7 Point Business Plan Template

One of the first things new traders are told to do is create a trading plan that outlines a trading strategy and a list of rules to follow in implementing that strategy. The only problem with this advice is that newbie traders don’t really have any trading experience and thus get lost trying to come up with a trading plan for their trade.

Another problem with trading plans is that beginners are told to treat their plans as gospel and not deviate from them. This prevents traders from adapting their strategies and rules to improve their performance, which is an important step in every trader’s learning curve.

Rather than a rigid document that should be created early in your trading career and never changed, you should view your trading plan as a living, breathing set of guidelines that can be modified as you gain trading experience. This article will teach you how to create a trading plan that will guide your trading efforts without stalling your progress.

7 Point Business Plan Template

When creating your trading plan, here are the elements you should include:

1. Markets – Which markets will you focus on? Be as specific as possible – When you trade stocks, what types of stocks do you focus on?

2. Time frames – How long will you hold your positions? Will you be a day trader who focuses on trades lasting a few minutes, or a swing trader who holds trades for days?

3. Time period – What time of day will you trade? You may have outside responsibilities that prevent you from trading throughout the trading day. Choose the time of day that best suits your style.

4. Trading style – How would you describe your trading style? Perhaps you are an impulsive trader targeting trending stocks? Or maybe you specialize in a certain sector? Again, this can and will change as you gain experience and learn from your results.

5. Rules of risk management – This is an absolutely essential and often overlooked component of your trading plan. How will you manage risk, both on a per-trade basis and overall? You should have a “stop trade” point, which is a fixed dollar amount that will force you to stop trading if you drop by that much.

6. Teacher – Who do you imitate and learn from as a teacher? Trying to learn how to trade on your own is not only lonely, but also foolish because it ignores the hard-earned wisdom of other traders. You can either repeat the mistakes of other professionals and hope over time to learn the lessons and techniques they have learned, or you can simply learn from successful traders and work around those initial frustrations.

7. The learning process – How will you build your learning process as a trader? What steps will you take to always get better? How will you structure your trading journal?

Example of a trading plan

To show you this trading plan template in action, I’m going to fill it out according to my own trading style:

  1. I trade the US stock markets, focusing on volatile stocks with sufficient volume. These stocks are usually in the news and therefore “in the game”.

  2. I am a day trader and hold my positions from a few seconds to a few hours. I am primarily a scalper and try to take advantage of short-term imbalances between supply and demand. I will stay in the trade until I can identify the supply/demand imbalance.

  3. I trade throughout the trading day, although I focus most of my activity on the opening and closing of the trading day.

  4. Although I have several styles, I would describe myself primarily as an impulse trader who relies on reading the tape to identify favorable risk/reward situations to enter in the direction of the trend.

  5. I am fanatical about managing my risks, both on a per-trade basis and in general. Every trade I enter has a predetermined stop loss, and I have a daily stop loss to stop a trade when I’m having a bad day.

  6. I’ve had a variety of mentors throughout my career, and I now speak to a select group of traders at my firm with similar trading styles.

  7. I review each of my trades, always looking for ways to improve. It could be as simple as reducing the risk when trading certain stocks or changing my execution patterns.

Your trading plan can be just as simple, just a series of affirmations that answer these 7 questions. You also shouldn’t spend too much time creating your trading plan, as it will change frequently throughout your career.

Summary

Your trading plan will clearly crystallize what you’re trying to achieve, but don’t think of it as set in stone. Your plan will likely grow and change as you gain experience and develop your own trading style.

Your trading plan also doesn’t have to be a complicated multi-page document. You just need to determine which markets you are going to trade, how you are going to trade them (how long you are going to hold positions, what time of day you are going to trade and your trading style), how you are going to manage your risk and how you are going to continue to grow as a trader. By clarifying and articulating these 7 key points, your trading plan will serve and support you in your trading career.

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