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Trading Business Plan
Published Mar.29, 2024
Updated May.04, 2024
By: Alex Silensky
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Table of Content
According to a report, 13% of day traders maintain consistent profitability over six months, and a mere 1% succeed over five years. This is primarily due to inadequate planning and undercapitalization. A well-crafted trading business plan can help you avoid these pitfalls, and this article will guide you.
In this article, you’ll learn:
- The current trends and growth forecasts in the stock trading industry
- A breakdown of the costs involved in starting a trading company
- The key components of a trading business plan (with a trading business plan example)
- Strategies for securing funding and overcoming the barriers to entry
By the end of this article, you’ll understand what it takes to create a business plan for an investment company , positioning your trading business for long-term success in this lucrative but highly competitive industry.
Pros and Cons of Trading Company
Let’s explore the pros and cons associated with running a trading company before diving into the specifics of a trading site business plan. Understanding them will help you make informed decisions:
- Potential for significant profits.
- Flexibility in terms of time and location.
- Opportunity for continuous learning and skill development.
- High risk due to market volatility.
- Emotional stress and psychological pressure.
- Requirement for constant vigilance and discipline.
Trading Industry Trends
Industry size and growth forecast.
According to a report , the global stock trading and investing applications market size was at around $37.27 billion in 2022 and projects to grow at a CAGR of 18.3% from 2023 to 2030 (Source: Grand View Research). The following factors drive this growth:
- Increasing internet penetration
- Rising disposable income
- Growing awareness of investment opportunities.
(Image Source: Grand View Research)
The Services
As per our private equity firm business plan , a stock trading business offers various services, including:
- Facilitating Trades on behalf of clients
- Algorithmic trading services to automatically execute trades
- Market Insights (research reports, market analysis, and economic forecasts)
- Technical and Fundamental Analysis (price charts, historical data, and company fundamentals)
- Investment Recommendations
- Seminars and Webinars
- Online Courses
- Demo Accounts
- Portfolio Diversification
- Stop-Loss Orders
- Hedging Strategies
- Direct Market Access (DMA)
- Global Market Access
- Trading Platforms
- Mobile Apps
- High-Frequency Trading (HFT)
- Legal and Compliance Services
- Educate clients about Risk Disclosure
How Much Does It Cost to Start a Trading Company
According to Starter Story, you can expect to spend an average of $12,272 for a stock trading business. Some key startup costs include:
| Cost Category | Estimated Cost |
| Legal and Registration Fees | $1,500 |
| Website and Online Presence | $3,000 |
| Trading Software and Tools | $4,000 |
| Office Setup | $2,000 |
| Marketing and Advertising | $1,000 |
| Insurance | $500 |
| Initial Working Capital | $2,000 |
| Total Cost to Start a Trading Company | $14,000 |
How Much Can You Earn from a Trading Business?
Earnings in the trading business can vary significantly and depend heavily on:
- Trading strategy and approach
- Market conditions and volatility
- Risk management techniques
- Capital allocation and leverage
While specific income figures are difficult to predict due to these factors. However, here are some statistics showing the earning potential of a stock trading business:
- According to Investopedia, only around 5% to 20% of day traders consistently make money.
- According to Indeed Salaries, the average base salary for a stock trader in the U.S. is $80,086 per year.
- 72% of day traders ended the year with financial losses, according to FINRA.
- Among proprietary traders, only 16% were profitable, with just 3% earning over $50,000. (Source: Quantified Strategies)
What Barriers to Entry Are There to Start a Trading Company
Barriers to entry into the stock trading business include:
- Regulatory Requirements: Obtaining necessary licenses and registrations from governing bodies like the SEC and FINRA is a complex and time-consuming process.
- Capital Requirements: Trading activities require significant capital to manage risks and leverage opportunities, which can be a substantial challenge for new or small firms.
- Technological Expertise: Developing or acquiring sophisticated trading platforms, algorithms, and data analysis tools is costly and requires specialized expertise.
- Market Knowledge and Experience: Gaining in-depth knowledge and practical experience in the complex and dynamic financial markets takes years of dedicated study.
- Competitive Landscape: Breaking into the highly competitive trading industry dominated by established firms and well-funded proprietary trading desks is challenging for new entrants.
You can overcome these barriers by developing unique strategies, leveraging innovative technologies, and offering competitive and specialized services to differentiate yourself in the market. Do check our financial advisor business plan to learn more.
Creating a Trading Business Plan
A well-researched stock trading business plan is crucial to start a trading business. A general trading company business plan is a comprehensive document that defines your goals, strategies, and the steps needed to achieve them. It helps you stay organized and focused and increases your chances of securing funding if you plan to seek investors or loans.
Steps to Write a Trading Business Plan
You can use a business plan template for a trading company or follow these steps to prepare a business plan for a personal trading business:
Step 1: Define Your Goals and Investment Objectives
Step 2: Conduct Market Research
Step 3: Develop Your Trading Strategy
Step 4: Establish Your Business Structure
Step 5: Develop a Financial Plan
Step 6: Outline Your Operational Procedures
Step 7: Create a Marketing and Growth Strategy
Step 8: Implement Risk Management
Step 9: Create an Exit Strategy
What to Include in Your Trading Business Plan
Executive summary, company overview.
- Market Analysis
- Trading Strategy and Risk Management
- Operations and Technology
- Financial Projections
- Management and Organization
- Appendices (e.g., research, charts, legal documents)
Here’s an online trading business plan sample of ABC Trading:
ABC Trading, a recently established stock trading firm, provides online trading services to individuals and institutional investors. Key highlights of our business include:
- Vision – Becoming a leading online trading platform with a wide range of trading products and services.
- Values – Our core focus is innovation, excellence, integrity, and customer satisfaction.
- Target market – Tech-savvy and risk-tolerant investors looking for alternative ways to invest their money and diversify their portfolios.
- Revenue model – Commissions and fees for each trade, as well as subscription fees for premium features and services.
- Financial goal – Break even in the second year of operation and generate a net profit of $1.2 million in the third year.
ABC Trading is seeking $500,000 seed funding to launch its platform, acquire customers, and expand its team.
Company Name: ABC Trading
Founding Date: January 2024
Location: Delaware, USA
Registration: Limited Liability Company (LLC) in the state of New York
Regulated By: Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA)
Our team comprises seasoned professionals with diverse finance, mathematics, computer science, and engineering backgrounds.
Marketing Plan
Marketing Strategy: We aim to leverage online channels, such as social media, blogs, podcasts, webinars, and email newsletters, to create awareness, generate leads, and convert prospects into customers.
Marketing Objectives:
- Reach 100,000 potential customers in the first year of operation
- Achieve a 10% conversion rate from leads to customers
- Retain 80% of customers in the first year and increase customer lifetime value by 20% in the second year
The customer profile of ABC Trading includes the following characteristics:
- Age: 25-65 years old
- Gender: Male and female
- Income: Above $100,000 per year
- Education: Bachelor’s degree or higher
- Occupation: Professionals, entrepreneurs, executives, or retirees
- Location: US or international
- Trading experience: Intermediate to advanced
- Trading goals: Income generation, capital appreciation, risk diversification, or portfolio optimization
- Trading preferences: Stocks, options, or both
- Trading style: Technical, trend following, or volatility trading
- Trading frequency: Daily, weekly, or monthly
- Trading risk: Low, medium, or high
Marketing Tactics:
- Create and distribute engaging and informative content on social media platforms
- Offer free trials, discounts, referrals, and loyalty programs
- Collect and analyze customer feedback and data to improve and personalize the customer experience
- Partner with influencers, experts, and media outlets in the trading and finance niche
Marketing Budget:
We will allocate $10,000 for our marketing campaign, which we will use for the following purposes:
Operations Plan
ABC Trading’s operations plan ensures the smooth and efficient functioning of the company’s platform and services and compliance with the relevant laws and regulations.
Operation Objectives:
- Maintain a 99% uptime and availability of the company’s platform and services
- Ensure the security and privacy of the company’s and customers’ data and funds
- Provide timely and professional customer support and service
Operation Tactics:
- Use cloud-based servers and services
- Implement encryption, authentication, and backup systems
- Hire and train qualified and experienced customer service representatives and technicians
- Monitor and update the company’s platform and services regularly
- Follow the best practices and standards of the industry and adhere to the applicable laws and regulations
Operation Standards:
Financial Plan
ABC Trading’s financial plan is to provide a realistic and detailed projection of the company’s income, expenses, and cash flow for the next three years, as well as the key financial indicators and assumptions that support the projection.
Financial Objectives:
- Achieve a positive cash flow in the second year of operation.
- Reach a break-even point in the second year of operation.
- Generate a net profit of $1.2 million in the third year of operation.
- Maintain a healthy financial ratio of current assets to current liabilities of at least 2:1.
Financial Assumptions:
- Launch its platform and services in the first quarter of 2024
- Acquire 10,000 customers in the first year, 20,000 customers in the second year, and 30,000 customers in the third year
- Average revenue per customer will be $50 per month, based on the average number and size of trades and the subscription fees
- Average operating expense per customer will be $10 per month, based on the average cost of salaries, rent, utilities, marketing, and legal fees
- Pay a 25% tax rate on its net income
- Reinvest 50% of its net income into the company’s growth and development
Projected Income Statement:
| Fiscal Year | 2024 | 2025 | 2026 |
| Sales Revenue | $10,000,000 | $12,000,000 | $14,400,000 |
| Cost of Goods Sold | $6,000,000 | $7,200,000 | $8,640,000 |
| Gross Profit | $4,000,000 | $4,800,000 | $5,760,000 |
| Operating Expenses | $2,500,000 | $3,000,000 | $3,600,000 |
| Operating Income | $1,500,000 | $1,800,000 | $2,160,000 |
| Interest Expense | $100,000 | $90,000 | $80,000 |
| Income Before Taxes | $1,400,000 | $1,710,000 | $2,080,000 |
| Income Tax Expense | $420,000 | $513,000 | $624,000 |
| Net Income | $980,000 | $1,197,000 | $1,456,000 |
Projected Cash Flow Statement
| Fiscal Year | 2024 | 2025 | 2026 |
| Cash Flow from Operating Activities | |||
| Net Income | $980,000 | $1,197,000 | $1,456,000 |
| Adjustments for Non-Cash Items | |||
| Depreciation and Amortization | $200,000 | $220,000 | $242,000 |
| Changes in Working Capital | |||
| Accounts Receivable | -$200,000 | -$240,000 | -$288,000 |
| Inventory | -$300,000 | -$360,000 | -$432,000 |
| Accounts Payable | $150,000 | $180,000 | $216,000 |
| Net Cash Provided by Operating Activities | $830,000 | $997,000 | $1,194,000 |
| Cash Flow from Investing Activities | |||
| Capital Expenditures | -$500,000 | -$550,000 | -$605,000 |
| Net Cash Used in Investing Activities | -$500,000 | -$550,000 | -$605,000 |
| Cash Flow from Financing Activities | |||
| Proceeds from Borrowing | $200,000 | $0 | $0 |
| Repayment of Borrowing | -$110,000 | -$110,000 | -$110,000 |
| Dividends Paid | -$200,000 | -$240,000 | -$288,000 |
| Net Cash Used in Financing Activities | -$110,000 | -$350,000 | -$398,000 |
| Net Increase in Cash | $220,000 | $97,000 | $191,000 |
| Cash at Beginning of Period | $500,000 | $720,000 | $817,000 |
| Cash at End of Period | $720,000 | $817,000 | $1,008,000 |
Projected Balance Sheet
| Fiscal Year | 2024 | 2025 | 2026 |
| Assets | |||
| Current Assets | |||
| Cash | $720,000 | $817,000 | $1,008,000 |
| Accounts Receivable | $800,000 | $960,000 | $1,152,000 |
| Inventory | $900,000 | $1,080,000 | $1,296,000 |
| Total Current Assets | $2,420,000 | $2,857,000 | $3,456,000 |
| Non-Current Assets | |||
| Property, Plant and Equipment | $2,500,000 | $2,950,000 | $3,495,000 |
| Less: Accumulated Depreciation | -$200,000 | -$420,000 | -$662,000 |
| Net Property, Plant and Equipment | $2,300,000 | $2,530,000 | $2,833,000 |
| Total Non-Current Assets | $2,300,000 | $2,530,000 | $2,833,000 |
| Total Assets | $4,720,000 | $5,387,000 | $6,289,000 |
| Liabilities and Equity | |||
| Current Liabilities | |||
| Accounts Payable | $750,000 | $900,000 | $1,080,000 |
| Short-Term Debt | $200,000 | $90,000 | $0 |
| Total Current Liabilities | $950,000 | $990,000 | $1,080,000 |
| Non-Current Liabilities | |||
| Long-Term Debt | $900,000 | $800,000 | $700,000 |
| Total Non-Current Liabilities | $900,000 | $800,000 | $700,000 |
| Total Liabilities | $1,850,000 | $1,790,000 | $1,780,000 |
| Equity | |||
| Common Stock | $1,000,000 | $1,000,000 | $1,000,000 |
| Retained Earnings | $1,870,000 | $2,597,000 | $3,509,000 |
| Total Equity | $2,870,000 | $3,597,000 | $4,509,000 |
| Total Liabilities and Equity | $4,720,000 | $5,387,000 | $6,289,000 |
Fund a Trading Company
To successfully establish and operate a trading company, raising funds to finance daily operations and business expansion is crucial. There are different ways with their advantages and disadvantages:
1. Self-funding (Bootstrapping)
Self-funding, also known as bootstrapping, is when the founder or owner of the trading company uses their own personal savings, family business ideas , assets, or income to finance the business. This is the most common and simplest way to fund a trading company, especially in the early stages.
- Complete ownership and control
- Flexibility in decision-making
- Potential for higher long-term returns
- Limited access to capital
- Personal financial risk
- Slower growth potential
2. Debt Financing
Debt financing involves borrowing money from lenders, such as banks, credit unions, or microfinance institutions, to fund the trading company’s operations. The borrowed funds must be repaid with interest over a specified period.
- Retain ownership and control
- Potential tax benefits from interest deductions
- Disciplined approach due to repayment obligations
- Debt burden and interest payments
- Collateral requirements and personal guarantees
- Difficulty in securing financing for startups
3. Angel Investors
Angel investors are wealthy individuals who invest their own money into early-stage or high-potential trading companies in exchange for equity or convertible debt. Angel investors typically provide smaller funding than venture capitalists and offer mentorship, guidance, and access to their network.
- Access to capital and industry expertise
- Potential for additional mentorship and guidance
- Lower risk compared to traditional investors
- Dilution of ownership and control
- Potential for conflicting visions and expectations
- Limited resources compared to larger investors
4. Venture Capital (VC) Funding
Venture capital firms are professional investment firms that provide capital to high-growth startups in exchange for equity ownership. They typically invest large sums of money and are active in the company’s management and strategic direction.
- Access to substantial capital for growth
- Expertise and industry connections from the VC firm
- Validation and credibility for the business
- Significant dilution of ownership and control
- Intense pressure for rapid growth and return on investment
Depending on your business model, goals, and needs, you may also consider other options, such as grants, subsidies, partnerships, etc. Ensure to check for relevant documents, like the hedge fund private placement memorandum . The best way to fund your trading company is the one that suits your situation and preferences.
OGSCapital: Your Strategic Partner for Business Success
At OGSCapital, we specialize in professional business plans that empower startups, established companies, and visionary entrepreneurs. With over 15 years of experience, our seasoned team combines financial acumen, industry insights, and strategic thinking to craft comprehensive plans tailored to your unique vision. Whether you’re seeking funding, launching a new venture, or optimizing your existing business, we’ve got you covered.
If you have any further questions regarding how to write a business plan for your trading business, feel free to contact us. Our team at OGSCapital is here to support you on your entrepreneurial journey. You can also check our hedge fund business plan sample here.
Download Trading Business Plan Template in PDF
Frequently Asked Questions
What does a trading business include?
A trading business involves trading stocks and other financial instruments under a legal business structure. It includes:
- Market analysis
- Trading strategy
- Risk management
How does a trading company work?
A stock trading company facilitates the buying and selling of stocks (shares) on behalf of investors. These companies operate within stock exchanges, executing trades based on specific trading strategies.
OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.
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Trading Business Plan
Starting a trading business can be challenging because you have to build contacts, negotiate, and whatnot. But amidst worrying about all these things, planning is the last thing you want to worry about.
While anyone can start a new business, you need a detailed business plan when it comes to raising funding, applying for loans, and scaling it like a pro!
Need help writing a business plan for your trading business? You’re at the right place. Our trading business plan template will help you get started.
Free Business Plan Template
Download our free trading business plan template now and pave the way to success. Let’s turn your vision into an actionable strategy!
- Fill in the blanks – Outline
- Financial Tables
How to Write A Trading Business Plan?
Writing a trading business plan is a crucial step toward the success of your business. Here are the key steps to consider when writing a business plan:
1. Executive Summary
An executive summary is the first section planned to offer an overview of the entire business plan. However, it is written after the entire business plan is ready and summarizes each section of your plan.
Here are a few key components to include in your executive summary:
- Introduce your Business: Start your executive summary by briefly introducing your business to your readers.This section may include the name of your trading business, its location, when it was founded, the type of trading business (E.g., retail trading, wholesale trading, import-export), etc.
- Market Opportunity: Summarize your market research, including market size, growth potential, and marketing trends. Highlight the opportunities in the market and how your business will fit in to fill the gap.
- Mention your product range: Highlight the product range of your trading business you offer your clients. The USPs and differentiators you offer are always a plus.For instance, you may include consumer goods, industrial & construction supplies, or beverages as your product range.
- Marketing & Sales Strategies: Outline your sales and marketing strategies—what marketing platforms you use, how you plan on acquiring customers, etc.
- Financial Highlights: Briefly summarize your financial projections for the initial years of business operations. Include any capital or investment requirements, associated startup costs, projected revenues, and profit forecasts.
- Call to Action: Summarize your executive summary section with a clear CTA, for example, inviting angel investors to discuss the potential business investment.
Ensure your executive summary is clear, concise, easy to understand, and jargon-free.
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2. Business Overview
The business overview section of your business plan offers detailed information about your company. The details you add will depend on how important they are to your business. Yet, business name, location, business history, and future goals are some of the foundational elements you must consider adding to this section:
- Retail trading
- Wholesale trading
- Export-import
- Dropshipping
- Describe the legal structure of your trading company, whether it is a sole proprietorship, LLC, partnership, or others.
- Explain where your business is located and why you selected the place.
- Owners: List the names of your trading company’s founders or owners. Describe what shares they own and their responsibilities for efficiently managing the business.
- Mission Statement: Summarize your business’ objective, core principles, and values in your mission statement. This statement needs to be memorable, clear, and brief.
- Business History: If you’re an established trading business, briefly describe your business history, like—when it was founded, how it evolved over time, etc.Additionally, If you have received any awards or recognition for excellent work, describe them.
- Future Goals: It’s crucial to convey your aspirations and vision. Mention your short-term and long-term goals; they can be specific targets for revenue, market share, or expanding your services.
This section should provide a thorough understanding of your business, its history, and its future plans. Keep this section engaging, precise, and to the point.
3. Market Analysis
The market analysis section of your business plan should offer a thorough understanding of the industry with the target market, competitors, and growth opportunities. You should include the following components in this section.
- Target market: Start this section by describing your target market. Define your ideal customer and explain what types of services they prefer. Creating a buyer persona will help you easily define your target market to your readers.For instance, business owners, wholesalers, or retailers would be an ideal target audience for a trading business.
- Market size and growth potential: Describe your market size and growth potential and whether you will target a niche or a much broader market.For instance, the retail trading market size in the USA was $7.9 trillion in 2022, so it is crucial to define the segment of your target market and its growth potential.
- Competitive Analysis: Identify and analyze your direct and indirect competitors. Identify their strengths and weaknesses, and describe what differentiates your trading business from them. Point out how you have a competitive edge in the market.
- Market Trends: Analyze emerging trends in the industry, such as technology disruptions, changes in customer behavior or preferences, etc. Explain how your business will cope with all the trends.For instance, eCommerce has a booming market; explain how you plan on dealing with this potential growth opportunity.
- Regulatory Environment: List regulations and licensing requirements that may affect your trading company, such as business registration, insurance, licensing, etc.
Here are a few tips for writing the market analysis section of your trading business plan:
- Conduct market research, industry reports, and surveys to gather data.
- Provide specific and detailed information whenever possible.
- Illustrate your points with charts and graphs.
- Write your business plan keeping your target audience in mind.
4. Products And Services
The product and services section should describe the specific services and products that will be offered to customers. To write this section should include the following:
- Describe your products: Mention the trading products your business will offer. This may include product categories, product range, product features, product sourcing, etc.For instance; for wholesale trading business consumer goods, food & beverage, industrial & construction supplies, etc. are some of the product ranges.
- Logistics & shipping
- Warehousing & storage
- Distribution & fulfillment
- Additional Services: Mention if your trading company offers any additional services. You may include services like, product customization & branding, packaging & labeling, supply chain consultation, etc.
In short, this section of your trading plan must be informative, precise, and client-focused. By providing a clear and compelling description of your offerings, you can help potential investors and readers understand the value of your business.
5. Sales And Marketing Strategies
Writing the sales and marketing strategies section means a list of strategies you will use to attract and retain your clients. Here are some key elements to include in your sales & marketing plan:
- Unique Selling Proposition (USP): Define your business’s USPs depending on the market you serve, the equipment you use, and the unique services you provide. Identifying USPs will help you plan your marketing strategies.For example, advanced equipment, vast product range, or experience & expertise could be some of the great USPs for a professional trading company.
- Pricing Strategy: Describe your pricing strategy—how you plan to price your products and stay competitive in the local market. You can mention any discounts you plan on offering to attract new customers.
- Marketing Strategies: Discuss your marketing strategies to market your services. You may include some of these marketing strategies in your business plan—social media marketing, brochures, email marketing, content marketing, and print marketing.
- Sales Strategies: Outline the strategies you’ll implement to maximize your sales. Your sales strategies may include direct sales calls, partnering with other businesses, offering referral programs, etc.
- Customer Retention: Describe your customer retention strategies and how you plan to execute them. For instance, introducing loyalty programs, discounts or offers, personalized service, etc.
Overall, this section of your trading business plan should focus on customer acquisition and retention.
Have a specific, realistic, and data-driven approach while planning sales and marketing strategies for your trading business, and be prepared to adapt or make strategic changes in your strategies based on feedback and results.
6. Operations Plan
The operations plan section of your business plan should outline the processes and procedures involved in your business operations, such as staffing requirements and operational processes. Here are a few components to add to your operations plan:
- Staffing & Training: Mention your business’s staffing requirements, including the number of employees or traders needed. Include their qualifications, the training required, and the duties they will perform.
- Operational Process: Outline the processes and procedures you will use to run your trading business. Your operational processes may include inventory management, sales & marketing, order processing, customer service, etc.
- Equipment & Machinery: Include the list of equipment and machinery required for trading, such as office equipment, warehouse equipment, transportation vehicles, packaging & testing equipment, etc.Explain how these technologies help you maintain quality standards and improve the efficiency of your business operations.
Adding these components to your operations plan will help you lay out your business operations, which will eventually help you manage your business effectively.
7. Management Team
The management team section provides an overview of your trading business’s management team. This section should provide a detailed description of each manager’s experience and qualifications, as well as their responsibilities and roles.
- Founders/CEO: Mention the founders and CEO of your trading company, and describe their roles and responsibilities in successfully running the business.
- Key managers: Introduce your management and key members of your team, and explain their roles and responsibilities.It should include, key executives(e.g. COO, CMO.), senior management, and other department managers (e.g. operations manager, customer services manager.) involved in the trading business operations, including their education, professional background, and any relevant experience in the industry. Organizational structure: Explain the organizational structure of your management team. Include the reporting line and decision-making hierarchy.
- Compensation Plan: Describe your compensation plan for the management and staff. Include their salaries, incentives, and other benefits.
- Advisors/Consultants: Mentioning advisors or consultants in your business plans adds credibility to your business idea.So, if you have any advisors or consultants, include them with their names and brief information consisting of roles and years of experience.
This section should describe the key personnel for your trading business, highlighting how you have the perfect team to succeed.
8. Financial Plan
Your financial plan section should provide a summary of your business’s financial projections for the first few years. Here are some key elements to include in your financial plan:
- Profit & loss statement: Describe details such as projected revenue, operational costs, and service costs in your projected profit and loss statement . Make sure to include your business’s expected net profit or loss.
- Cash flow statement: The cash flow for the first few years of your operation should be estimated and described in this section. This may include billing invoices, payment receipts, loan payments, and any other cash flow statements.
- Balance Sheet: Create a projected balance sheet documenting your trading business’s assets, liabilities, and equity.
- Break-even point: Determine and mention your business’s break-even point—the point at which your business costs and revenue will be equal.This exercise will help you understand how much revenue you need to generate to sustain or be profitable.
- Financing Needs: Calculate costs associated with starting a trading business, and estimate your financing needs and how much capital you need to raise to operate your business. Be specific about your short-term and long-term financing requirements, such as investment capital or loans.
Be realistic with your financial projections, and make sure you offer relevant information and evidence to support your estimates.
9. Appendix
The appendix section of your plan should include any additional information supporting your business plan’s main content, such as market research, legal documentation, financial statements, and other relevant information.
- Add a table of contents for the appendix section to help readers easily find specific information or sections.
- In addition to your financial statements, provide additional financial documents like tax returns, a list of assets within the business, credit history, and more. These statements must be the latest and offer financial projections for at least the first three or five years of business operations.
- Provide data derived from market research, including stats about the industry, user demographics, and industry trends.
- Include any legal documents such as permits, licenses, and contracts.
- Include any additional documentation related to your business plan, such as product brochures, marketing materials, operational procedures, etc.
Use clear headings and labels for each section of the appendix so that readers can easily find the necessary information.
Remember, the appendix section of your trading business plan should only include relevant and important information supporting your plan’s main content.
The Quickest Way to turn a Business Idea into a Business Plan
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This sample trading business plan will provide an idea for writing a successful trading plan, including all the essential components of your business.
After this, if you still need clarification about writing an investment-ready business plan to impress your audience, download our trading business plan pdf .
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Frequently asked questions, why do you need a trading business plan.
A business plan is an essential tool for anyone looking to start or run a successful trading business. It helps to get clarity in your business, secures funding, and identifies potential challenges while starting and growing your business.
Overall, a well-written plan can help you make informed decisions, which can contribute to the long-term success of your trading company.
How to get funding for your trading business?
There are several ways to get funding for your trading business, but self-funding is one of the most efficient and speedy funding options. Other options for funding are:
- Bank loan – You may apply for a loan in government or private banks.
- Small Business Administration (SBA) loan – SBA loans and schemes are available at affordable interest rates, so check the eligibility criteria before applying for it.
- Crowdfunding – The process of supporting a project or business by getting a lot of people to invest in your business, usually online.
- Angel investors – Getting funds from angel investors is one of the most sought startup options.
Apart from all these options, there are small business grants available, check for the same in your location and you can apply for it.
Where to find business plan writers for your trading business?
There are many business plan writers available, but no one knows your business and ideas better than you, so we recommend you write your trading business plan and outline your vision as you have in your mind.
What is the easiest way to write your trading business plan?
A lot of research is necessary for writing a business plan, but you can write your plan most efficiently with the help of any trading business plan example and edit it as per your need. You can also quickly finish your plan in just a few hours or less with the help of our business plan software .
About the Author
Upmetrics Team
Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more
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Trading Business Plan Template
Written by Dave Lavinsky
Trading Business Plan
Over the past 20+ years, we have helped over 500 entrepreneurs and business owners create business plans to start and grow their trading companies.
If you’re unfamiliar with creating a trading business plan, you may think creating one will be a time-consuming and frustrating process. For most entrepreneurs it is, but for you, it won’t be since we’re here to help. We have the experience, resources, and knowledge to help you create a great plan.
In this article, you will learn some background information on why business planning is important. Then, you will learn how to write a trading business plan step-by-step so you can create your plan today.
Download our Ultimate Business Plan Template here >
What is a Trading Business Plan?
A business plan provides a snapshot of your trading company as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategies for reaching them. It also includes market research to support your plans.
Why You Need a Business Plan for a Trading Company
If you’re looking to start a trading company or grow your existing company, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your trading business to improve your chances of success. Your business plan is a living document that should be updated annually as your company grows and changes.
Sources of Funding for Trading Companies
With regards to funding, the main sources of funding for a trading company are personal savings, credit cards, bank loans, and angel investors. When it comes to bank loans, banks will want to review your plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to ensure that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Personal savings and bank loans are the most common funding paths for trading companies.
Finish Your Business Plan Today!
How to write a business plan for a trading company.
If you want to start a trading business or expand your current one, you need a business plan. The guide below details the necessary information for how to write each essential component of your trading business plan.
Executive Summary
Your executive summary provides an introduction to your trading business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.
The goal of your executive summary is to quickly engage the reader. Explain to them the kind of trading company you are running and the status. For example, are you a startup, do you have a trading business that you would like to grow, or are you operating a chain of trading companies?
Next, provide an overview of each of the subsequent sections of your plan.
- Give a brief overview of the trading industry.
- Discuss the type of trading business you are operating.
- Detail your direct competitors. Give an overview of your target customers.
- Provide a snapshot of your marketing strategy. Identify the key members of your team.
- Offer an overview of your financial plan.
Company Overview
In your company overview, you will detail what type of trading business you are operating.
For example, you might specialize in one of the following types of trading businesses:
- Retail trading business: This type of business sells merchandise directly to consumers.
- Wholesale trading business: This type of business sells merchandise to other businesses.
- General merchandise trading business: This type of business sells a wide variety of products.
- Specialized trading business: This type of business sells one specific type of product.
In addition to explaining the type of trading business you will operate, the company overview needs to provide background on the business.
Include answers to questions such as:
- When and why did you start the business?
- What milestones have you achieved to date? Milestones could include the number of customers served, the number of products sold, and reaching $X amount in revenue, etc.
- Your legal business Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.
Industry Analysis
In your industry or market analysis, you need to provide an overview of the trading industry.
While this may seem unnecessary, it serves multiple purposes.
First, researching the trading industry educates you. It helps you understand the market in which you are operating.
Secondly, market research can improve your marketing strategy, particularly if your analysis identifies market trends.
The third reason is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.
The following questions should be answered in the industry analysis section:
- How big is the trading industry (in dollars)?
- Is the market declining or increasing?
- Who are the key competitors in the market?
- Who are the key suppliers in the market?
- What trends are affecting the industry?
- What is the industry’s growth forecast over the next 5 – 10 years?
- What is the relevant market size? That is, how big is the potential target market for your trading business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.
Customer Analysis
The customer analysis section must detail the customers you serve and/or expect to serve.
The following are examples of customer segments: individuals, schools, families, and corporations.
As you can imagine, the customer segment(s) you choose will have a great impact on the type of trading business you operate. Clearly, individuals would respond to different marketing promotions than corporations, for example.
Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, including a discussion of the ages, genders, locations, and income levels of the potential customers you seek to serve.
Psychographic profiles explain the wants and needs of your target customers. The more you can recognize and define these needs, the better you will do in attracting and retaining your customers.
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Competitive Analysis
Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.
Direct competitors are other trading businesses.
Indirect competitors are other options that customers have to purchase from that aren’t directly competing with your product or service. This includes other types of retailers or wholesalers, re-sellers, and dropshippers. You need to mention such competition as well.
For each such competitor, provide an overview of their business and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as
- What types of customers do they serve?
- What type of trading business are they?
- What is their pricing (premium, low, etc.)?
- What are they good at?
- What are their weaknesses?
With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.
The final part of your competitive analysis section is to document your areas of competitive advantage. For example:
- Will you make it easier for customers to acquire your product or service?
- Will you offer products or services that your competition doesn’t?
- Will you provide better customer service?
- Will you offer better pricing?
Think about ways you will outperform your competition and document them in this section of your plan.
