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Part II. Starting With Trading Plan Creation

Starting With Trading Plan Creation - Forex School
Commander in Pips: So, it looks like now we understand that a trading plan is a must, right?

Pipruit: Yes, yes – absolutely.​

A trading plan is a must - Forex School
Commander in Pips: So, let’s start with its creation. Although you may think that we will discuss trading systems, order placement and other stuff, the initial step is self-knowledge. The major initial question that will impact on all following steps is to determine what type of trader you are. This is absolutely necessary, since you have to make a trading plan that is 100% suitable for you, since nobody else will use it. You need to apply in your trading plan strategies, methods and tools that correspond to your personality and particular qualities. If this will not be the case – then you will have a rocky road to consistent profit or even will be unable to reach success. So, let’s try to answer on some of the questions needed to specify your profile that, as I hope, will help us to create a trading plan for you.

Pipruit: Well, this should be interesting. I like different tests in magazines.
Commander in Pips: Ok, let’s start:

1. Trading is a business and should be treated correspondingly. Prepare your Business Plan.

Here is a first question. Why have you decided to trade? What for? Is it just tribute to fashion, since this is very popular currently? Or maybe you have some financial goals and want to accumulate some money to buy something? It means that you probably plan to trade for just some time. Or you think that you will look wiser compared to your friends, because they place bets on sport competitions but you will make it on financial markets. They probably will think that you’re a smart guy, since you’re dealing with financial markets, but will it bring you profit? I’m not sure about it. Or may be you need some adrenaline rush? I call on you to spend some time and become a bit of a worry wart person. Try to find out what your reasons to start trading really are. When you will answer it this could help you to save a lot of money and probably you will look at this a bit differently. You have to take full responsibility to your answer, because a changing attitude could lead to serious disappointments. The market crushes fast those who are not quite serious about it.
 
For instance, if you just want to buy something – may be it is better to borrow the sum? This is much simpler because you will spend much more for education and initial losses when you will start trading. If you need thrill and adrenaline rush, probably it’s simpler try to parachute jump, go to Vegas or something. If you still want to bet on financial markets – that’s fine, almost any betting house now allows you to make stakes on Forex quotes. But still this will be much cheaper in terms of money and in terms of time. Think about it.

That is a major question.

The second part of this question is what is your particular goal for trading. This goal should be real and measurable. If you will say that I want to be as rich as Mr. W. Buffett or I want to live so that I can travel much and visit or live in any country that I want - those are not measurable targets. Your target should be specific. For instance:

1. Reach a return rate of my trading business of 12% annually at first year;

2. Study until I can execute my trading plan sharply;

3. I want to earn 10% of my assets per month;

4. I want to double my account by the end of the second year.

Since trading is a business it has as expenses as well as revenues. If you come to the that you want to deal with this business, your major goal is to live off of it – you have to deal with it responsibility and with seriousness. As with any other business trading demands planning. You will see that the system itself is just the tip of the iceberg, its core, the source of revenues, but as for the rest – trading is the same as any other business – production or retail. The difference is just in specifically where the money comes from.

Creating a Business plan for trading

Let’s assume that know nothing about trading. You have some job that gives you acceptable wages and has allowed you to accumulate some money. You do not have any trading system and know little about trading at all – you've just heard something here and there on CNBC etc. So, before diving into trading turmoil with all its advantages and horrors – start with a business plan. It will help you, first to assess your own factor of safety and give you significant assistance – is trading on your depth or not. There are a lot of different expenses that are associated with trading. Let’s try to create some balance sheet that will help us:

1. Assets

This is simple – first, it includes your initial money that your job has allowed you to save. Second, there will be an annual absolutely necessary sum for you to keep alive. As you understand it will not include a Porsche, Rolex watches and Fiji 5 star apartments. At the first stage of planning – this is a sum that is absolutely necessary for your living – food, utilities and other well-known stuff.

Be ready to combine trading with your job, at least for some time, because you never know – will you succeed or not. Your current job will be your airbag at starting time.

2. Expenses – a bit greater item in our income sheet

2.1 Trading Education

This is the most important part of business plan, since it shows not just expenses, but includes payment for searching for your trading system. This row may include a considerable amount of money. This is a rule of thumb, if you want to make trading so profitable to make a living, then these expenses will be needed to explore a lot of different approaches and methods, until you will find some style and approach to the market that is absolutely suitable personally for you. It makes sense to formulate a plan on how you want to approach your education process and learning since this could be done differently:

- Live seminars and workshops;

- Books, magazines and newspapers;

- Internet sites and forums;

- Live trading rooms;

- Mentoring and tutorial programs;

- Newsletters.

