Traders have a choice. Wing it and be lucky sometimes, unlucky sometimes; or map the route and have perhaps a less spectacular but smoother trading experience.
In other words, traders can treat their trading like a business!
Why do you need a plan?
Before a trading plan is created, developing a proper business plan is important.
- creation of a business entity providing suitable tax structure for asset protection and minimisation
- mission statement
- goals and objectives
- resources and financials
- implementation plan.
Goals and objectives
- initial planning – including for contingencies for when things go right or wrong
- education – where and how are you going to learn
- research – understand what resources you will need to enable you to trade
- operation – fill in the details of the operation of your business including the resources your business has at the present time
- trading plan – build and test your trading plan (more on this in the next section!)
- financial health check – can you afford to start in the business of trading
- plan completion – write your business plan and make sure you include review periods so that you can measure your progress
- START your trading business
The purpose of a trading plan is to provide you with a realistic and systematic trading process as well as documenting each consideration relevant to successful and profitable trading.
Your objective as a trader is to built the most appropriate trading plan for YOU and your values, your belief structure and your financial situation.
To help you run your trading business, your trading plan will need to contain rules and guidelines that determine:
- when you enter and exit trades
- how much risk you will take
- what tools you will use.
Whether you are trading as a hobby or as a source of income, establishing a legitimate business entity is essential if you want to take advantage of tax claims further down the track. See your financial advisor for which entity will be most suitable for you.