Marketing Plan
Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a trading company, your marketing strategy should include the following:
Product : In the product section, you should reiterate the type of trading company that you documented in your company overview. Then, detail the specific products or services you will be offering. For example, will you sell jewelry, clothing, or household goods?
Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your plan, you are presenting the products and/or services you offer and their prices.
Place : Place refers to the site of your trading company. Document where your company is situated and mention how the site will impact your success. For example, is your trading business located in a busy retail district, a business district, a standalone facility, or purely online? Discuss how your site might be the ideal location for your customers.
Promotions : The final part of your trading marketing plan is where you will document how you will drive potential customers to your location(s). The following are some promotional methods you might consider:
- Advertise in local papers, radio stations and/or magazines
- Reach out to websites
- Distribute flyers
- Engage in email marketing
- Advertise on social media platforms
- Improve the SEO (search engine optimization) on your website for targeted keywords
Operations Plan
While the earlier sections of your plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.
Everyday short-term processes include all of the tasks involved in running your trading business, including answering calls, scheduling shipments, ordering inventory, and collecting payments, etc.
Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to acquire your Xth customer, or when you hope to reach $X in revenue. It could also be when you expect to expand your trading business to a new city.
Management Team
To demonstrate your trading business’ potential to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.
Ideally, you and/or your team members have direct experience in managing trading businesses. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.
If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act as mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing a trading business.
Financial Plan
Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet, and cash flow statements.
Income Statement
An income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenue and then subtracts your costs to show whether you turned a profit or not.
In developing your income statement, you need to devise assumptions. For example, will you charge per item or per pound and will you offer discounts for bulk orders? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.
Balance Sheets
Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your trading business, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a lender writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.
Cash Flow Statement
Your cash flow statement will help determine how much money you need to start or grow your business, and ensure you never run out of money. What most entrepreneurs and traders don’t realize is that you can turn a profit but run out of money and go bankrupt.
When creating your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a trading business:
- Cost of equipment and supplies
- Payroll or salaries paid to staff
- Business insurance
- Other start-up expenses (if you’re a new business) like legal expenses, permits, computer software, and equipment
Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your facility location lease or a list of your suppliers.
Writing a business plan for your trading business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will understand the trading industry, your competition, and your customers. You will develop a marketing strategy and will understand what it takes to launch and grow a successful trading business.
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Analyzing Alpha
Setup a Trading Business: The Complete Guide
By Leo Smigel
Updated on October 13, 2023
Trading as a business involves trading stocks and other financial instruments under a legal business structure, such as a sole proprietor, partnership, or limited liability company (LLC).
Everyone wants to make money, and everyone wants to be free.
You can accomplish both if you’re a successful trader.
And you’re in luck because there’s one thing I know how to do exceptionally well – it’s trading as a business.
You might say, Leo, I don’t need to start a trading business – I’m a new trader. Well then, I’ve got a question: How many successful companies do you think started without a plan? Sure, there are some, but I would bet those with a sound plan faired better over the long run.
And trading is no different. Trading is most successful when it’s done most businesslike.
And for those who are already profitable and ready to go full-time, I’ve got some massive tax-saving tips for you, so stay tuned.
I’ve also sprinkled secrets about becoming a full-time trader that you’ll be hard-pressed to find elsewhere.
I will explain everything you need to know step by step and show you how to become a professional trader running your own successful trading company, whether you’re incorporated.
Before You Can Start Trading
Before creating any business, you need to start with a solid plan and understand where you fit in the market.
But before we jump into the nitty-gritty details of running your trading business, you need to answer five show-stopping questions.
1. What Is Your Why?
Why do you want to be a trader? Many traders start trading because they want to get rich.
Now, it’s possible to become rich trading; however, understand that if you’re not a profitable trader already, the chances of success are slim.
Most studies say that only 5% of traders become profitable. And according to the Small Business Association, this is in stark contrast to starting a business where 33% are still around after year ten.
In other words, if it’s money you’re after, it’s much easier to create an online business than to become a profitable trader.
And no matter how smart you are, trading will slap you around until you’re begging to quit.
You need more than the pursuit of money to keep you in this game.
You need an unwavering passion to play, and you need an advantage.
2. What’s Your Trading Edge?
A trading edge is an observation or approach that creates an advantage over the rest of the market players. Anything that can add a few points to the winning side of the equation builds an edge in your favor.
Most traders lose money in the financial markets because they lack an edge.
I’m also going to say something controversial here:
Risk management isn’t an edge – it’s just good trading – and I can prove it.
Let’s play the coin toss game. If you guess correctly, you get a dollar and lose a dollar if you don’t. You can play this game all day long and cut your losses short, but you’re never going to make a million dollars.
Why? Because you have no edge. The probabilities are not stacked in your favor.
You need an edge to make it full-time, and you need multiple to make it a career.
You need to be the casino – you need to have multiple edges that compound over time. Don’t be a gambler with the odds stacked against you.
So how do you find an edge?
Most edges come from a better understanding of market structure, faster execution speed, or better data and analysis.
For example, a market structure edge may be an exceptional ability to exploit the post-earnings announcement drift (PEAD) anomaly. Another may be the early identification of trends through sophisticated technical or data analysis.
You want to ensure you are on the right side of the stock market as much as you can.
And if you’re struggling to find an edge, I’ve got you covered.
I backtested Scot1and’s slingshot trading strategy at a high level to verify if it has an edge – which it does. If you’re not familiar with Scot1and, he’s a professional trader. He shares his trades publicly on Twitter and has multiple triple-digit years under his belt, with his highest being 305% and last year (2021) being 150%.
Scot1and wanted to find a way to get into solid stocks before the runup and invented the slingshot trading setup. That’s one of his many edges. And this setup can work for you, too, assuming it meshes with your market philosophy and psychological makeup – but more on that later.
Once you have successfully identified and defined your edge, or better yet, edges, it’s time to consider your risk tolerance.
3. What’s Your Risk Tolerance?
Risk tolerance refers to the degree of risk you’re able to take. And while there are multiple ways to define risk, we’ll consider volatility and drawdown for our purpose.
Since your comfort level with uncertainty determines risk tolerance, it can be challenging to be aware of your risk appetite until faced with a potential loss.
You should strive to gain a clear understanding of your risk appetite and your ability to stomach large swings in the value of your portfolio.
When traders trade above their risk tolerance levels, at best, they’ll lose sleep and make suboptimal decisions the next day, and at worst, they’ll sell out at the exact wrong time.
Risk tolerance is all about understanding yourself – a key characteristic you should possess as a flourishing trading business owner.
And let me tell you when you start a trading business, and it becomes your primary source of income, your risk appetite will change a lot – even for algorithmic traders.
Most traders’ greatest struggle in establishing a profitable trading business revolves around trading psychology.
Finding edges in the market isn’t difficult. I just showed you the slingshot strategy, which is a potential edge that you can incorporate into your trading.
What’s hard isn’t knowing what you should do; it’s doing what you should do – it’s trading like a business.
And risk tolerance is just one aspect of trading psychology.
Psychology And Trading
Trading psychology refers to the emotional aspects of an investor or trader’s decision-making process – it’s how emotions affect your trading, and trading affects your emotions.
There are some important considerations to make here.
Most traders fall into thinking they can achieve trading success with little thought of their psychological makeup.
Successfully aligning your trading strategy with your psychology implies you may need to give up on or change some of your values and beliefs.
For instance, do you value your need to be “right”?.
A trader who values being “right” is more likely to refuse to set a stop and take a slight percentage loss in case the trade goes haywire.
Do overnight moves keep you up at night?
Then perhaps day trading is a better style for you.
You need to find a trading style that suits your trading psychology and addresses your strengths and weaknesses.
This doesn’t mean a risk-averse person can’t adopt a swing-trading style. It also doesn’t mean that if you value being right, you’re perpetually wrong when following your stops.
It just means that traders need to understand why they’re embracing a trading approach and have safeguards against their deficiencies – often, you can flip a weakness on its head.
For example, let’s go back to someone struggling to stop out.
The first issue might be that they do not understand what they’re trading and why they’re trading it. If they’re trading specific mean reversion scenarios, they shouldn’t be using stops – position sizing is the key to risk management; however, let’s assume that the trader was a long-only swing trader.
If they’re a breakout trader not following their stops, likely, they don’t have a deep understanding of what a breakout is and how they work.
Now I could spend hours discussing breakouts, but for now, let’s understand two things:
- Roughly 70% of breakouts fail.
- Successful breakouts rarely retrace to the low of the day.
With this market knowledge, this trader that has to be right now understands that her win percentage should be between 25-35% and where to place their stop. Additionally, their understanding aligns with their market understanding allowing her to be correct and less likely to pull the cord on the stop.
I find deep understanding solves most trading psychology challenges – but just because you’ve got your edge and your psychology in order doesn’t mean you can trade like a business just yet.
4. What Are Your Return Assumptions?
Return assumptions refer to the returns a trader or investor expects to make from a particular investment or their trading activities via their trading efforts in the financial markets.
All active traders share one common goal: to utilize their trading capital to make as much money as possible while assuming a certain level of risk.
For that reason, it’s critical to set your expectations right and figure out a rough idea of what kind of return you might achieve before you kick off your trading endeavors.
So, how do you determine a reasonable rate of return?
Whether you’re a business or a trader, the answer is the same.
Look at you and your competition’s average annual returns per each different system or setup, and determine a number you think you can realistically achieve.
Target Compound Annual Growth Rate (CAGR)
This average annual return is the target compound annual growth rate or CAGR. It’s the average return or profit you make divided by your capital.
To keep the math easy, if you make $10,000 on a $100,000 account, your annual return is 10%.
You need to calculate an appropriate CAGR accurately as it flows through to all of your other business calculations, like how much money your trading business needs to generate each year to cover its expenses.
Without history to back it up, investors shouldn’t set their target CAGR above 15%, and traders shouldn’t set their CAGR above 40%.
And yes, good traders have the potential to compound their capital faster than investors due to the structural advantages of having less money to move.
Here are the top ten filers by 10-year annualized performance to give you context.
| 3yr Perf Ann | 10yr. Perf Ann. | |
|---|---|---|
| Berkshire Partners | 43.46% | 35.87% |
| Bessemer Securities | 18.48% | 32.99% |
| Whale Rock Capital Management | 47.69% | 32.11% |
| Shenkman Capital Management | 45.06% | 31.72% |
| Masters Capital Management | 40.13% | 31.33% |
| Symmetry Peak Management | 44.86% | 30.56% |
| Leonard Green & Partners | 36.14% | 29.61% |
| Granahan Investment Management | 50.30% | 29.46% |
| Hershey Trust Company | 24.84% | 29.12% |
| HHLR Advisors | 25.55% | 28.76% |
Now, I know for some of you, these CAGR numbers are tiny, but exceptional returns are the exception, not the rule.
Minimum Absolute Return
Understanding what you can likely achieve makes it time to figure out precisely what you need to succeed.
The absolute minimum return refers to the minimum return that a trader sets over a predetermined time frame.
This return needs to cover your business expenses, which I’ll cover shortly, and the owner’s draw. The draw is the salary you need for yourself and your dependent’s living expenses.
The minimum absolute return is typically your breakeven level. It’s not the target.
Target Absolute Return
The target is your target absolute return. This is the profit you want your trading business to create over the period, typically a year.
You calculate your target absolute profit target by multiplying your target CAGR by starting capital and subtracting fees, which we’ll cover shortly.
I would advise against creating a profit target and working backward since you may need to inflate your CAGR artificially.
The last thing you want to do is overestimate your trading income and underestimate your trading loss.
Maximum Drawdown
Maximum drawdown refers to your maximum downside risk over a period. It’s the maximum observed loss from a peak to a trough.
For instance, if your portfolio value is $100,000 and you lose $30,000, your drawdown would be ($30,000 – $100,000) / $100,000 = 30% or $30,000 in dollar terms.
It’s important to note that maximum drawdown only measures the extent of the most considerable loss, excluding the frequency of significant losses.
Maximum drawdown determines how much capital you’ll need to start your trading business, assuming you’ve included multiple market cycles in your analysis.
Capital Required
Armed with an understanding of your absolute minimum return and maximum drawdown, we can finally determine how much capital you’ll need to start your trading business.
Capital required refers to the amount of money a trader needs to carry out trading activities within the financial markets.
Consider your capital as the raw material that powers your trading activity in the stock market or any business.
So let’s go through the math.
If you need to generate $50,000 per year and expect your minimum CAGR to be 10%, you would need $50,000 / 10% = $500,000 without a drawdown.
Keep in mind if your CAGR return is that low, it’s likely you don’t possess enough of an edge, but I kept the numbers simple for explanation purposes!
But that’s not all. If your maximum drawdown is 20% or $200,000, you’ll also need to add that to your initial capital.
And with all businesses, you’ll need to put in a considerable amount of time.
5. Time Commitment
Time commitment refers to the number of hours per week applied to your new trading business.
It’s essential to treat and act “businesslike” at all times.
Only by approaching each trading day with full intent and purpose can you aspire to succeed.
This extends beyond just executing your trading strategies.
It also includes learning, studying, researching new strategies, and improving your mindset as a trader.
Can you fit it all into your schedule? Do you have enough time to make it work?
These are critical questions to ask yourself before starting your trading startup.
Let’s think about this a little more.
Understanding A Trading Business
Although different from the traditional brick-and-mortar business, a trading business’s anatomy can be broken down similarly.
Think of your trading strategies as your new products and services.
Through these strategies, you’ll be generating your trading income.
And just like how traditional businesses need to constantly improve their products and services based on customer and market feedback, you’ll be doing the same, which leads me to my next point…
Trading Losses Are Expenses
Trading losses are going to be inevitable. You want to take advantage of this market feedback to improve your product. Be sure to analyze each loss and learn from them. They will be your best teacher.
But at the same time, you simply want to treat your losses as a cost of doing business.
Think of the casino business and a game of roulette.
Of course, the casino makes money when the player loses.
But does the player always lose?
So, if we have a player who is always betting on the color red, they have an almost 50-50 chance of winning each time.
There will be times when the player hits lots of reds in the short-run, and the casino loses money.
However, the house always wins.
In the long run, given that the roulette contains a neutrally colored zero, the casino has the edge (remember, we spoke about the edge earlier).
Act like a casino; if you have an edge in the financial markets, you will win long-term.
Short-term losses are simply the cost of conducting business.
Capital Preservation
But continued losses should signal to the management team that it’s time to rethink the plans.
Intelligent management knows preserving your capital to live another day is more important than making more money in the short term.
New traders often have this backward.
The truth is that the only aspect of the trading process you have significant control over is how much money you will lose in a trade.
It’s critical to size your bets correctly.
And speaking of plans, let’s go over what your trading business plan should include.
Your Trading Business Plan
A trading business plan, similar to a typical business plan, is a document that details everything that you need to know to run your trading business. It includes your objectives, how you intend to make money, your edge, what you will trade and why, and how you will grow your business.
It’s time to address the actual birth of your business as a new independent trader.
What Is Your Company’s Mission Statement?
A company’s mission statement defines its culture, values, ethics, fundamental goals, and agenda. The statement outlines what the company does, how it does it, and why. Prospective investors may also refer to the mission statement to see if the company’s values align with theirs.
A well-crafted mission statement articulates the purpose of your business.
It helps to serve as a framework for your business. Outlining what your business stands for, along with your objectives and values.
What is your mission statement? Why are you doing this? Is it just for the money? What’s your driving purpose for embarking on a trading career?
It’s critical to understand the why because it empowers the how.
What Is Your Company’s Philosophy?
A company philosophy refers to “the way we do things around here.” Conventionally, it relates to the fundamental beliefs of the people and the organization.
Your company’s philosophy boils down to your market beliefs.
Do you believe that it is fundamentals or emotions that drive the markets?
Or is it the Fed?
Your trading edges come from a deep understanding of how you view the market. And you need this deep understanding to stick to your strategies during a drawdown.
The last thing you want to do is have a shaky market philosophy and jump ship at the wrong time.
So what is your market philosophy? These will guide your principles.
What Are Your Company’s Principles?
Company principles refer to the principles that a company abides by throughout its day. These could be building a great workplace culture, conservative cash flow use, or taking significant, calculated risks.
