.00 or any amount to cover the number of contracts they are going to trade at one time.
What "First" strategies or setups should the "newbie" learn and practice before moving on to other strategies and setups? 30-minute Breakout...after the first hour.
After the "newbie" has graduated to the level of "Novice", what strategies and set ups should he be working on? By then he/she should have found one that fits their personality.
What should the "newbie's" profit target be? This is subjective...my recommendation is 1-1/4 points. Takes a few years of experience to learn to feel the pulse (and emotions) of the market to trade for more than 4 points on one trade.
What should the "newbie's" stop loss be? Never more than 2 points...I don't like to risk anything. When they pull the trigger it should go their way in less than 5-minutes...if not something was wrong; and they should try to exit with a profit. Once again this takes experience...know when you have to risk the 2 points to stay in the game. A lot of Pro's only risk 1 point...takes experience, and confidence.
How many trades should a "newbie" make per day? 3, of course if you make your goal in one trade...shut it down.
As the "newbie" grows, how many winning trades should they be looking for in a row? Subjective...there is this thing we call shooting from the hip...a gunslinger; They should all be low risk trades with all that we look for in a safe trade...unfortunately we take risks because it will look like we will never ever find a confluence to make those kind of trades. So my answer would have to be 2 out of three. If they experience 3 loses in a row...they would want to question what the hell they are doing. I have had just average students...those who did not ever know squat...consistently make 4 -- 5 winners in a row; small, but winners none the less.
How many losses in a row is unacceptable for a "newbie"? 2, and something will start to work on their mind...one loss leads to the next. Best to really make it a point to analyze those losses and start over. Paper trade till you have those 2 - 3 wining trades in a row....Patience is the master; to wait for the confluence, discipline when you have the set-up.
Now let's assume that all of the above is in the affirmative and you have met all of your paper trading goals. By the way, we're still working on the Short Term Goals. It's time to start trading some of your hard earned cash using some of the skills you've learned. There is some repetition below, read them anyway, you're on a new level but they still apply.
My Short Term Goal is (Part 2):
I will start my trading account with $____________ (We're talking real money here).
I will only trade one (1) contract.
As a general rule, we trade one (1) contract per $5,000.00 in the trading account. Never the less, no matter how much you start your trading account with, you want to begin your trading with one (1) contract. We'll increase the number of contracts in the mid-term goal section.
I will concentrate on using the following strategies:
__________________________
__________________________
__________________________
__________________________
(Work on a few trading strategies at first and do your best to perfect them before adding more)
I will not “Watch the Dollars”, I will concentrate on trade setups and strategies.
Watching the dollars will only bring emotions into your trading and you'll lose capital.
I will know the times of the trading day that has the least risk and the most risk.
I will keep a hand written daily log of the market conditions (NOT in a spreadsheet on the computer). This is covered in Marsh's manual and the reason why it is necessary.
I will take screen snapshots of the charts during the day and at the end of the day.
I will review the screen snapshots at the end of each day to see what I could have done differently and why. Look for setups that you missed during trading hours and figure out why you missed them. This is called “Continuing Education”.
I will have a weekly and daily schedule of all reports coming out that may affect the markets.
I will risk only _____% of my trading account per trade.
As a general rule, we only risk two (2) percent of our account per trade. If you're starting with $5000.00 in your trading account you may want to increase it to three (3) percent to start with.
I will make no more than _______ trades per day.
If I have more than ________ losing trades per day, I will return to paper trading until I have improved my skills.
I will risk only _____% of my trading account per day.
If I lose more than the above percentage of my account in one day, I will return to paper trading until I have improved my skills.
If I lose _____% of my trading account in any given week, I will return to paper trading for the next five (5) trading days.
If I get a Margin Call from my Broker, I will strongly consider giving up trading as a career.
I will use Profit Targets to take me out of the market and Stop Losses to limit capital loss.
(One would think that profit is the most important item in trading, it's not, Capital Retention is.)
My Profit Target per trade will be __________ticks. (4 ticks = 1 point)
You are a scalper, don't get greedy. All you need is one (1) or two (2) points per day.
Let's do some math here, one (1) point of the ES contract is worth $50.00. If you're trading five (5) contracts and you take one point, that's $250.00 per day, ten (10) contracts at one (1) point profit equates to $500.00 per day. Don't forget to subtract commissions. Even at $8.00 commission per round turn, on a ten (10) contract trade with one (1) point profit, that's $80.00 commission subtracted from your $500.00, which leaves you $420.00, not bad for a days work. (The math is the same for losing trades, except you ADD the $80.00 commission to your $500.00 loss, that kinda' takes the wind out of your sail doesn't it?)