Any of these sources does not exclude its combination with the other ones – and in most cases this is definitely so. For instance you may tell someone, that “I’m ready to spend 5000 USD on education in my first year of trading”. On the followed years you have to rescale this sum, according to where you stand on your learning path and what particular education you need at this point.

Let me give you some humble advice. As a rule, the most expensive are live seminars and workshops, since they are studied by master itself or his/her nearest fellows. Also it is very probable that this will require travel also – that is additional spending of money. Since you do not even develop your own trading style and do not know what particular method to use – probably it makes sense to learn different methods from cheaper sources. You will not be able to dig deep with them, but you will know sufficient information to test this method and decide does it suitable for you. For instance, let’s discuss DiNapoli workshop – just for example, ok? This way of thoughts could be apply to any other method:

- His book “Trading with DiNapoli levels” costs around 160$;

- Some additional material that probably will become useful (DVD, Mp3) costs around 150$ each;

- Proprietary forum (clients only) costs around 300$ per year. Also you have a possibility to get free access for limited time if you will purchase book or some other products. 

So, as a result you have to pay approximately 800-1000$ to assess this method and try to apply it. If you will want to visit private seminars – there are two types of them – standard and advanced. To visit advanced you have to attend standard first. The standard seminar costs 1500$ and the advanced costs another 1800$. Also you have to add travel and living costs to that. Besides, we have to note that some seminars could be significantly more expensive.
 
As a conclusion, we have to say - “don’t be maximalist and do not chase all that you can grab, think rationally.” Probably, you can even buy just the book and get free 1-month access to private forum – that’s will be sufficient to start with his method. I think you’ve got the point. The same is with most other methods.

Also you can subscribe to an e-letter of market analysis by his experts – this is around 80$ per month – not so expensive, right? Besides, you will not need it for a whole year, since you have to study book first.

When you will assess this method and understand that it is suitable for you – get some success by applying it, you may start to think about attending of seminars. Besides, your profit can compensate for some expenses.

So, here are our expenses for the start point:

1. Book of any method – approximately 150-200$;

2. Private educational forum, e-letters and/or live trading room - approximately 500-800$ for 1 year

Total: 700-1000$ for the first year, may be a bit less.

3.1 Time is also an expense

This is a very logical question appears right at the starting point – how much time could the education process demand? And the most pity is that we can’t count on it definitely, since there are a lot of sub-questions:

- how much time does trader need to spend on learning, level of his/her diligence and accuracy;

- Has the trader ability to create a trading plan and follow to it;

- Does he/she have bad habits that demand to be eliminated, etc.

Also keep in mind that there is one thing that can’t be taught anyway – experience. Any rules, methodologies, all possible ways to dealing with markets and types of analysis could be, but experience could not. A trader’s perseverance, diligence, ability to plan and and a tendency to follow hard discipline can reduce time needed before getting first success. Also, if a trader has an ability to test and apply their knowledge at regular basis gets more experience.

Every step in education has its own significant role. That’s why you do not ever try to break the link between challenge and reward on each step. Trying to bypass and overleap two steps at once could lead to disaster. There is no fast way to profit – success demands hard work, responsibility, commitment and other well-known stuff.

That’s why, speaking about time be ready for some “live on a credit” since trading will “eat” your money from other sources until some breakeven moment when you will start to see a return.

4.1 Hardware, Software and Office


- The first tool is a charting program, of course. Depending of your trading system, you may apply software of different providers. For instance, if you use the DiNapoli approach to markets, you may choose CQG data provider, since it has the Full DiNapoli trading pack. As long, as you are a user of CQG you'll have unlimited free access to the DiNapoli private forum. The major disadvantage of this is that CQG is rather expensive, so you may initially use free software such as MT4 or some other cheaper exemplars. The primary task is that software is 100% match to your trading style and the system that you apply, it should have all the necessary indicators, tools and applications, calculated properly.

- Computer system and other hardware – monitor (maybe even multiple monitors), software, internet access, telephone equipment, copy/fax machine. Probably, the one major demand here is for stability of internet connection. From that perspective it is better to have two independent ways – stationary access and mobile. Also some UPS is absolutely necessary.