What principles does your company abide by throughout your trading day?
These should stem from your philosophy.
For instance, if you believe that the Fed moves the market, are you selling your positions if the Fed is not printing money?
If you’re a trend follower, do you implement Paul Tudor Jones’ rule of refusing to purchase any stock below its 200-day moving average?
Having the various principles aligned with your market philosophy and mission will help you maintain the necessary discipline with your trading.
It will also help you understand what assets to trade.
Your Trading Universe
This is the range of financial instruments that a trader plans to trade across the investable universe, including all tradable assets. In reality, most investors do not invest so broadly and have a narrower universe that could be constrained to event-driven biotech stocks.
This is your total addressable market, and your edge governs it.
Assuming the above, if biotech is in a long-term downtrend, do your edges still allow you to make a profit? If not, you may need to grow your edges and the total addressable trading universe.
What Are Your Company Rules?
Company rules refer to the established rules, in writing, made by the company’s higher level of authority and bound to follow by all employees and stakeholders.
Often these rules revolve around conduct, hours worked, and customer service levels. And larger trading organizations should define these; however, the rules I’m referring to for a trading business help you protect your capital and add discipline to your trading operations to boost profitability — essentially money management rules, which I like to think of in four distinct categories.
1. Portfolio Management Rules
Portfolio management entails building and overseeing a selection of investments or investment strategies that will meet the long-term goals set above.
Most investors take the approach of diversifying their assets, which is a reliable measure.
However, a superior alternative is implementing uncorrelated strategies within the same asset class.
For instance, buyers tend to reduce their leverage during sell-offs, which causes both stocks and bonds to drop, even though these two asset classes are generally uncorrelated.
Therefore, having a mix of long and short stock strategies can help you offset this risk.
What are your portfolio management rules?
An example would never be allocating more than 25% of capital to a single strategy.
2. Risk Management Rules
Risk management is the process of identifying, assessing, and controlling threats to an organization’s capital and earnings. These risks stem from various sources, including financial uncertainties, legal liabilities, technology issues, strategic management errors, accidents, and natural disasters.
Remember that the aspect of trading you have considerable control over is how much you’re willing to lose on any given trade.
So, always go into a trade knowing your pre-defined price targets to take profits and the price points you’re willing to get out for a small loss if the trade goes against you.
The worst thing you can do is hold on to a losing trade that invalidates your thesis, hoping it will eventually become a winner.
An example of a breakout strategy risk management rule would be to set your stop at the low of the day, invalidating the idea if it moves against you, but never more than the average daily range.
3. Position Sizing Rules
Position sizing refers to the size of a position within a particular portfolio or the dollar amount that an investor will trade. Investors utilize position sizing to determine how many security units they can purchase, which helps them control their risk and maximize returns.
How much you will earn or lose from your trades is directly tied to the size of your trading positions.
Your position size will also impact your ability to diversify your trading positions.
If too large a portion of your trading account is tied up in one trading position, you won’t have the necessary capital to open other trades.
We never know which of our positions will be the big winners.
There is no worse feeling than watching the market rally, and you are in 3-4 positions that decide to sit out the rally.
Keep in mind that even with proper position sizing, there is a risk that an active trader’s position loses more than their specified risk if a stock gaps below the stop-loss order.
This is why it’s essential to position size correctly, especially around earnings announcements, which you may want to avoid altogether.
A common position sizing rule is to never risk more than 25% of your account on any single trade.
4. Leverage Trading Rules
Leveraged trading, also known as margin trading, margin finance, or trading on margin, allows you to open a trading position with a broker using a small amount of capital to take a much larger position.
Suppose you commit $10,000 on a 10X leveraged financial instrument. You’ll be trading as if you had put in $100,000.
Thus, any capital gains you make have a tenfold effect, but the same applies to losses, so using leverage implies an element of risk.
If you’re taking on leverage, ensure that your edges are well defined and diversified, and you have a clear leverage rule.
I will never go above 500% leverage, and this scales down as the volatility of the instrument increases.
Leverage is extremely risky in almost all cases. But there is one exception to this:
When trading crypto, using leverage can help mitigate the risk of an exchange hack at the cost of margin interest fees.
SWOT Analysis
With your rules established, it’s time to perform a SWOT analysis.
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, and so a SWOT analysis is a technique for assessing these four aspects of your business.
SWOT analysis is a simple tool that can help you analyze what your company currently does best and devise a successful strategy for the future.
1. What Are Your Strengths?
Strengths define what you excel at.
Perhaps you have a programming background, and you can create trading algorithms.
Perhaps you’re a decisive person who can make solid, carefully constructed decisions rather quickly.
Perhaps you’re able to stay calm and collected and perform under pressure.
For me, as you’ve probably guessed, it’s the first one that helps mitigate my weakness.
2. What Are Your Weaknesses?
Weaknesses prevent you from operating at your prime.
For instance, you may have difficulty dealing with market sell-offs and tend to get “sucked in” by the emotion of everyone else panicking.
The best way to mitigate this is to have a plan to take advantage of these opportunities.
The second best way is to reread your business plan and stay away from the news and social media on such days.
Plus, keep in mind that these sell-offs are often an opportunity in the market. Smart institutions often accumulate on sell-off days due to their liquidity constraints. If you’re a breakout trader, you should identify what stocks are acting stronger than the market.
As they say, one man’s misfortune is another man’s opportunity.
So, take note of your weaknesses and negative triggers. That way, you’ll be able to easily spot them and make logical decisions rather than emotional, irrational ones that will hurt your profitability.
My weakness?
I pay both my living and business expenses from my trading income. I would feel immense pressure to make money every day and override my trading systems in the early days.
I’m sure you can all guess what happened.
Understand what your weaknesses are, that they may change over time, and figure out how to mitigate them.
3. What Are Your Opportunities?
These refer to favorable external factors to grow your business or competitive advantage.
For instance, can your trading strategies be applied to additional trading instruments or different markets?
Crypto trading is attractive as an algorithmic trader as it trades 24/7 against relatively unsophisticated traders.
4. What Are Your Threats?
In contrast to opportunities, threats refer to factors that potentially harm your business.
Government measures towards reducing fossil fuel use towards energy production in favor of renewable energy sources pose a threat to any non-renewable energy sector business or energy stock in your portfolio.
And these types of risks apply to your trading business.
Changes in capital gains tax laws, crypto regulation, or even black swan events are threats.
Do you have proper hedging strategies in place?
With an understanding of your strengths, weaknesses, opportunities, and threats, it’s time to do some benchmarking.
Performance Measurement
Performance measurement is the process of collecting, analyzing, and reporting information regarding the performance of an individual, group, organization, system, or component.
They say what gets measured gets improved. And like other traditional businesses, trading businesses are no different.
To monitor your trading performance, you require data.
You can collect data manually from your trading platform and record it in a spreadsheet, but I highly recommend that discretionary traders use journal software that records the information.
Although there are hundreds of metrics you could track, you should track the following key performance indicators (KPIs) classified by market and strategy at a bare minimum:
- Profit & Loss
- Total number of trades
- Win percentage
- Average time in trade
- Largest winning trade
- Largest losing trade
- Average winner
- Average loser
- Maximum drawdown
- Profit factor
- Gain-to-Pain Ratio
Feel free to check out my website for definitions and example calculations for these metrics if you have questions.
Operating Costs
As promised earlier, we need to understand your trading business’s fixed and variable costs to determine the absolute minimum return.
Fixed costs are expenses that remain constant for a period of time irrespective of the level of outputs. Variable costs are expenses that change directly and proportionally to business activity level or volume changes.
So, what do these look like for your new trading business?
Fixed Costs
Here are some fixed costs trading businesses have at varying degrees:
- Computer & equipment
- Trading software
- Administration software
- Internet & telephone
You’re most likely already paying for the trading software, and the good news is that most of the home office expenses are relatively inexpensive.
But don’t forget to consider the most significant expense of them all — paying your managing member.
To understand your trading business’s true profitability, you need to track your monthly draw in your accounting software.
Variable Costs
Here are some variable costs involved with your trading business:
- Transaction fees
- Slippage costs
- One-time data costs
Office Location
Another aspect you also want to think about is if and where to set up an office.
As a trader, you can set up an office anywhere you like across the globe — granted, some time zones are more convenient than others.
You can set up your own home office.
You can also buy or rent your own business office.
A big driver of this decision is how well you can balance life and work while at home.
If you’ve got kiddos at home and cannot concentrate, the answer is typically straightforward.
Additionally, scaling to multiple employees is a little easier if you’re an algorithmic trader, as you can more easily separate roles.
These aspects determine whether it makes sense to stay at home or hang up a shingle somewhere outside of your personal space.
Regardless of where your office is, you’ll want to make sure you maximize the tax benefits.
Benefits For Incorporating
There are many benefits of incorporating your business, including asset protection through limited liability, corporate identity creation, perpetual life of the company, transferability of ownership, and an ability to build credit and raise capital and tax savings.
But if trading is your primary source of net income, you should consider incorporating it for tax purposes.
Securities are considered capital assets. The sales of these assets are taxable income considered as capital gains.
This can create massive tax liabilities on your trading operations, so it’s usually ideal for an active trader to incorporate as a company.
Additionally, trading is not considered a business activity by the IRS, so it is not possible to deduct business expenses as they are ineligible for tax deductions in this case.
This is noteworthy since costs such as software, internet access, and data access can be significant for most active traders.
However, you can receive similar tax treatment to other business owners by creating a separate business entity to conduct your trading activities.
You can form a sole proprietorship, partnership, or S-Corp, and file for trader tax status (TTS), which exempts you from the $3,000 capital loss limitation and wash sales adjustments.
A trader can form a single-member LLC to elect S-Corp trader status. The main tax benefits of creating an S-Corp are to arrange tax deductions for health insurance premiums and a retirement plan contribution.
In addition, an S-Corp does not pass through negative self-employment income (SEI), and the employee benefit deductions work tax efficiently.
C-Corps are not ideal for a trader status because the IRS might charge a 20% accumulated earnings tax and the 21% flat tax.
Before incorporating a company, ensure you qualify for it. The business must be eligible for claiming TTS.
While there’s no specific ruleset, we can look at prior court cases to determine eligibility guidelines.
As a trader, you need at least four trades per day. Trade executions on approximately four days per week. More than 15 trades per week, 60 per month, and 720 per year.
Your average holding period must be under 31 days.
Additional factors include having a material trading account size ($25,000 for pattern day trader designation on securities and $15,000 for other instruments).
Spending over four hours per day with the intention to run a business to make a living.
Plus, having trading computers, multiple monitors, and a dedicated home office.
Please keep in mind I’m not a lawyer or an accountant; please consult these professionals so they can understand your specific situation and tax law.
The Bottom Line
We’ve covered much of what you need to know for setting up your trading as a business.
It requires several moving parts, from determining your why, identifying an edge, creating your rules, and even getting into the nitty-gritty of incorporating a legal entity.
The exact, crystal clear method you specifically choose to become a successful trading business owner will not be drawn on a map for you.
Just kidding, there is a map.
It’s called Analyzing Alpha.
Be sure to subscribe to our newsletter below to receive exclusive email content that’s jam-packed with value to help you on your journey to becoming a truly successful and profitable trader.
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Trading Plan Template & Examples: Step-by-Step Guide to Creating a Solid Trading Plan
Bonus Material:
Trading plans are an important part of any trader’s toolkit. The problem is, most traders don’t actively lay out a plan before they begin trading.
The result? They lose money and wonder why . Furthermore, many traders don’t know how to create a trading plan , or what to include.
Successful traders understand that trading plans are crucial to profiting consistently. In this article, I’ll walk you through creating your own plan, step-by-step, plus you can get a head start by using my free trading plan template, download below :
What is a trading plan?
A trading plan is an integral part of a trader’s strategy, outlining how trades are executed. It establishes rules for buying and selling securities, position sizing, risk management, and tradable securities. By following this plan, traders maintain discipline, consistency, and leverage proven strategies.
Why you should create a trading plan
Ask a new trader what they intend to do before the trading day and then ask them what they did at the end of the day. They almost certainly didn’t follow their plan.
Trading plans are there for us to follow. Trading plans mean we take trades that are consistent with our rules and risk, and it means we remove a lot of emotion and discretion . This is important because humans are not rational agents and outsourcing this work means we can achieve a better P&L and make more money.
A trading plan should resemble a business plan. A trader’s capital is their business and so we need to include everything that might be useful, but it should always cover the below.
What to include in your trading plan
- The time required to spend on your trading
Your trading goals and targets
- Your risk tolerance and risk management rules
Available capital for trading
Specific markets you wish to trade, the trading strategies you’ll use, your motivation for trading.
Read more information on what to include in your trading plan (with examples) below, and download your free template here:
The time required for trading
We need to define the time we need in order to trade successfully. For example, if you’re in full-time employment, then it’s unrealistic to spend six hours a day trading the market.
For example: Here is a part of my trading plan…
“To trade the UK stock market on a full-time basis I realistically need to spend at least 8-10 hours per day in order to take advantage of intraday opportunities and manage open positions in real time”.
It’s important to set realistic targets in trading. Once you have a target, you can reverse engineer how to achieve it.
For example: A target of increasing a trading account by 20% is an achievable target. To do that, we need to look at our trading capital and work out which trading strategies we’ll use.
Using breakouts to trend follow is a strategy I have had much success with, and I explain how I do this in my guide to breakouts.
There are several trading styles:
- Swing trading: This is a common strategy that attempts to capture moves over several days or weeks. Swing traders look for shorter term trends and then move onto the next trade.
- Momentum trading: This is a trend-following strategy based on upward movement and momentum. It can be a successful strategy over months and years as the stock continues to move higher. This is often coupled with increasing fundamental strength and accelerating earnings.
- Scalping or intraday trading (also known as ‘day trading’): Intraday strategies refer to trades placed and closed within the same trading session.
Your risk tolerance and risk management rules
Risk management is the most important part of trading. Position sizing is the first and last line of defence in our trading accounts.
If you take position sizes with 20% of your account, then that means you are risking 100% of that position every time it is risked in the market. Even if the chances are 99%, then eventually that 1 in 100 chance of the stock going to 0p and losing 100% of the position will happen.
Whilst a 20% drawdown on the trading account isn’t fatal, the law of compounding means that we will now need to gain 25% of our account just to get back to where we started.
Never underestimate the numbers here – a 33% drawdown requires a near 50% gain just to get back to where we started.
It’s important to put in place risk management rules that will protect the account and prevent us from taking on too much risk.
Only you will know how much risk you’re willing to take, but if you put yourself in a position where you could do yourself material damage, then eventually that outcome will be presented.
If taking a loss hurts, then it means you are trading too large. Most traders blow their accounts due to overexposure. I’ve never heard of a single trader who blew their account due to continuously taking small losses. Position sizing and risk management is covered in detail in my trading handbook.
Download the free ebook now
Enter your email to receive my free UK stock trading handbook, packed with professional techniques to manage risk and consistently profit on AIM stocks.
Traders should always be clear about what money should be used for trading and what money should stay in their bank accounts.
Far too many traders have drawdowns in their trading accounts and decide to top up their account with a bank transfer.
Unfortunately, they end up putting far too much money into their account and do not keep track of their losses.
You should never trade with money you can’t afford to lose. I’ve had emails from people asking me what to do because they’ve lost the deposit for their house and they haven’t told their partner. Sadly, there is little that can be done at that point because the money is already lost.
In your trading plan you should be clear about how much is going into your trading account and how much you will top this up each month if that is going to be your strategy to grow your account further.
However, the best way of growing your trading account is by making money trading successfully in the market. Once you can consistently do this, then it makes sense to increase your funds and scale up.
A trading plan should also include the specific markets you wish to trade. Do you plan on trading UK stocks, US stocks, foreign exchange (forex), or cryptocurrencies? Once you’ve picked a market, you still need to drill deeper.
For example: If you pick UK stocks will you trade all of these, or just AIM, or just the Main Market? Will you trade only small cap stocks? Will you trade both SETS and the SETSqx platforms ?
In my case, I trade all UK stocks, and don’t discriminate between any of them. However, my focus is on smaller stocks under £500 million market cap.