My Stop Loss per trade will be __________ticks.
Setting Stop Losses is an art in itself, learn it. They are adjustable to the conditions and the type of trade you are in, a high probability trade, an aggressive trade or a trade against the trend (sometimes called a “Power Trade”), etc.. But no matter what, use them. They will mean the difference between success and failure. Stop losses are different than Trailing Stops.
I will not use Trailing Stops
I will not stay in overnight trades.
(Someone once told me that the hardest thing for a trader to do was to stay in a winning trade, and the easiest thing for a trader to do was to stay in a losing trade, so true, so true....)
I do not have to trade. If the conditions are not right, I will sit on the sidelines and watch.
I will wait for high probability trade setups.
I will wait for the proper setups and confluence of indicators to enter a trade.
I will continue my trading education through books, seminars, on-line classes, or ___________.
I will stop searching for the “Holy Grail of Trading” and perfect my methods through practice.
I will follow my Trading Business Plan and read it every Monday morning before the market opens.
If I have a losing day, I will reread my Trading Business Plan the next morning before the market opens.
When I am making $__________ profit per month for three (3) months in a row, and I have increased my trading account to $__________ , I will proceed to my Mid-Term Goals.
This is the start of a “Simple” Trading Business Plan. There's a lot of other things to add and consider.
As you are probably trading electronically, you should call your “Order Desk” at the end of each trading day (as long as you traded that day), and make sure you're “Flat”, which means you do not have any open orders, long or short.
How about a day off, a reward for being successful? Maybe add a line that says “Anytime I have four (4) profitable days in a row, I will take one (1) day off”.
Another line might read “Once I have achieved my daily goal, I will shut down my trading platform and paper trade the rest of the day, thus keeping capital and improving my skills” or “Once I have achieved my daily goal, I will take the rest of the day off”.
I will have a telephone beside my computer and the telephone number to my “order desk” in speed dial, just in case I am in a trade and my computer goes down, the data feed quits or my charting program locks up. This way, you can call the “Order Desk” quickly and have them get you out of a trade, seconds count, minutes hurt.
My Mid-Term Goal is:
Now that my trading account is up to $_____________, I will trade ___________ contracts.
I will trade ____________ contracts until my trading account increases to $___________.
I will add one (1) contract for each additional $__________ in my trading account.
I will keep my win/loss ratio above __________%.
(Time for a little repetition, never get tired of reading it, you'll always need it)
I will concentrate on using the following strategies:
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
Now that you are making consistent profits, work on adding more strategies.
I will not “Watch the Dollars”, I will concentrate on trade setups and strategies.
Watching the dollars will only bring emotions into your trading and you'll lose capital.
I will know the times of the trading day that has the least risk and the most risk.
I will keep a hand written daily log of the market conditions (NOT in a spreadsheet on the computer). This is covered in Marsh's manual and the reason why it is necessary.
I will take screen snapshots of the charts during the day and at the end of the day.
I will review the screen snapshots at the end of each day to see what I could have done differently and why. Look for setups that you missed during trading hours and figure out why you missed them. This is called “Continuing Education”.
I will have a weekly and daily schedule of all reports coming out that may affect the markets.
I will risk only _____% of my trading account per trade.
As a general rule, we only risk two (2) percent of our account per trade.
I will make no more than _______ trades per day.
If I have more than ________ losing trades per day, I will return to paper trading until I have improved my skills.
I will risk only _____% of my trading account per day.
If I lose more than the above percentage of my account in one day, I will return to paper trading until I have improved my skills.
If I lose _____% of my trading account in any given week, I will return to paper trading for the next five (5) trading days.
If I get a Margin Call from my Broker, I will strongly consider giving up trading as a career.
I will use Profit Targets to take me out of the market and Stop Losses to limit capital loss.
(One would think that profit is the most important item in trading, it's not, Capital Retention is.)
My Profit Target per trade will be __________ticks. (4 ticks = 1 point)
You are a scalper, don't get greedy. All you need is one (1) or two (2) points per day.
Let's do some math here, one (1) point of the ES contract is worth $50.00. If you're trading five (5) contracts and you take one point, that's $250.00 per day, ten (10) contracts at one (1) point profit equates to $500.00 per day. Don't forget to subtract commissions. Even at $8.00 commission per round turn, on a ten (10) contract trade with one (1) point profit, that's $80.00 commission subtracted from your $500.00, which leaves you $420.00, not bad for a days work. (The math is the same for losing trades, except you ADD the $80.00 commission to your $500.00 loss, that kinda' takes the wind out of your sail doesn't it?)
