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[dc]W[/dc]e’ve all heard sayings like “to fail to plan is to plan to fail” and “plan the trade. Trade the plan.” These are catchy sayings, but, ask yourself, how good is your plan? Is it good enough? Does it have enough detail? Can it do everything you need it to do? If not, today is the day to fix it.

To my way of thinking, there are two parts of a trading plan. First, you need a proper business plan like any other business, and then you need a specific trading plan. The difference is that the business plan is an overarching “control document” for you and your trading business, going into details like what time of day you will do your work, disaster recovery plans, how you will find and develop your trading edges, and every other aspect of your business you can think of. The trading plan covers the specifics of how and when you will get into and out of trades. Both are important, and it is worth your time to create both in good detail. It is fairly common to see traders create a trading plan (though I think most people do not create one that goes into enough depth and detail), but few take the time to focus on the business plan. To repeat: traders should have both a business plan, and a trading plan. If you don’t, you haven’t really done your planning.

This became clear as I was working with a few traders I am coaching. Most of them have had some experience and have learned some good lessons from the market, so they have pretty good ideas about what not to do, but they were falling short on the business plan side. You really need that plan fo both guidance and vision. It is as much about you—who you are, what your purpose in life is, how trading fits into your routine and life, and how you will grow—as it is about your trading. A good business plan is a substantial document, perhaps ten to twenty typed pages in length, and it will evolve as your trading business grows and changes. The right way to think about it is that it serves two purposes: First, it controls your behavior, saying clearly what you will and will not do, but you should also think of the second purpose which is to communicate the details of your business to investors. Maybe someday you will grow to the point you solicit investors, but, even if you never want to trade a penny of anyone else’s money, this level of professionalism is important. You should be as responsible and precise with your own money as you would with anyone else’s. You are your own client, and you have a tremendous responsibility to the client and his interests.

Think about the path of trader development. On one end, imagine the completely new trader who just learned how to read a bar chart, and, on the other end, a trader who has traded for years, perhaps is even making some money, but has not yet had the degree of success or the consistency that he wants from his trading. If that describes you (and it describes nearly all of my readers), then taking some time to refine your business plan is time well spent. If you don’t have a business plan at all, then today is the day to start crafting one.

Where to start? Tomorrow, I will write a post with an outline of a business plan, and maybe even share pieces of a redacted plan I did over a decade ago that served me well. It’s worth your time to read a good book on writing a business plan, but, today, just start making some notes and thinking deeply about yourself, and re-thinking your trading as a business. Write down what you have done well, and what you need to work on. What are your strengths and weaknesses? How much time can you spend on trading? What is your funding situation? Incidentally, I think this is one of the benefits of a formal business education, whether undergrad or MBA—you get to spend significant time thinking about how businesses communicate to potential investors, how businesses plan to succeed, and why they so often fail. This is information that is directly relevant to the developing trader, and a perspective that can inform your thinking about the entire business of profitable trading. You’d never imagine you could sit on your sofa, read a book about soda, and launch a company that would start competing effectively with soft drink giants next week. Yes, perhaps you could launch that company, but you would have to do a tremendous amount of background work and study, get funding, try different products, launch in specific markets, respond to consumer feedback, do the right legal background work, and be prepared to respond to a challenging business environment that tries to take your money at every turn. Building that soda business would be really difficult, but I bet trading is harder. How good is your plan?