Your trading strategies are the ways you are going to make money. This part of the trading plan is important because by defining your strategies it will be clear to follow.
For example: I want to trade small-cap stocks that have momentum behind them, and I will find this momentum through technical breakouts and positive RNS announcements.
I will trade gaps and also place orders into the auctions in order to get better fills. I will use various brokers for different types of execution. I will take secondary raises that have news catalysts that can potentially drive the shares higher.
What is your why? What are your goals, and what is your motivation? Trading is hard and there are ups and downs – it’s easy to motivate yourself when the going is good and you’re making lots of money. But it can be harder when you’re suffered several losses in a row, and you keep seeing your account grind lower or flat for weeks on end.
Writing down your why will make it easier to stay focused and commit to the long-term process and improvement.
For example:
- I want to trade because I enjoy the challenge and I also want to be my own boss.
- I want the freedom that comes with the lifestyle of a full time trader and I want to be around my wife and future children as they grow up.
- I want to offer my family a better life, and by continuing to work on my skillset is putting me closing towards my goals.
Good trading plan example
How do you write a trading plan?
- Know your trading playbook
- Manage your risk
- Have a realistic profit target
1. Know your trading playbook
You should have a playbook of trades that you know how to execute in the market. A playbook is a list of trades, each with step-by-step instructions on how to trade the pattern.
If you don’t know what you should trade in your trading plan then building a playbook of trades is a good place to start.
2. Manage your risk
Risk management is a crucial skill for any trader. I’ve written an in-depth article on trading risk management for further information.
The reason risk management is so important is that without it we would blow up our accounts. Nobody would think about driving a car with no brakes because it would obviously crash – risk management is the brakes and safety system for our trading accounts.
Everyone has different risk profiles. Some are happy to take on high amounts of risk accepting that they may take hefty losses in order for the possibility of excess return.
Full-time traders like myself tend to be more cautious knowing that if they lose too much capital, they may have to go back to work.
You should include in your trading plan how much you’re prepared to risk on particular trades in your playbook and how much in your account overall.
3. Have a realistic profit target
Having an idea of a profit target will mean that you don’t end up falling into the trap of never selling. Far too many traders watch a stock rise, see it pullback, then immediately regret not nailing down profit into strength.
By setting out clear take profit targets this avoids indecisiveness and will ensure you execute ruthlessly.
Bonus tip: Trade the stocks in play
Trading is about being in stocks that are moving. Volatility is the lifeblood of a trader, and a dead stock means dead money.
The stocks ‘in play’ are the stocks that have moved or are moving in recent sessions, and the stocks we should be immediately keeping tabs on. Stocks can cycle in and out being in play, and so we need to keep track of those that offer the greatest volatility to trade.
Download my free one-page trading plan template
My opening plan trading template has everything you need to begin the trading day. It forces you to check and review your open positions, so you’re always knowing what to do.
It also suggests to list the current stocks in play, and how you can trade them, and in what size. Additionally, it asks “What can happen?” so a trader using this template will never be caught out.
By thinking ahead about potential scenarios and how to trade them, this gives the trader an advantage over others who do not put the work in. Traders who punt around their money without a clue or a plan are commonly referred to as “liquidity”.
To download the free template, click the button below and follow the instructions.
About The Author
Michael taylor.
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2024 Day Trading Guide: How to Get Started and Succeed
by Hady ElHady | Mar 13, 2024
Day trading is the buying and selling of financial assets within the same day. It is a popular form of trading that anyone can do with a computer and an internet connection.
In this guide, we will cover everything you need to know to get started with day trading, including the risks and rewards of day trading, how to set up your day trading business, technical analysis, fundamental analysis, trading psychology, day trading strategies, risk management, and record-keeping.
What is Day Trading?
Day trading is a type of trading where traders buy and sell stocks within a single trading day, with the goal of making a profit from small price movements. Day traders typically use technical analysis and chart patterns to identify potential trades, and they often use leverage to amplify their gains.
In contrast to long-term investing, where investors hold stocks for an extended period of time, day traders enter and exit positions quickly, usually within minutes or hours. Day traders often use margin accounts, which allow them to borrow money from their broker to increase their buying power and potentially increase their profits. However, using margin also increases the risk of losses.
Day trading requires a high level of knowledge, skill, and discipline. Traders must be able to quickly analyze market conditions and make decisions under pressure. They must also have a solid understanding of technical analysis and risk management strategies to be successful.
Day trading is a popular strategy for individuals looking to make a living from the stock market or generate additional income. However, it is important to note that day trading can be risky and is not suitable for everyone. It requires a significant amount of time, effort, and capital, and traders must be prepared to face losses as well as gains.
Day Trading Risks and Rewards
Day trading can be a profitable endeavor, but it is also associated with high risk. Here are some of the risks and rewards of day trading:
Day Trading Risks
- High volatility: Day trading involves buying and selling financial assets within a short period, which can be risky as prices can fluctuate rapidly.
- Margin calls: Day traders often use margin to increase their buying power, which can lead to margin calls if they cannot meet their margin requirements.
- Psychological stress: Day trading can be emotionally draining, especially when trades go wrong.
- Competition: The market is crowded with other traders, making finding good trades challenging.
Day Trading Rewards
- High potential returns: Day traders can make significant profits quickly if they make the right trades.
- Flexibility: Day trading can be done from anywhere with an internet connection, making it an ideal career for those who want to work from home.
- Independence: Day traders work for themselves, controlling their schedules and decisions.
- Learning opportunities: Day trading offers opportunities to learn about the markets and financial instruments.
How to Start Day Trading?
Before you start day trading, you need to set up your business. Here are the steps you need to take to start your day trading business.
1. Choosing a Trading Style
There are several trading styles to choose from, including scalping, momentum trading, breakout trading, range trading, and news trading. Choose a style that suits your personality, risk tolerance, and schedule.
2. Deciding on a Trading Strategy
A trading strategy is a set of rules that guides your trading decisions. It should include entry and exit rules, risk management rules, and a plan for capital allocation. You can develop your trading strategy or use an existing one.
3. Choosing a Broker and Trading Platform
Choose a broker that offers competitive fees, reliable execution, and a user-friendly trading platform. Some popular brokers for day trading include TD Ameritrade, E-Trade, and Interactive Brokers.
4. Setting Up a Trading Account
Open a trading account with your chosen broker and deposit funds into it. Most brokers offer several account types, including cash accounts and margin accounts.
5. Choosing the Right Equipment
Invest in high-quality equipment, including a fast computer, multiple monitors, and a reliable internet connection. This will help you stay on top of the markets and make quick decisions.
6. Developing a Trading Plan
Create a trading plan that outlines your goals, risk management strategies, and trading rules. This will help you stay focused and disciplined while trading.
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Technical Analysis
Technical analysis is the study of price movements and chart patterns to identify trading opportunities. Here are some of the key concepts in technical analysis.
Understanding Charts and Indicators
Charts and indicators are used to identify trends and patterns in the market. Some popular indicators include moving averages, Relative Strength Index (RSI), and Bollinger Bands.
Identifying Trends and Patterns
Trends and patterns can help you identify potential trading opportunities. Some popular trends and patterns include uptrends, downtrends, head and shoulders patterns, and triangles.
Using Moving Averages and Other Technical Indicators
Moving averages are a popular technical indicator used to identify the direction of a trend. They smooth out price movements and provide a clear picture of the market trend. Other popular technical indicators include the Relative Strength Index (RSI), the Moving Average Convergence Divergence (MACD), and Bollinger Bands.
Candlestick Charts
Candlestick charts are a popular type of chart used in technical analysis. They display a stock’s opening and closing prices, as well as the high and low prices for the day. Candlestick charts can be used to identify trends and patterns in the market.
Fundamental Analysis
Fundamental analysis is the study of economic, financial, and other qualitative and quantitative factors to determine the value of a stock. Here are some of the key concepts in fundamental analysis.
Understanding Financial Statements
Financial statements, such as balance sheets, income statements, and cash flow statements, provide valuable information about a company’s financial health. By analyzing these statements, you can gain insight into a company’s profitability, debt levels, and cash flow.
Analyzing Economic Data
Economic data, such as GDP growth rates, interest rates, and inflation, can also have an impact on the stock market. By analyzing economic data, you can gain insight into the overall health of the economy and make informed trading decisions.
News and Events
News and events, such as earnings reports and product launches, can significantly impact a company’s stock price. You can identify potential trading opportunities by staying current on news and events.
Trading Psychology
Trading psychology refers to a trader’s emotional and mental state when making trading decisions. Here are some of the key concepts in trading psychology.
Emotions and Trading
Emotions can have a significant impact on trading decisions. Fear and greed can lead to poor choices and result in losses. You can avoid making emotional decisions by managing your emotions and sticking to your trading plan.
Mindset and Discipline
A successful trader needs to have a disciplined mindset. This means sticking to your trading plan and avoiding impulsive decisions. By developing a disciplined mindset, you can avoid making costly mistakes.
Risk Management
Risk management is an essential part of trading. You can limit your losses and protect your capital by managing your risk. This means setting stop-loss orders, avoiding overtrading, and diversifying your portfolio.
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Day Trading Strategies
There are several day trading strategies that you can use to make profitable trades. Here are some of the most popular day trading strategies:
Scalping involves making small profits on small price movements. Scalpers typically hold positions for a few seconds to a few minutes.
Momentum Trading
Momentum trading involves buying stocks that are moving up in price and selling stocks that are dragging down in price. Momentum traders typically hold positions for a few minutes to a few hours.
Breakout Trading
Breakout trading involves buying stocks breaking out of a trading range and selling stocks breaking down from a trading range. Breakout traders typically hold positions for a few minutes to a few hours.
Range Trading
Range trading involves buying stocks at the lower end of a trading range and selling stocks at the upper end of a trading range. Range traders typically hold positions for a few minutes to a few hours.
News Trading
News trading involves buying stocks based on news events, such as earnings reports and product launches. News traders typically hold positions for a few minutes to a few hours.
Day Trading Risk Management
Risk management is an essential part of day trading. Here are some of the key concepts in risk management.
Setting Stop-Loss Orders
A stop-loss order is an order to sell a stock when it reaches a specific price. By setting stop-loss orders, you can limit your losses and protect your capital.
Avoiding Overtrading
Overtrading can lead to losses and is a common mistake among inexperienced traders. By sticking to your trading plan and avoiding impulsive decisions, you can prevent overtrading.
Diversifying Your Portfolio
Diversifying your portfolio can reduce risk. Investing in various stocks across different industries can reduce the impact of any single stock on your overall portfolio.
Choosing a Day Trading Broker
Choosing the right broker is an integral part of day trading. Here are some factors to consider when choosing a broker.
- Commission and Fees: Commission and fees can have a significant impact on your profitability as a trader. Look for a broker with low commission rates and minimal fees.
- Trading Platform: The trading platform is the software you use to place trades. Look for a broker with a trading platform that is easy to use and has the features you need.
- Customer Support: Customer support is essential if you have any issues with your account or the trading platform. Look for a broker with responsive and helpful customer support.
- Regulation and Security: Regulation and security are critical factors to consider when choosing a broker. Look for a broker regulated by a reputable regulatory agency with robust security measures in place.
How to Make Money Day Trading?
Day trading can be a profitable way to make money in the stock market, but it requires a disciplined approach and a sound trading strategy. Here are some tips for making money day trading:
Develop a Trading Plan
A trading plan is a crucial part of successful day trading. It should include your entry and exit points, stop-loss orders, and profit targets. By following a trading plan, you can avoid making impulsive decisions and stick to a consistent strategy.
Use Technical Analysis
Technical analysis involves using charts and technical indicators to identify patterns and potential trades. By analyzing price movements and volume, traders can identify trends and make informed trading decisions.
Manage Risk
Managing risk is critical to success in day trading. Traders should always use stop-loss orders to limit losses and protect their capital. They should also avoid overtrading and stick to their trading plan to avoid impulsive decisions.
Use Leverage Wisely
Leverage can be a powerful tool for day traders but can also increase risk. Traders should use leverage wisely and avoid overextending themselves.
Keep Up With News and Events
News and events can have a significant impact on the stock market. Traders should stay up to date on news and events that may impact the stocks they are trading.
Practice and Learn
Practice and learning are crucial to success in day trading. Traders should start with a demo account to practice their trading strategy and learn from their mistakes. They should also continue to learn and improve their skills through books, courses, and mentorship.
Day trading can be a profitable way to make money in the stock market, but it requires knowledge, skill, and discipline. By understanding the key concepts in day trading, developing a trading plan, and managing your risk, you can increase your chances of success.
Remember to choose a reputable broker and stay current on news and events that may impact the market. With the right mindset and approach, day trading can be a rewarding and exciting way to invest in the stock market.
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Starting a Business in Day Trading: A Beginner’s Guide
Starting a business as a day trader is a great career to embark upon, but like any professional path it comes with its potential pitfalls and difficulties. You can operate from the comfort of your own home and are working for yourself, but that also brings a lot of pressure and the requirement for high self-motivation. If you are considering day trading, this beginner’s guide to starting a business in day trading outlines the key steps you need to consider before you begin, from getting the right equipment to choosing a trading market, when to trade and how much risk to take.
Choosing a day trading market
It’s possible that you have already decided which market you are going to trade in, but there are a few options to consider. For example, you could trade in shares in certain companies, cryptocurrencies, indices or the forex market. There is plenty of potential for profit in each market, but in the beginning of your career it’s best to focus on a single market.
Get the right equipment in place
To become a day trader you will need some essential equipment, starting with a laptop or computer. It should have sufficient memory and a fast processor to ensure you can run your live trading software without interruption as this could cause you to miss out on profitable trades or get stuck in less favorable ones. You will also need a quick and reliable internet connection for the same reasons. Your next step is to choose a trading platform which will suit your type and style of trading. It’s best to download a few and trial them before choosing one to use. Finally, you will need a broker to facilitate your trades. They will charge a commission for each trade so look for low fees balanced with experience and excellent support.
Work out when you will trade
Consistency is key in day trading so it’s often advisable to conduct your trading during the same hours every day. Most stock markets only trade for a specific 2-3 hour period at a time depending on the markets they are trading in. A popular time to trade is the first 1-2 hours after the market opens as it is often the most volatile period, and towards the end of the trading day there are often more significant shifts.
Consider your trading risk
Now you have chosen a market to trade in and have your software and equipment in place, it’s time to consider how you will manage trading risk. There are 2 sides to trading risk known as trade risk and daily risk. Trade risk is how much you are comfortable risking on each individual trade. A good benchmark is never to risk more than 1% of your capital on a single trade. You can do this by choosing an entry point and establishing a stop loss point which will automatically remove you from the trade if the loss will exceed that point. Daily risk is setting a daily loss which you can manage such as 3% of your capital. When you have lost 3%, you stop trading for the day and start again tomorrow.
Define a trading strategy
It’s not possible to learn everything there is to know about day trading strategies when you begin, so don’t waste your time trying. Instead, focus on finding a single pattern which repeats enough to enable you to make a profit. Find a strategy which you can use in a demo account until you get used to the rhythm on trading. You should practice for at least 3 months before attempting live trading with real money.
Transition from demo to live trading
A lot of day traders see a drop in their performance when they change from demo to live trading. While demo trading provides essential practice, it cannot give you a realistic experience in terms of fluctuating markets or the pressure of dealing with real money. It’s important to be aware that a drop in performance is natural when you start live trading and that you will need some time to adjust, take control of your emotions and hone your strategy. If you want further resources or help, consider forex trading brokers .
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How to Create an Excellent and Performing Day Trading Plan
- Real Trading™ Staff
- May 13, 2022
Trading Up Blog >
Simply put, a trading plan is an all-inclusive setup that makes it easy for you to make concrete decisions regarding your trading activities.
Such a plan is crucial in deciding when, what, and how much you will trade. In fact, even the thriving traders on Wall Street rely on this concept for effective trading.
The key principle in creating successful trading plan is to personalize its content . While you can refer to another trader’s plan, it is important to remember that their capital and willingness to risk is different from yours.
It is important to note that a trading plan is different from a trading strategy . The latter concept focuses on how and when you need to enter or exit a trade .
