Creating your trading business plan

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.

We have created a trading template for you, as well as an example so that you can follow using the lesson.

You can down load a blank version of our trading plan:

You can download our example plan. Please note that the strategies contained in the example are fictional and have not been tried and tested.

At the end of the lesson you can download a template version of this trading plan.

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.

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Your trading business

Individual trader versus a bank with a team of people

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

Trading is a business. You have costs and expenses that need to be taken into account. You need to consider trading costs, tax and even living expenses if you trade full time.

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 is a documentation of everything you need to run your trading business. It includes your strategy, what you will trade, money management and the evaluation process of your trades.

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 goals

Financial/trading goals

  • As a benchmark, what return are you looking to make per month?
  • 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?

You should always only invest what you are comfortable with.
  • 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?

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.

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What are your costs?

Cost of trading

  • 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?

Technical stategy

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.

To explore different types of technical analysis, you can go to the following module:

Subject
From Japanese candlesticks to the Fibonacci indicator, technical analysis is the mathematical approach to trading.

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?

To learn how to develop a strategy and test it, you can go to the following module:

Subject
Every trader needs a strategy. Whether it is based on technical or fundamental analysis – or even a combination of the two — it should be grounded on solid money ...

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?

To learn more about fundamental analysis, you can go to the following module:

Module
Fundamental factors, such as the interest rate and inflation, influence currency markets. Understand how they help every forex trader.

To read about important news releases that can affect the markets, you can go to our news section:

Money Management

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?

To learn about money management you can go to the following module:

Subject
Learn how to use important tools like risk-to-reward ratios and stop losses to maximise your profits and minimise losses.

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.

To learn more about trading psychology you can visit the following module:

Subject
Manage your emotions and improve your mindset. A solid understanding of psychology helps you stick to your strategy and the rules of money management.

Evolution of your trading business plan

Trading business

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.

tradimo trading plan template

You can down load a blank version of our trading plan:

Summary

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.

What next

If you would like to learn how to prepare for the trading day ahead, you can go to the following lesson:

Lesson
Learn how to prepare your trading day ahead - making sure you are in the right physical and mental state, conducting market analysis and creating a prep sheet.
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  • Hi,
    Is there something wrong with the templates? I try to download trading plan template, but i get a file in .xml format.
  • Hi maindbox,

    You should be able to read/edit it with Word or other free alternatives (Open Office for example).

    Regards,
    Sebastien
  • Dear Peter,

    This is really helpful for university project, for which I am writing a business plan about retail forex trading.I am not sure how to record these costs and revenue in the profit and loss statement.
    I am trying to guess here, please correct me if I am wrong,

    Total winning amount of the year can be declared as revenue
    Spread as Cost of Goods sold
    Software,electricity,rent and datafeeds as overheads

    But how should account for losing trades?
  • Hi Gunesh,
    Think of your trades as inventories. You stack up all different short shelf life goods just like a grocer. You are going to sell out some for profit, some you can't get rid of and you'll have to throw them out (you lose your investment). I wouldn't put spreads as cost because it is deducted from your winnings automatically. You don't get billed for them, commissions might be different. About utility bills you are right that can be counted as costs. By the way depending on local tax laws these items can be accounted very differently.
  • Thanks for your info. So 'Trading losses' are similar to damaged goods or goods sold at a discount.

    Can you suggest me an idea as to how to term the losses in an income statement?

    Also is there a link where I could see a sample Profit & loss,cash flow statement for a forex trading company?

    Google search does not lead to sample financial statements, unfortunately.
  • My bad.I just got a link about sample financial statements.

    But if you do know any,please let me know.
  • The way losses are accounted depends on local tax laws and I cannot advise you on that but i would look to put them down as investment losses so I can offset them against other sorts of income. Sorry I am not an expert at accounting and have no access to companies' income statements, balance sheets etc.

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