create a plan
- Thread starter junkone
- Start date
Make sure you can handle the drawdowns. If you have a 100k account and need 20k to live. What will happen if you lose 10k one year and now your account is at 70k?
Secondly have an out. Like acting, most people fail. Is becoming a used car salesmen an appealing backup career?
Secondly have an out. Like acting, most people fail. Is becoming a used car salesmen an appealing backup career?
Imo, first thing I would do is project or account or plan cash flow.
This is the only thing that matters intially and where all problems begin and end.
Suppose you have a profitable trade and you are not ready to close it?
In a normal business environment, you have a cycle of invoicing a job and getting paid within 10 - 30 days. Depending how fast this money moves, you can stay in business with low margins, losing money (tax write offs) till prfotiable jobs comes along.
If time has to be your exit strategy to close out a position because you need the money, not good.
This is the only thing that matters intially and where all problems begin and end.
Suppose you have a profitable trade and you are not ready to close it?
In a normal business environment, you have a cycle of invoicing a job and getting paid within 10 - 30 days. Depending how fast this money moves, you can stay in business with low margins, losing money (tax write offs) till prfotiable jobs comes along.
If time has to be your exit strategy to close out a position because you need the money, not good.
I think this is the problem with the trading-as-a-business framework:
In a regular business, margins are relatively stable. Revenue forecast are somewhat possible.
In trading, the analogous metrics: the expected return, is EXTREMELY unstable and difficult to forecast. You may think that you want to target 20% return on your capital, but that's going to come with a far larger span of uncertainty than if you were a cupcake truck.
So, cash flow projection, etc, are not really viable for trading-for-yourself concept: it's too poor of an estimate given the volatility to do any good.
In a regular business, margins are relatively stable. Revenue forecast are somewhat possible.
In trading, the analogous metrics: the expected return, is EXTREMELY unstable and difficult to forecast. You may think that you want to target 20% return on your capital, but that's going to come with a far larger span of uncertainty than if you were a cupcake truck.
So, cash flow projection, etc, are not really viable for trading-for-yourself concept: it's too poor of an estimate given the volatility to do any good.
In regular business: your customers WANT you to make money. If you don't then they need to find a new supplier which is harder than just paying you an okay margin.
In trading: your customer/counterparty wants you to lose money because there's another customer/counterparty around the corner.
Secondly, regular business has operating leverage. Trading does not. Operating leverage means that each additional dollar of sales I make, I get incrementally more profit... think of this as gamma of sales.
In trading, if you have more money, you make the same return. If you employ more leverage, your marginal return drops by the cost of that leverage.
Leverage in operating businesses is easier to obtain because it is generally backed by tangible assets with stable values. This means that margin calls are less likely allowing you to reduce risks due to volatilty.
If your trading has generated consistent profits without gimmicks (averaging down, trading without stop, edges that can disappear if too many participants become aware of them, etc.) then you should be able to firm up a business plan based on the amount of income you need to generate to cover all living expenses, taxes, retirement saving, and emergency backup savings (6 months worth).
The trading methodology that I found works with all liquid instruments in most trading (short term) time frames thru varying market conditions, and appears to have been working for as long as price charts have been documented is Price Action trading. Technical price action tells you what market participants are doing now and reveals levels beyond which the odds shift from favorable to unfavorable with regard to your position.
I outlined the way I developed my plan here:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=237799&perpage=10&pagenumber=1
I'd wish you good luck, but consistently profitable trading is a matter of hard work and proper mindset, with luck playing a very minor role.
Let me quote Terry Pratchet:
âIf you trust in yourself. . .and believe in your dreams. . .and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.â
So, first of all, if you can generate good return on capital in a non-trading business, it's the way to go. There are plenty businesses out there that could generate really solid returns on capital (e.g. laundromats is the one that brings home 100+ percent returns). However, they are non-scalable (usually, you have to have to actually be working there to keep the profits) and usually there are all sorts of odd underwater issues that float up once you do that. Lets assume that upon hearing about it, you still want to trade.
There is only two things that are positive about trading as a business. It's the institutionalized access to leverage and quick concept-to-returns turn around time. In fact, both are well pronounced that plenty of people manage to shoot themselves in the foot with the very tools that make this business interesting.
Before you go for the plan, ask yourself - "why do you think you will succeed in trading?". Is it the technical knowledge? Do you happen to know some obscure field in CS that can help you make money better then others? Do you have some sort of informational advantage, e.g. you are dating a bunch of secretaries at various firms and they feed you insider information? In short, are there statistically-profitable ways for you to take advantage of the two positive?
âIf you trust in yourself. . .and believe in your dreams. . .and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.â
So, first of all, if you can generate good return on capital in a non-trading business, it's the way to go. There are plenty businesses out there that could generate really solid returns on capital (e.g. laundromats is the one that brings home 100+ percent returns). However, they are non-scalable (usually, you have to have to actually be working there to keep the profits) and usually there are all sorts of odd underwater issues that float up once you do that. Lets assume that upon hearing about it, you still want to trade.
There is only two things that are positive about trading as a business. It's the institutionalized access to leverage and quick concept-to-returns turn around time. In fact, both are well pronounced that plenty of people manage to shoot themselves in the foot with the very tools that make this business interesting.
Before you go for the plan, ask yourself - "why do you think you will succeed in trading?". Is it the technical knowledge? Do you happen to know some obscure field in CS that can help you make money better then others? Do you have some sort of informational advantage, e.g. you are dating a bunch of secretaries at various firms and they feed you insider information? In short, are there statistically-profitable ways for you to take advantage of the two positive?