Table of Contents
Benefits of a trading plan, making logical decisions.
Successful traders are those that have mastered the art of making decisions based on logic rather than emotions.
While following your instincts can sometimes bring good results, doing this in the long term relying on emotions can ruin your account .
With an apt trading plan, you will be aware of the point at which you need to stop losses or take profit .
Enhanced discipline
Discipline is one of the principles of successful trading . Sticking to your trading plan will deter you from taking up more risk than you can handle.
Studies show that traders and investors who have a trading plan are more disciplined compared to those who lack it. For example, these traders open trades only when certain market conditions are met .
Ease of trading
You will have planned everything before the actual trading. As such, it will be easy to trade of the pre-determined considerations .
If you have a good plan, you will be at a good position to know when to enter or exit a trade. You will also know when to stay away from the market. In other words, when you have a good plan, your trading approach will be much easier .
Related » Trader’s Journey: Set Up the Next Day Trading Week
Ability to improve
A trading plan encompasses a record of your past trading activities . With the embedded information, you will be in a position to learn from previous mistakes and improve on your trading. When you have a good plan, it becomes substantially easier for you to improve and become a better trader.
Avoid huge losses
Another benefit of having a good trading plan is that it will help you avoid making substantial losses . There are several reasons for this. First, a good trading plan will ensure that you only enter trades that meet your criteria .
Second, a plan ensures that you have all risk management strategies when you open a trade. Examples of these strategies are position sizing , having a stop-loss and a take-profit, and looking at correlations.
It makes trading fun
Further, having a good plan will make your trading fun. Ideally, when you have a plan, you know what to look for in a chart and the catalysts . Most importantly, you know when to be active in the market and when to be aggressive.
How to Create an Apt Trading Plan
Define your driving force.
Why do you want to trade? What do you intend to gain from trading? These questions form the basis of a fruitful trading journey.
The answers you write down will give you the drive needed to execute trading activities consistently .
Specify the amount of time you wish to put into trading
Do you intend to be a full-time trader or do you have other commitments that require your attention on a daily basis?
Based on your occupation, will you be able to trade while at work or will you have to trade late at night or early in the morning?
Related » How to Trade Part-Time When You Have a Full-Time Job
These questions will guide you in creating a schedule that works for you as a trader while still leaving time to deal with your other commitments.
Additionally, the nature of your trading activities will determine the amount of time you should commit to the profession.
For instance, opening several trades in a day will require a substantial amount of time. It is also crucial to note that the time you set aside shouldn’t be used on the actual trading alone.
You need to prepare for trading by reading relevant content , analyzing the markets, and practicing your strategies.
Stipulate your goals
Use the SMART model to define your goals . It is also important to identify your preferred trading style based on the amount of time you intend to input into the profession as well as your attitude towards risk.
The key trading styles are:
- swing trading
- day trading
- position trading
Mental preparedness
Another important aspect that is often overlooked is on psychology and mental preparedness . In this, you should always assess whether your mental state is fine to trade.
For example, you will be able to handle a big loss or not . While strategy plays an important role in the market, the reality is that psychology plays a bigger role .
Related » 5 Trading Psychology Stages to Consider
Select a Risk-Reward Ratio
Before you trade, determine the level of risk you are willing to take on. This evaluation should be on your individual trades as well as the entire trading strategy.
It is possible to lose more times than your wins and still record substantial returns. To calculate your risk-reward ratio , weigh the amount of funds you intend to risk against your potential gains.
Decide on the Amount of Funds You Intend to Input into Trading
One of the principles of successful trading is that you shouldn’t risk more funds than you can manage to lose.
For better risk management, start with a demo account and acquire the skills and experience needed to trade on a live account.
Gain Ample Knowledge About the Market
The market you intend to trade is bound to affect your trading plan. For instance, a stock trading plan is different from one on currencies .
To begin with, get adequate information on the asset markets and classes you intend to trade. Evaluate the market’s volatility , potential gains or losses , and other relevant factors.
If you are unsatisfied with the prevailing conditions, consider a different market.
Have a trading diary
It is important to document the details of your trades to identify the aspects that are effective and those that you need to drop.
In addition to the technical details, include the logic that drove your trading decisions. A detailed trading diary will aid in improving your skills.
Stay up to date
Another way to build a good trading plan is to ensure that you are up to date on the market . Some of the top ways of doing this is to ensure that you have an economic calendar and you have the best sources of news.
Some of the top news sites to use are Bloomberg, Financial Times, and WSJ. Social platforms like Twitter and StockTwits are also vital sources of news.
Review your trading routine
Another part of your strategy is to review your trading routine . Having a routine is a good approach since it helps to simplify your trading process .
An example of a routine is to start by looking the calendar, top movers, and then doing individual analysis.
Final Thoughts
The key to successful trader is ample preparation . A Trading plan is one of the essential tools of preparing for a trade.
By following the steps included in this article, you will be in a position to improve your skills and identify the concepts that work for you as a trader.
External Useful Resources
- How to create a successful trading plan – IG
- The Difference Between A Trading Strategy And A Trading Plan – Rockwelltrading
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Disaster Avoidance 101
Building the perfect master plan, 1. goal definition, 2. trading style selection, 3. strategy development, 4. realistic expectation setting, 5. comprehensive market analysis, 6. risk management rule development, 7. trade management plan, 8. trading discipline maintenance.
- 9. Keep Excellent Records
10. Continuous Education
Why should traders develop a plan, how to determine risk tolerance when trading, how to analyze trading performance, what benchmarks can be used for trading, what are the best timeframes to use for trading, the bottom line.
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10 Steps to Building a Winning Trading Plan
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There is an old expression in business that, if you fail to plan, you plan to fail. It may sound glib, but people that are serious about being successful, including traders, should follow those steps as if they are written in stone. Ask any trader who makes money on a consistent basis and they will probably tell you that you have two choices: 1) methodically follow a written plan or 2) fail.
If you already have a written trading or investment plan, congratulations, you are in the minority. It takes time, effort, and research to develop an approach or methodology that works in financial markets. While there are never any guarantees of success, you have eliminated one major roadblock by creating a detailed trading plan .
Key Takeaways
- Having a plan is essential for achieving trading success.
- A trading plan should be written in "stone", but is subject to reevaluation and can be adjusted along with changing market conditions.
- A solid trading plan considers the trader's personal style and goals.
- Knowing when to exit a trade is just as important as knowing when to enter the position.
- Stop-loss prices and profit targets should be added to the trading plan to identify specific exit points for each trade.
If your plan uses flawed techniques or lacks preparation, your success won't come immediately, but at least you are in a position to study and modify your course. By documenting the process, you learn what works and how to avoid the costly mistakes that newbie traders sometimes face. Whether or not you have a plan now, here are some ideas to help with the process.
Trading is a business, so you have to treat it as such if you want to succeed. Reading a few books, visiting webinars, buying a charting program, opening a brokerage account , and starting to trade with real money is not a business plan —it can be a recipe for disaster.
A plan should be written—with clear signals that are not subject to change—while you are trading, but subject to reevaluation when the markets are closed . The plan can change with market conditions and might see adjustments as the trader's skill level improves. Each trader should write their own plan, taking into account personal trading styles and goals. Using someone else's plan does not reflect your trading characteristics.
No two trading plans are the same because no two traders are exactly alike. Each approach will reflect important factors like trading style as well as risk tolerance . What are the other essential components of a solid trading plan ? Here are 10 that every plan should include:
Firstly, if you are new to trading, you should determine financial objectives, risk tolerance , and time horizon. These items need to be clearly articulated to ensure that your trading activities can be achieved.
A trading style needs to be identified. This style should reflect your personality, culture and preferences. The plan can include day trading , swing trading , position trading or long-term investing . The chosen style should align with one's goals and time availability.
A detailed strategy needs to be created. This strategy outlines an approach to the markets. Also a criteria for trade selection needs to be defined. This can include technical indicators , fundamental analysis or a combination of both. Finally when building the strategy, entry and exit tactics, risk management techniques, and position sizing rules need to be specified.
Trading is not a guaranteed path to wealth and involves inherent risks. Realistic expectations for returns need to be set and the potential for losses needs to be recognized. You should avoid the trap of chasing quick profits or risking too much capital on a single position or trade.
You need to conduct thorough market analysis to identify potential trade opportunities. If they are part of your plan, analyze charts, market trends should be studied, news and economic indicators have to be monitored. Take a step back and consider the overall market condition.
In order to protect capital, risk management strategies should be implemented. Allocate a percentage of your portfolio for each trade and don't go above the amount you have determined is right for your account. This amount should be equivalent to the amount that you are willing to lose per trade. Make use of stop loss-orders to limit potential losses and establish clear take profit targets to secure gains.
Determine how you will manage open positions . You should determine when to adjust stop-loss orders, take partial profits (possibly through the use of trailing stops ), or exit the trade entirely.
Once you have written your trading plan down, stick with it, Avoid situations where you abandon your trading plan impulsively because the market is doing something that elicits an emotional response from you like fear or greed. Train yourself to embrace discipline and consistency when executing and exiting trades.
9. Monitoring and Trade Evaluation
A detailed record of trading activity, including entry and exit points, reasons for taking the trade, and the outcomes are essential. A frequent review and evaluation of trades is necessary to becoming a good trader. The evaluation and review of your past trades will allow you to identify patterns, strengths, and areas for improvement.
The percentage of day traders that quit within two years, according to a 2017 paper titled "Do Day Traders Rationally Learn About Their Abilities" by Barber, Lee, Liu, Odean, and Zhang.
Stay updated on market trends, economic news, and new trading techniques. Read books, attend seminars and webinars, follow reputable financial news sources, and interact with experienced traders to enhance your knowledge and skills.
Traders should develop a plan in order to maintain a disciplined and systematic approach to their trades. Also, a well-defined trading plan helps remove subjectivity from trading decisions.
A trading plan incorporates risk management strategies such as setting stop-loss orders and determining position sizes based on risk tolerance. Without a plan, traders may expose themselves to excessive risk or fail to implement appropriate risk management measures.
Some key factors when traders assess risk tolerance are the financial situation of the trader, the investment goals, risk appetite as well as experience and knowledge of the financial markets. A risk tolerance questionnaire or even a meeting with a financial advisor will help determine your risk tolerance.
There are a number of ways to analyze trading performance. A few common methods include calculating the total return of the trades, determining the profit factor as well as using the Sharpe ratio . Other metrics include analyzing the win rate, the average win amount, the average loss amount, the drawdowns and the recovery rate. In this case, the recovery rate is the percentage of the drawdowns that the trades recovered.
Benchmarks serve as reference points or as performance indicators to assess the success and effectiveness of one's trading strategy. Some common benchmarks include: market indices , professional fund managers, mutual funds or even absolute return targets.
The best trading timeframe is dependent on the trader's style, personal preferences, time availability and the specific market or instrument. There are different time frames for different styles of trading, for instance the following all have very different time frames: position trading , swing trading , day trading and scalping .
Successful practice trading does not guarantee that you will find success when you begin trading real money. That's is because trading real money is when emotions come into play. But successful practice trading does give the trader confidence in the system they are using, if the system is generating positive results in a practice environment. Deciding on a system is less important than gaining enough skill to make trades without second-guessing or doubting the decision. Confidence is key.
There is no way to guarantee a trade will make money. The trader's chances are based on their skill and system of winning and losing. There is no such thing as winning without losing. Professional traders know before they enter a trade that the odds are in their favor or they wouldn't be there. By letting their profits ride and cutting losses short, a trader may lose some battles, but they will win the war. Most traders and investors do the opposite, which is why they don't consistently make money.
Traders who win consistently treat trading as a business. While there is no guarantee that you will make money, having a plan is crucial if you want to be consistently successful and survive in the trading game.
Barber et. al. " Do Day Traders Rationally Learn About Their Ability? ," Page 1.
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Trading As A Business
Answers to all your questions about how to get started with your trading business..
- What Is A Trading Business?
Why You Need A Trading Business Plan?
- Your Trading Purpose
- Your Trading Process/System
- Risks/Costs of a Day Trading Business
- How Much Starting Capital Do You Need For Your Trading Business?
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How to Start a Stock Trading Business
What is a trade book, what to include in your trade book, day trading computers and monitors, parting thoughts on starting a day trading business.
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How To Set Up A Stock Trading Business From Home
Not many people approach stock trading like an ordinary business. Sure, they want to make gobs of money, and fast. But, rarely do you see the budding day trader plan out his trading business like he would any other brick and mortar startup. Perhaps this is why there are so many casualties in this industry – because very few treat day trading as a serious business.
It is no surprise. There are a myriad of advertisements across the internet offering get-rich-quick opportunities in the market. Gurus and furus offer their services for a nominal fee and promise millions, just like their best students have made. Heck, they even show you their brokerage statements to prove it!
But is it that simple? And what structure do these services provide for you? Do they teach you how difficult the path to success will be? Do they tell you how many students have dropped out of their programs on account of failure?
Better yet, do they provide a structure and a framework for how to plan your career, much like you would a business?
Day trading without a true business plan is a lot like gambling. You say to yourself, I’m going to throw my life savings at these internet gurus’ wisdom and hope for the best. A year later, you’ve probably coughed up half your savings, if you’re lucky to still have any.
Let’s just hope you kept a side gig in the process.
Such is the plight of many aspiring entrepreneurs in the trading world, unfortunately. So, in this post, we’ll lay out for you just how treacherous the path can be, and offer you a better structure to kick-start your trading business.
What Is a Trading Business?
A trading business is like any other business. You may decide to incorporate or act as a sole proprietor. Regardless, starting a day trading business is very simple. All it takes is applying with a brokerage and loading money into your trading account. For that reason, it can be a dangerous business to start, with such a low barrier to entry.
Just like any other endeavor, you’ll be required to pay taxes on your profits. However, there are certain limitations to the tax rules for day trading that you should be aware of. We will touch on these in a moment, but suffice it to know that like other businesses, you will need to be aware of what write-offs can apply to your business along with the short and long-term capital gains you’ll be responsible for.
Unlike a brick-and-mortar business, you don’t need anything but a computer or mobile device to start a trading business. You won’t have the expense of restaurant equipment, medical malpractice insurance, or the headache of managing employees. These days you can place a stock order with iPhone apps or more advanced trading software on computers. That and an internet connection are all you need to get started. Literally.
But just as buying stoves and ovens, tables and chairs, and having the best recipes in the world won’t guarantee a successful restaurant business, so having the best computer, broker, or guru won’t guarantee you’ll make money in the market.
Why You Need a Trading Business Plan?
One of the most overlooked, yet most important parts of a successful trading business, is the trading business plan. Why do you need a trading business plan? For a handful of reasons:
- It will force you to research your business and the likelihood of success.
- A trading business plan will help you stay grounded with realistic expectations.
- During the rough times, it will guide you into re-evaluating your process.
What Are the 6 Elements of a Good Trading Business Plan?
Every business needs a business plan. Usually, you’ll have an executive summary, description of your team, products/services, market outlook, financials, etc. But for trading, the variables are a bit different. Your team is really just you, with some exceptions. Your product is your trade plan, and your financials are just your available capital. Let’s look at each of the 6 elements of a good trading business plan more in-depth:
1. Your Trading Purpose
We’re big proponents of purposeful trading. Everyone’s “why” is going to be different, but it’s important to lay this out. It doesn’t have to be for anyone but you. That being said, the more you think about why you want to trade, the more it should motivate you to succeed at it. Every entrepreneur has a why or a purpose for what they do. Could it be as simple as “making more money?” Sure. But we’d encourage you to dig a little deeper and find more than just that. Here are some examples of why you might want to start a trading business:
- To work for yourself
- Increase wealth
- Learn a new skill
- Spend more time at home
- Be available to your family and friends
- Have the ability to give more
- Pay off debts
There are many reasons why people trade. Spend some time thinking about why you want to start a day trading business and write this down, mull it over, and expound on it. The more concrete your reasons become, the more tangible your efforts will be to achieve success.
Think of them like outcomes. Sure, profitability is the ultimate goal. But what does profitability afford you? Time? Love? Charity? This should be the start of your trading business plan.