- Brokerage/commission costs.

- Data providers for charting packages. For instance, you need to purchase some software that has the necessary trading tools for technical analysis. Say, Metastock or Trade station. But where you will get data to upload? If this is your way, then you will have to pay for data also. If you need real-time data – it will cost much more. Still, honestly speaking, currently this is not so important as some time before due to improved software development.

- Programming some indicators. For instance, you may need some indicators that are not included in free software, as MT 4. But this program allows you to program them – still you have to pay for it, depending on complexity 50-150$ per indicator. If you can do it yourself - much better.

- If you plan to rent an office – be ready for additional rent fee and corresponding utility payments.

Here what we have:

First yare business plan - Forex School
Treat it just as a common approach. Also, this plan will help you in the next year, when you will not have as many fixed expenses as Software and hardware purchasing. This plan could be more detailed – you may point some items with more precision. This plan assumes that your monthly wage is around 1500$ net. Your initial profit task could be to reserve money not by job (250$) but by trading profit. Earning of 250$ per month with 10K account value seems quite realistic even in the beginning, when your initial study will be over. Still study never ends, but after some time it starts to be financed by your trading profit. There is no need to be ashamed if you appointed target as to survive for the first year. This is also an excellent target and it’s not easy to complete it.

Pay attention that your major savings almost stands untouched in the first year. This is a good sign since you will need them when you will turn to real account trading from a demo account. In second and followed years your monthly reserved sum will be enough to pay for education and sitting on demo and keeping the major sum intact. That is also a good sign, since you may stick with learning as long as you need, without any financial problems.

Trading is a business and should be treated correspondingly - Forex School
Annual business plan

And finally, in this chapter I want to give a fast look at an annual plan. First, you will need this kind of plan, since when a year will pass you will have to adjust your view on trading. Second, this kind of plan is strongly preferable for any trader both newbie and experienced. Still, this is a common-type plan and not detailed trading plan.

Since one year has passed, there some changes that could appear that demand adjustments. Maybe trading at some markets, patterns gave you worse results than you’ve expected, maybe you’ve known something, that you would like to continue and so on. Still do not overvalue the meaning of this plan. It should be natural and act as a sort of road map that could lead your move in financial markets’ journey. The most important thing is to follow the plan. First it develops good-trading habits; second it will let you return to basics if you will be driven away by market’s flow.

Here are approximate questions that could form your annual plan:

1. What markets or assets should I trade in the coming year? For instance, if you trade three pairs, you may focus on just two or even single pair, if the previous results are best with it;

2. You have to develop a trading plan for each market or asset. We will speak about that trading plan in a later part of this current chapter. The point is that on some markets you’ve got better results trading different patterns and time frames compared to another market. So, you have to create a trading plan for every market. For example, on the market you can trade on a weekly basis by MA technique, while of EUR/USD daily mostly by Harmonic patterns and so on – depending on previous results;

3. As a continuation of point 2 – we have to determine what time frames we should trade;

4. Some plan on education – study some new strategy, visit a seminar, dive into study of some other methods, improve risk management etc.;

5. Take a look at your lifestyle, especially if something important has happened in the previous year that has made an impact on trading. Even if this is not the case you may find out, that in some days you’ve performed better than the others, you can trade better after some rest, you perform differently in the morning than in the evening, in days when you’ve visited grandma, etc. According to that, you can make some adjustment on your life-style, include or exclude some events, say, gym. It will help you to estimate your own trading schedule. For instance, you can come to conclusion that if you trade three weeks in a row you start to make mistakes. So, you need 1 week of rest for every three weeks of trading.

6. Review of business plan – assess your expenses, and forecast for the next year, as we’ve shown in business plan example;

7. The last thing is creating your goals for coming year. This is obvious that they will be based on current results. For instance, if you were able to earn 20% annually, you may appoint some higher target. But what is more important – you have to specify how you want to reach them. For instance, you may exclude some markets that you traded with and lost. Maybe you will improve your risk management system, so you will be able to trade larger lots, maybe you see a growing trend in your wining/loss trades ratio . There could be very different sources of improvement.

Comments

pratihar
2 years ago,
Registered user
is it all right to make two trading plans? for example: one for swing trade and other for intraday.

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