My Stop Loss per trade will be __________ticks.
Setting Stop Losses is an art in itself, learn it. They are adjustable to the conditions and the type of trade you are in, a high probability trade, an aggressive trade or a trade against the trend (sometimes called a “Power Trade”), etc.. But no matter what, use them. They will mean the difference between success and failure.
I may use Trailing Stops
At this stage of the game you should be learning about “Trending Market Trades”.
I will not stay in overnight trades.
(Someone once told me that the hardest thing for a trader to do was to stay in a winning trade, and the easiest thing for a trader to do was to stay in a losing trade, so true, so true....)
I do not have to trade. If the conditions are not right, I will sit on the sidelines and watch.
I will wait for high probability trade setups.
I will wait for the proper setups and confluence of indicators to enter a trade.
I will continue my trading education through books, seminars, on-line classes, or ___________.
I will stop searching for the “Holy Grail of Trading” and perfect my methods through practice.
I will follow my Trading Business Plan and read it every Monday morning before the market opens.
If I have a losing day, I will reread my Trading Business Plan the next morning before the market opens.
When I am making $__________ profit per month for three (3) months in a row, and I have increased my trading account to $__________ , I will proceed to my Long Term Goals.
My Long Term Goal:
To earn $_______________ per month.
To trade ________________ contracts.
To keep my win/loss ratio above _______%.
I will concentrate on using the following strategies:
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
I will not “Watch the Dollars”, I will concentrate on trade setups and strategies.
Watching the dollars will only bring emotions into your trading and you'll lose capital.
I will know the times of the trading day that has the least risk and the most risk.
I will keep a hand written daily log of the market conditions (NOT in a spreadsheet on the computer). This is covered in Marsh's manual and the reason why it is necessary.
I will take screen snapshots of the charts during the day and at the end of the day.
I will review the screen snapshots at the end of each day to see what I could have done differently and why. Look for setups that you missed during trading hours and figure out why you missed them. This is called “Continuing Education”.
I will have a weekly and daily schedule of all reports coming out that may affect the markets.
I will risk only _____% of my trading account per trade.
As a general rule, we only risk two (2) percent of our account per trade.
I will make no more than _______ trades per day.
If I have more than ________ losing trades per day, I will return to paper trading until I have improved my skills.
I will risk only _____% of my trading account per day.
If I lose more than the above percentage of my account in one day, I will return to paper trading until I have improved my skills.
If I lose _____% of my trading account in any given week, I will return to paper trading for the next five (5) trading days.
If I get a Margin Call from my Broker, I will strongly consider giving up trading as a career.
I will use Profit Targets to take me out of the market and Stop Losses to limit capital loss.
(One would think that profit is the most important item in trading, it's not, Capital Retention is.)
My Profit Target per trade will be __________ticks.
You are a scalper, don't get greedy.
My Stop Loss per trade will be __________ticks.
Setting Stop Losses is an art in itself, learn it and use them.
I will use Trailing Stops
I will always use trailing stops when in a trending market trade.
I will not stay in overnight trades.
(Someone once told me that the hardest thing for a trader to do was to stay in a winning trade, and the easiest thing for a trader to do was to stay in a losing trade, so true, so true....)
I do not have to trade. If the conditions are not right, I will sit on the sidelines and watch.
I will wait for high probability trade setups.
I will wait for the proper setups and confluence of indicators to enter a trade.
I will continue my trading education through books, seminars, on-line classes, or ___________.
I will stop searching for the “Holy Grail of Trading” and perfect my methods through practice.
I will follow my Trading Business Plan and read it every Monday morning before the market opens.
If I have a losing day, I will reread my Trading Business Plan the next morning before the market opens.
Let's end this with a short discussion on “Pyramiding Contracts”, some call it Scaling in and Scaling out. I will leave it to the Pro's to fully explain the full details of Pyramiding. I just need to tell you one thing, NEVER, NEVER Pyramid into a trade. If you feel pyramiding is right for you, then pyramid out of the trade, NEVER into the trade. This reason for this is quick capital loss.
Prosper and Good Trading,
DT
I would like to thank :.Grady Lee Honeycutt, MPS for many hours of diligent work putting this trading plan together. I am in your debt Grady.
I would like to thank Marshall J. Jones for his commentary on this trading plan and for starting me out on this day trading road. Thank you Marsh.