2. Your Trading Process/System
Would you open a new restaurant without a menu? How about a proven recipe? Would you just run to the grocery store every day and cook up whatever you felt like that night? Absolutely not. Restaurants work well if they are scalable in a very systematic way. It all starts with the layout of the kitchen. The grill is on one side, the sauté in the middle, and the food prep, washing and storage in another area. Depending on how fancy you get, you’ll have a salad prep, dessert, coffee area, etc. It’s all designed to flow in a cyclical rhythm to keep things running smoothly.
The menu also very rarely changes in restaurants, unless the chef adds a special here or there. And the recipes are often guarded secrets that never change. Perhaps seasonal offerings will vary, but the staples of the restaurant are usually known and predictable. So should your trading system be . In your trading business plan, you must lay out not only the strategies you will use, but in what type of market those strategies will work well. Get the seasonal allegory there? You see, trading the markets is a lot like other businesses in that the more systematic you are the more consistent you’ll be, and the more your patrons (your profits) will want to come back and dine with you. Screw around with too many recipes (strategies) at once, come to the market disheveled, unorganized, and unprepared, and you’ll end up with a kitchen in chaos, customers walking out the door, and your profits disappearing. It has to be a well-oiled machine. To avoid chaos, this section of your trading business plan should involve a Trade Book. We’ll discuss your trade book more in-depth below.
3. What Risks/Costs Are Involved in a Day Trading Business
Starting a new business is risky. There’s no way around it. If you want to get ahead in life, you’re going to have to risk something: money, time, failure, other opportunities. Humans crave security. But trading markets doesn’t provide that. It provides uncertainty. Now, you may be thinking that if you make a million dollars in the stock market then you’ll have security. And that may be true. However, the odds of success are not in your favor. And as a rule of thumb, the market is a game of uncertainty at its very core. In order to win, you must learn the science of probability and the need to overcome your own human emotions . Couple that with an artistic sense of intuition and discretion, along with a favorable market condition, and you might be successful. As part of that, outlining what risks and costs are involved in your day trading business would be a good place to start. We recommend that you consider the following when calculating your risk/costs
- Computer and other hardware costs
- Software fees, charting tools, scanning software, etc.
- Broker fees: commissions, short locate fees, ECN fees, etc.
- Educational courses, books, and materials
- Chat room/mentorship subscriptions or service fees
- Maximum drawdowns in your account
- Time associated with being in the market (9:30am - 4pm EST)
- Extra time devoted to review, study, and analysis
- Re-investment of capital
- Funds to top up your account
- Time frame needed for profitability (Most traders, like businesses, take 2-4 years.)
These are just some of the costs and risks associated with trading. If you end up with a catastrophic loss, how will that impact your trading business plan?
While there are many free resources available to traders, we’d venture to say that most traders will spend many thousands of dollars just learning how to trade – not to mention how much they lose in the markets.
Obviously, we’re big proponents of learning how to trade the safe way – in a simulator . Unfortunately, most new traders like to learn the hard way. Whichever way you go, we encourage you to keep your costs and risks in check. Outline them and budget for these items long before you pull the trigger on your trading business.
4. How Much Starting Capital Do You Need For Your Trading Business?
Before we answer this question, we cannot stress enough how important it is to first PROVE that you can trade consistently in a simulator for many, many months. Funding your trading account is not the first thing you need to be thinking about. Spending time in a simulator is the first thing you need to think about. Period. Spend the time necessary to backtest and outcome test your strategies in our analytics here at TradingSim. You can trade the market for the past 3 years at any time, testing your strategies. Once you’re successful and consistent, then think about funding your account. There, now that we’ve gotten that out of the way, let’s talk about funding your account.
What Is the Pattern Day Trading (PDT) Rule?
Assessing how much money you need to start with depends largely upon your financial standing. The Pattern Day Trading rule was enacted shortly after the bull run of 1999-2000. It limits how many day trades you can make within a 5-day period to only 3 — that is, if you’re account is below $25,000. This is something to consider when you fund your account. If you plan on day trading, starting above $25k might be wise. That being said, we’re big proponents of proving to yourself what you can do in the market before you add to your account. We’ve written before about the PDT rule and ways around it . There are options like offshore brokerage accounts, opening multiple US-based cash brokerage accounts, etc. We won’t dive into that here, but if you’re unfamiliar with these options, be sure to check them out. As a general rule, start small. Start small enough that your account can grow without the headaches of forced errors due to having a small, restricted account. But not big enough that it will cost you dearly if you make rookie mistakes. And trust us. You’re going to make rookie mistakes. Plenty of them.
Generating Income During Your Early Trading Days
For your business trading plan, be sure to outline what you will do for income. It takes most traders many years to reach consistency in the markets. And by consistency, we mean being able to not only make a living but also continue to bankroll your trading account. To that end, take the stress off your shoulders by trading part-time until certain goals are reached. Or, if you decide to go full-time, be sure to outline your expenses, and the amount of savings you will need to set aside for 1-3 years of ups and downs in the market. In addition, lay out your contingency plan. Define ahead of time what you will need to do if certain milestones aren’t reached. Lastly, discuss this with your partner. There’s nothing worse than having your family responsibilities jeopardized because of a whimsical and ill-planned trading business. As the saying goes, err on the side of caution. Imagine the worst, then double that, then add a little more on top. That’s the kind of “risk” cushion you need for your trading business.
5. Define Your Trading Team
Every good business has a good team. Whether it is a board of directors, consultants, or management team; the best businesses have good leadership. Organize your trading business the same way. Granted, your trading business won’t be structured the same way your normal business is structured. You’re the only one responsible for clicking the buy and sell button in the market. However, there are people you can add to your team to help you along the way.
How To Find a Good Mentor for Trading
Finding a good mentor in stock trading is easier to find nowadays. There are a lot of “mentorship” services available online. Not all of them are created equally, though. When you’re searching for an educational service or mentorship, we recommend taking your time. Think of it like car shopping. The best car buyers do their research online first, narrow down what they want in a car: brand, price, color, miles, trim level, etc. Then, it is a matter of heading to the dealership to test drive, ask questions, etc. Just like a dealership, you’re going to find hungry salesman wanting “to do business with you today!” But you need to be on guard. It’s your money, your experience, and ultimately your decision. Stand your ground and always take everything with a grain of salt. Look at online reviews like TrustPilot. Ask around on Twitter. Look under the hood with “trial” memberships. Really do your due diligence. Yet, understand that no mentorship or educational service is going to be perfect. In fact, you should go into each educational service expecting to learn something new from as many mentors as possible. In this way, you’ll learn that your biggest asset is being your own trading coach. Now, to bring this full circle for your trading business plan, do your research first. Outline the top 10 trading educators you can find. Exhaust yourself with the effort, then narrow down your results to the top 5. Start there, and give yourself time to work through your list. In your trading business plan, identify which services you will try and which ones you might avoid. Also, include non-trading mentors in your business plan. Perhaps your spouse, a close business friend, or a confidant can provide a fresh perspective. And one of the best ways to find a team is by picking up trading buddies along the way. All of these educational services have tons of people just like you. Reach out to them and try to connect! We would also be remiss to not recommend a good psychology coach. We’re big fans of Dr. Brett Steenbarger and his books. Don’t go without them.
6. How To Grow Your Trading Business
This section of your trading business plan may not fully materialize until you are well on your way to consistency in trading. You see, the path to success in trading looks something like this:
- Make a little
- Profit more
- Make big money
You won’t really know how to make big money unless you find a system that is scalable. In fact, many millionaire day traders find themselves at a place in their career where they have to adjust their strategies because their accounts have become too big for the strategies they used when their accounts were smaller.
While this isn’t something you should worry too much about early in your career, it should be in the back of your mind.
Typical businesses require some form of marketing to grow, right? Not only that, but they need a scalable system. Build a successful restaurant, systematize its operation, then you can turn it into a franchise. Voilá!
Trading is very similar. The market is all about compounding your profits. When you find a scalable trading system, you’ll want to spend the necessary time growing it. This requires having the right strategy, the right risk management , proper experience, and the emotional capacity to trust your system despite larger account swings up and down.
Keep this section of your trading business plan open. Add to it as you evolve as a trader and your strategies evolve. Conduct research on what the largest players in the market do to compound their large gains.
Now that we’ve outlined the 6 best elements of a successful trading business plan, let’s get into the nitty-gritty of creating your day trading business. We’ll uncover topics like how to create a trade book, the best tools for your trading business, and more.
Create A Trade Book for Trading Strategies
Essential to your trading business is your trade book. Aside from your trading business plan, this is hands down the most important part of your trading business. Every trader should have one.
A trade book is a compilation of your trading education, style, strategies, statistics, rules, and more. It is a road map for where you want to be as a trader, and how you are going to get there. It will take a lot of the guesswork out of trading and ground you in a tested strategy. That is not to say that your trade book is set in stone. It will undoubtedly evolve as your career progresses. Along the way, you’ll want to add bits of information, evolved strategies, and more. A trade book should be a document that you keep handy and consult frequently to ensure that you’re trading according to the process you have outlined for yourself. This will keep you from the pitfalls of overtrading, trading less than stellar setups, and falling off the bandwagon into “style drift”.
Everyone’s trade book will be different. However, at a minimum, you should have all the criteria and information you need to execute trades successfully each and every day, from start to finish.
Here are a handful of items you should have in your trade book:
- Your trading “why”
- Education materials
- Current areas of improvement needed
- Your trading edge/strategy
- Trading rules for your strategy
- Money management rules
- Trade management rules
- Best trade examples with annotations
- Worst trades with annotations
- Any data or statistics to support your trading edge
Let’s take a look at a few examples of these 10 trade book chapters and how you can flesh them out for your own purposes.
1. Areas to Improve and Maintain Discipline
This section of your trade book will need to be updated from time to time as you grow as a trader. The goal here is not to be hard on yourself, but to be realistic with the weaknesses you are showing in your trading.
Here is a snapshot of a personal list of things that this author wrote in his own trade book:
- Tendency to enter trades before technical criteria are met
- Exhausting myself before the move I want occurs
- Limiting my profits by being happy with getting back the money I lost on the trade
- Going in with too much size without the A+ setup revealing itself
- Lack of patience and management once a trade is going in my favor
- Impulsive entry or exits based on time frames that are too low to base decisions off of
- Making decisions based upon p/l
- Internalizing bad performance
- Overtrading in an effort to time the entry perfectly
- Being aware of the Alpha mindset that wants to force trades
- Resetting after every trade
- Breathing exercises for calmness and relaxation
As you can see, there are a lot of issues facing traders. Some of these may affect you, or you may have your own set of struggles to overcome. As you trade, keep a journal to jot down the weaknesses you want to work on, and set a goal each week to tackle those issues.
2. Explaining Your Edge/Strategy in the Market
This is another important aspect of your trading book, perhaps the most important. The goal of your trade book is to define how you trade, what you trade, and when you trade so that you stay rooted in a systematic approach to your trading business.
Your edge will vary, but here is an example of what your edge description might look like in your trading book:
My edge is a combination of things that involve a certain sentiment on the daily time frame, followed by smaller time frames. Here are a handful of what I consider my edges:
- Reversals off daily/weekly moving averages, usually in bear or bull flag formations.
- Trading Range springs and upthrusts, or Mean Regression trades
- Wyckoff Wave Patterns that consolidate into a tight price action with Volume Dry Up (VDU) and pocket pivots as entry points waiting to take off.
- Parabolic reversals intraday
- Shorting manipulated low float stocks that are very extended
Within these, my trading strategies for entries remain the same as outlined below in the Trading Plan section. I am looking for the exact same entries on any time frame.
Once you broadly define your edge like this, you will also create a solid trade plan on how you execute these strategies. But before we get to that, you should also take the time to set your trading rules.
3. Trading Book Trading Rules
For your trading rules, we suggest you take time to think about what time you’ll trade, your position size, any mental hacks you need, stop loss criteria, and more. These can be broad or very specific. It will be up to you to tweak this over time to find the set of rules that work best for you.
A great example of a set of rules for trading is found in a book called The Complete Turtle Trader by Michael W. Covel. In this book, Covel uncovers the amazing story of how a small group of traders became millionaires by applying to Dennis Richards's experiment for training traders to become successful by following his strategies.
Richards was a floor trader for the Chicago Mercantile Exchange who made 10s of millions of dollars in the 70s and beyond. His “turtle traders,” as he called them, were given a set of rules to follow that looked like this:
- Entry: Buy when the price breaks above the 20-day high
- Stop loss: 2 ATR from the entry price
- Trailing stop loss: 10-day low
- Risk management: 2% of your account
- Vice versa for short trades
They were trend traders and the rules were very simple. However, your rules might be very different and more involved. Here is an example of a few typical rules that traders like to follow:
- Always cut your losses quickly
- Never average down on a losing trade
- Take profits at 20-25%
- Maintain at least a ⅓ risk/reward ratio
Again, this is just a small sampling of rules. It will be up to you to determine the rules you need in place for not only your strategy but your mindset and personality as well. This will help you keep your trading business going for the long haul.
4. How to Create a Trading Plan
- Daily Max Loss
- Daily Profit Goal
- Stock Change %
- Stock Catalyst
- Volume Metrics
- Average True Range
- Relative Volume
- Indicators needed
- Confirmation of strategy
- Entry Signal
- Trade Management Rules
Fill out all these metrics and you’ll be well on your way to having a solid trading plan. Be sure to really flesh out the details of each criteria, and then give examples of trades that fit these criteria.
To help visualize this, here is a snapshot of a trade book trading plan:
5. Money and Risk Management for Your Strategies
No trading plan is complete without defining your money and risk management protocol. Every trade might be slightly different, but as a rule of thumb, we recommend only risking about 0.5-2% of your entire capital on any given trade.
Here is an example of how you might define your risk management strategy for shorting a head and shoulders pattern:
Risk Per Trade : $450 or HOD, whichever comes first
Profit Target Per Trade : $1000 +
Max Loss Per Trade : $750
Trade Limits :
- Give the stock enough time to bounce and fail and return back into the trading range.
- Look for a squeeze before a drop if the stock feels weak
- The earliest entry can be on an “undercut and rally” or “overthrow and drop” if momentum is really waning.
Time Constraints : Pre/Post and Normal hours depending on volume, after 10:30am usually the best
Stop Loss Mechanism : Hard stop just above High of Day (HOD) and LOD on early entry. Hard Stop just above higher low / lower high on “right shoulder” entry.
Break-even Win% : This will depend on your statistics with the trading strategy.
6. Use Statistics in Your Trading Book
One of the absolute best ways to determine your chances of success on a strategy is to test it in a simulator by outcome testing your results. At TradingSim, we have the analytics that allow you to do just that.
As you test your strategies and begin to populate your trading book, be sure to include the statistics you’ve found in the simulator for each edge that you document.
Studying your winners and losers based upon the specific strategies you use will give you the confidence to take these trades in real life. So be sure to specify your win rates and any caveats for your strategy by testing these outcomes in a simulator first.
If you’re going to be a day trader, you’ll need a decent computer and a monitor. While we’ve heard of people day trading on their phones or iPads, it’s less than ideal. The reason for this is that you need to not only be able to analyze charts in real-time, but you may need to check other data as well. You’ll need screen space for your broker, your charting platform, any newsfeeds or chat rooms, twitter, etc. A solid computer and multiple monitors make this more efficient. Likewise, you’ll probably want multiple chart windows up simultaneously. This helps you keep track of the movements in individual stocks as the day progresses. Not having screen space for this might result in missed trades. And we wouldn’t want that!
Day Trading Stock Brokers
While we are not in the business of recommending stock brokers, this will be a key component of your trading business, so the decision shouldn’t be taken lightly. We recommend that you try many different brokers and do your own research before pulling the trigger on one.
When you are picking the right broker for day trading, you want to consider the type of trading you want to do. For example, many day traders like to short. In order to do this, you will need a broker with a solid list of shortable stocks. Not every broker will have this.
Consult with your broker and ask around the net for answers to some of the following questions:
- Do you have a good list of hard-to-borrow stocks?
- What trading platform do you provide?
- Are pre-market and after-hours trading allowed?
- What are trade cut-off times?
- Do you have margin, and what are the rates?
- What is customer support like?
- Does the platform include a mobile app?
At the very least, you should be able to demo their product to get a feel for it and decide whether or not it is a good fit for you and your trading style.
Charting and Trading Platforms
While many brokers will include a charting and trading platform, you may find that their charts don’t satisfy your needs. After all, there are quite a few standalone charting services available that cater specifically to charting, regardless of brokers or trade execution. Many traders will run their charting platforms as a standalone so that they can employ unique trading indicators and technical analysis tools that their broker might lack. This can empower your trading, enabling you to dive deeper into volume and price action without needing a clunky brokerage chart. It also frees you to choose which broker might provide the best service or execution independent of their software.
Trader Tax Accounting
There are two things guaranteed in life, death and taxes, right? Well, day trading has the potential to rack up a lot of taxes, so you’re going to need an accountant who knows what they are doing. Making a few investments here and there can easily be handled by your typical CPA. However, there are a lot of rules and regulations involved with actively trading. Wash/sale rules, what constitutes an active trader, marked-to-market rules, and many other things can affect your status and tax liability as a day trader. For that reason, we recommend you hire a professional who knows what they are doing before you jump into trading. Be sure to consult with them on your other businesses, how much you plan to trade, and any other income sources you have. While we don’t recommend any specific accountant over another, there are a few trading-specific accountants that we know of: https://tradersaccounting.com/ https://tradertaxcpa.com/ https://greentradertax.com/ Use them at your own discretion and risk, but understand that reconciling thousands, if not hundreds of thousands of trades, takes specialized software and accounting. You might be able to figure it out on your own by using https://www.tradelogsoftware.com/ . But the help of a knowledgeable accountant is always advantageous.
Finding a Day Trading Community
Day trading is a lonely business. You’re sitting at your desk for hours on end, pouring over charts and data. Not only that, but you will experience emotional highs and lows during this process. To that end, we recommend that you find a good day trading community to support you. We’ve written before on chat rooms and how to make the most of them, so be sure to check that article out. In it, we discuss the role that chat rooms play in the market and in trading development. Not all chat rooms or educational services are created equally, though. So, be sure to vet services properly and as inexpensively as possible until you find one that resonates with your style of trading and social interaction. Being a part of a community also serves as an accountability tool in the market. A good business will likely have some type of review board that oversees and provides accountability for the business. In trading, you’re responsible for your own actions. And, for that reason, it would be ideal for you to have a trusted group of trading partners that you can bounce ideas off, conduct review sessions, and keep yourself on track both mentally and professionally.
The Best Simulation Software for Your Trading Business
While we may seem biased, we truly believe that this piece of the puzzle is one of the most important and overlooked aspects of day trading. So many traders are willing to risk their hard-earned cash before they have a proper understanding of how markets work. It is irresponsible and risky, at best.
Here at TradingSim, we offer the best simulator for market replay , simulation, and analytics. Unlike most stock market simulators, we allow you to replay Level 2 and intraday data for up to 3 years. As a day trader, you’ve got the ability to “relive” the market as much as you want, and when you want.
Because day trading can be both systematic and discretionary, you’ll enjoy the built-in analytics software that TradingSim offers. In order to test your trading skills and outcome test your performance on a specific strategy, you’ll need this. Any great trader knows the power of statistics. Be sure to spend time in the sim testing your process before entering the market with real money.
Not convinced? Don’t take our word for it. The most prolific trading psychologist in the world has this to say about simulation trading:
Indeed, it’s often because of our need to make money and our overconfidence that we pursue shortcuts in our learning processes as traders and take too much risk. That leads to volatility of P/L and losses, which in turn trigger our nervousness, tension, stress, fear, and worry.
What I’ve long liked at TradingSim is the focus on learning trading–and doing that in safe ways where we can’t trigger and traumatize ourselves.
Think about every performance field: athletics, acting, music. In none of those do we start out by following people online, doing some reading, and then trying to make a living from our performance. Rather, we recognize that it takes years of practice and mentoring to become a professional athlete, movie star, or recording artist.
When we take shortcuts in the development process, our unrealistic expectations set us up for disappointment, frustration, and pain.
Many, many times the answer to emotional disruptions in trading is to work on our trading.
Dr. Brett Steenbarger, Ph.D.
What Are the Best Day Trading Courses?
Day trading courses abound on the internet. You can find free ones on YouTube, or pay tens of thousands of dollars to join “exclusive” day trading clubs, services, and challenges. There are also many books written on day trading and the many different styles of trading. Though we won’t recommend one over the other, what we do recommend is that you spend as little money as possible to begin with on education. The internet abounds with free resources. We’re even dedicated to helping the cause here at TradingSim with our blog and educational material. That being said, once you’ve scoured the net and read as much as you can, we do recommend trying as many services as you can comfortably afford that cater to your desired style of trading. If it is shorting small-cap stocks and momentum, find a good trading service that teaches you how to do this. Regardless of the style of trading, we recommend that you use discretion to find a trading course that offers an approach to tape reading, volume and price analysis, and trader development. Study some of the great ones, like Richard D. Wyckoff. You won’t go wrong with an understanding of sound technical analysis, which you can apply to any style of trading.
Finding a System for Your Day Trading Business
As part of your educational growth and development, you’ll eventually need to land upon a solid system. For example, if it is the methods of Wyckoff that truly speak to your style of trading, then perhaps you want to establish a trading system solely dependent on springs and upthrusts. You’ll learn more about what makes springs and upthrusts work so well inside trading ranges if you spend the time necessary to develop a trading system based on these strategies. Here is an example of what this might look like on a chart: Spring But this is only one example. We discuss these types of price action trading strategies more in-depth in another article. And if you’re struggling to find a “system” for your trading, be sure to give our post on “ how to find an edge ” a quick read.
Keeping a Routine Schedule - Just Like Normal Employees
If you’re going to be a professional day trader, you need a professional routine. The markets open and run from 9:30am until 4pm EST every single day. You need to be there, obviously.
Routines may stifle creativity or balance if taken to extremes, but your need for routine in the markets will depend largely on your trading system. For example, if your system requires you to be present at the opening bell, then you might need to wake up early, have an exercise routine, do some meditation, then research the morning movers for that day in the pre-market.
This kind of routine will allow you to come to the market prepared. Less preparation = Less profits in the long run. Without plans, your system is really just a series of impulsive and reactionary trading ideas that may or may not work. In essence, don’t be a gambler.
The more routine you become in your trading business, the more disciplined you will become. Likewise, the more disciplined you become, the better chance of success you will have.
Here are some tips we recommend you adopt in your routine:
- Rise early in the morning
- Feed your brain and your belly
- Exercise before the day begins
- Arrive at your desk at routine time each morning
- Give yourself plenty of time to research the day’s trades
- Plan your trades before you take them
- Allow for breaks midway through each day
- Balance your work life with family time
- Leave room for review each day
- Become self-aware as to how healthy your routines is
- Be willing to change certain aspects of your routine
No matter the routine, it is imperative that you treat yourself well and pay attention to your mind and body. Day trading can be a destructive career if you don’t.
Parting Thoughts on How to Start a Trading Business
We hope this has helped you gain a proper understanding of what it takes to run a day trading business. While many different factors can affect the success of a new business, giving yourself the best chance of success from the outset can make a huge difference. Take great care that you don’t embark on this journey lightly. Treat it with utmost respect and diligence, just as you would any other endeavor as an entrepreneur. And if we can help you along the way, please reach out to us. We wish you the best!
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The Ultimate Trading Plan Template
A proper Trading Plan is essential to your success as a trader.
Anyone thinking of starting a business wouldn’t begin without a plan, if they do, they probably won’t like the end results. Day trading is no different than any other business.
As they say, “If you fail to plan, then you’ve already planned to fail.”
You’re about to learn the same process I’ve used for the past 20 years. It’s also what I currently teach our students.
After completing this post, you should be confident in your ability to write a rock solid trading plan. To speed up the process, I provided a link to our Trading Plan template at the end.
Let’s get into it…
What is a Trading Plan?
A Trading Plan defines a trader’s goals, expectations, routines, risk management, and trading strategies. A successful plan will include the logic underlying the strategies and processes a trader deploys.
Elite traders already know they have won the game before placing a single trade for two reasons.
First, they have a well defined edge that’s repeatable.
The primary goal of your trade plan is to precisely define your processes and strategies, with the end of goal of creating a repeatable process.
Second, elite traders fully understand there is a random distribution between wins and losses for any given set of variables that define an edge , resulting in flawless execution.
First, you need to focus on developing your process. You will work on developing the mindset of winning trader and the ability to think in probabilities (versus P&L) when you begin backtesting and simulated trading.
A simple google search and you will find endless styles and formats for trade plans.
For me, my plan acts as the CEO of my business. defining the big picture items such as rules, processes, routines, analytics, theories and goals.
A lot of traders include their trading strategies in their trade plan, but I prefer defining them in a separate Playbook. I do this for several reasons…
First, I’ve been trading for over two decades, in that time I’ve developed and traded a lot of different strategies.
I’ve always found it beneficial to have all my strategies broken down individually. This becomes extremely valuable as you get more into strategy development.
A lot of the strategies I’ve built were a result of combining the different tools, theories and processes from other strategies I’d previously traded in my career.
Second, I think a Trade Plan that focuses solely on the macro level picture will help you in your review.
When I began my career I was surrounded by elite traders every day. My mentor and the owner’s of the firm kept me in line and made sure I was following their processes. If I was trading poorly, they held me accountable.
Accountability Partner
If you haven’t already chosen someone as an accountability partner, it should be the first thing you do after reading this post.
Your trade plan will be shared with your Accountability Partner in order to review your progress.
Your playbook will be used in strategy development and shared with your peers for trade review.
Obviously your accountability partner can play both roles if they have a trading background.
However, it’s more important your accountability partner is someone your close to that is committed to helping you achieve goals.
A good accountability partner will call you out and question you when you’re not following your rules, and due to your respect for the individual it should sting a little.
For the remainder of this post we’re going to focus solely on your trade plan.
Once you’ve completed your plan, I have you covered on your playbook as well. (link to Playbook Guide at the end)
Why You Need a Trading Plan
Good trading should be effortless. The preparation is where the hard work comes.
Imagine two runners, on one hand someone completely out of shape trying to run 1 mile in 10 minutes versus a world-class runner. The process looks effortless for the world-class runner, and it is. They put all of the hard work into their preparation, resulting in a process that is effortless.
Your Trade Plan and Playbook are part of your preparation.
The objectivity and clarity that a solid plan provides is essential in a market that requires split second decision making to capitalize on opportunities.
It will empower you to trade objectively, with confidence and less emotional involvement.
Let’s take a look at some categories you will want to include in your plan.
Trading Plan Outline
This outline is a strong base to get you started. You can use this plan for all markets, including Stocks, Forex, Futures, Options, and/or Crypto.
Remember, there’s no formal rules so get creative!
1. Premarket Routine
Developing routines in our lives helps us to stay on track and reach goals.
By analyzing our current routines and making adjustments, we’re able to form new habits. A skill that is rewarded in this business.
Here’s a great video on the importance of simple routines, especially when starting your day.
Try it, what do you have to lose?
Outline the tasks you will perform prior to trading each day.
Examples: -Read trading plan -Review a personal journal entry twice a week and reflect -Read prior day’s trade journal -Review prior day’s trades -Check economic numbers -Read playbook -Mirror reflection -Pre-market Analysis
2. Visualization/Mantras
Visualization and Mantras are great tools to include in your morning routines.
Examples: -Visualize yourself taking a trade and going through all the steps outlined in your Playbook -I accept that I have no idea what the outcome of any individual trade will be -I accept that today could be a negative day -I accept the loss of my next trade financially -I accept I will get stopped out on trades that reverse and rip in the direction of the setup
3. Hard Rules
You want to get very specific with some macro rules for your trading business. They should be reviewed with your accountability partner on a monthly basis at minimum. I recommend meeting weekly or daily if you’re a new trader or not yet profitable.
Examples: -3 losing trades switch to SIM remainder of session -Take a random trade, switch to SIM remainder of session -Two max loss days back to back, SIM for remainder of week -No trading outside RTH
4. Risk Management
You don’t need to over complicate your risk management. Below is what I recommend to my students.
Example: -1% max per trade -3% max per day -5% max per week -15% max per month -Adjust trade size on Monday mornings
IMPORTANT! You should never trade real money until you have proven your ability to be profitable on a simulated account!
I promise, if you can’t make money on a simulated account, you won’t do it on a live account.
Don’t start trading a live account until you’ve proven you have acquired the necessary skills to make money on SIM.
5. Aftermarket Routine
All traders make mistakes. The question is whether or not you will analyze those mistakes to learn from them?
When the trade day ends, you still have work to do.
You should do some journaling and reflection on your execution for the day.
Keeping a trade journal of all your trades as well as grading every trade is essential for growth. Make sure to take screenshots of your trades as well so you can go back and review them.
Here’s a few more examples: -Complete Scorecard for ever trade taken that day -Complete journal entry discussing market conditions for the day and reviewing your execution -Input trades into spreadsheet or whatever you’re using for analytics -Meditate -Workout
Trading can be emotionally challenging at times. There’s not many professions where you go to work and perform your best yet at the end of the day you leave with less money than you started.
Keeping mentally fit is imperative in this business. It’s important you incorporate some stress relieving activities, such as meditating or working out, into your aftermarket routine.
6. Weekend Routine
On Sunday evenings I have a routine to prepare myself for the upcoming week.
-Read trade journal entries from the past week -Review trades from the past week -Check sizing -Goals for upcoming week -Meet with Accountability Partner
7. Monthly Routine
On a monthly basis you should perform a thorough analysis on your trading business.
Examine your processes and trading analytics, looking where you can improve.
Examples: -Review trade analytics and make adjustments to strategies -Backup everything -Check risk management and sizing -Write main goals for upcoming month
8. Goals/Achievements
The markets are always changing and presenting new opportunities as well as challenges. Even after 20 years, I still find myself learning new things.
Reflecting on why you started trading in the first place is important. Don’t ever lose sight of your goals.
Keep track of your goals and achievements in your trade plan as you progress as a trader. You will find it encouraging as you start to see your progress.
Examples: -Zero random trades for a week -Average trade score of X for the month -First chop comma ($1,000 net day)
While I think all these categories should be included in your own plan, remember to get creative and include anything you feel could potentially improve your trading.
Maybe include some pictures to motivate you.
Free Trade Plan Template (Download)
I created a template in Google Sheets with the categories and examples covered in this post to get you started on your trade plan.
If you would like the template and some other cool trading tools, become a JT Insider. It’s free.
I also recommend you check out this guide “How to Become A Day Trader – (Here’s how I did it…)”. I share with you how I overcame my trading failures by developing an Objective Edge.
Final Thoughts
Whenever a student comes to me struggling, I ask them for their trade plan. The struggles typically lead back to a rule or set of rules they have outlined in their Trade Plan that they’re consistently breaking.
It’s an essential tool when reviewing your trading with your accountability partner. Remember to select someone close to you must be completely transparent with them or you’re only cheating yourself.
Don’t make trading more difficult than it already is. Write a solid plan and work on having the discipline to follow it.
Anything not mentioned you like to include in your plan? Leave a comment below!
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26 Comments
Awesome Information. Thanks for your valuable insights
Thanks Adam for the information. This is second year since i learn trading but i made alot of lesses.so i have learnt that the cause of loosing was i didn’t have a solid trading plan. Thanks you very much and God bless you .
Thanks for the comment Gabriel!
Thank Adam , i have been trsding for 4yrs now but never knew how to create a rock solid trading plan. I am creating one withyour guideline, i will get back to you in 6 months. Thanks alot
Thanks for the comment and your welcome!
Insightful, moral & honest. Thank you for sharing Adam
Thanks Frank!
Thank you very much Adam.The trading plan steps you have shared have been quite insightful and I have discovered that my great hindrance to success in Forex is lack of a trading plan.Many thanks once again!!
Thanks for the comment Irene! I’m glad you like the post. Having a solid trading plan that you never deviate from essential to becoming consistently profitable. