Would you start a business without first formulating a business plan!? Unbelievably many do just that and, for the most part, their businesses end up in the recycle bin. Your trading activity is a business and you need to treat it as such. So, this week we are going to talk about the importance of a trading plan as well as some of the elements that should be included in that plan.

We will start with a series of questions which we encourage you to seriously contemplate. In order to create a plan, you must formulate solid and well thought out answers to each question. Each of you may answer the following questions differently and that’s okay. But each of you should answer each question! It only takes a few minutes and could be very rewarding long-term so as Nike says “Just Do It”!!

1- What do you expect to achieve in your trading?
2- How much money do you have in your account?
3- What is your time horizon?
4- What markets do you intend to trade?
5- Do you have a trading system?
6- Does that system include disciplined money management?
7- Do you have the knowledge base in order to trade your chosen market?
8- What amount of time can you realistically devote to trading?
9- Have you considered prudent position sizing and asset allocation?
10- Do you have REASONABLE expectations?
11- Does your trading plan incorporate strategies that are consistent with your risk tolerance?

Your plan needs to align with the answers you gave (you alone and nobody else!). Don’t get pulled into trades that do not fit in to your trading plan just because you get a ‘Hot Tip”. Be true to your plan and do not deviate. The amount of money in your account will dictate to a large degree, the strategies and allocation percentages that you can implement. Just because you may be fortunate enough to have a larger account size does not mean that you should assume greater percentage risks. On the contrary, the larger your account the more prudent you should be regarding the size of each trade. If you have a smaller account, you may not have the luxury of holding a lot of stock positions. You must think in terms of percent Return on Investment (ROI) as opposed to absolute dollar gains. Remind yourself of the rule of 72. The percentage return divided into 72 will reveal the “periods” it will take in order for your investment to double. For instance, if you were able to consistently achieve a 3% monthly return, then you could double your money in 24 months. (72/3=24)

Suffice it to say, it all starts with a plan. Do not gloss over this part of your business. If you don’t do your due diligence with your plan now, you will most likely fail in the long run. It’s only a matter of time. Well my friends, it’s time to head back to Sherwood. I have a planning meeting with the “Merry Band of Traders”. We have a plan and that’s why it works for us and if you allow us the opportunity, we have a plan that will work for you as well. Stop by and see us at www.MarketTamer.com. Until next week, Robin

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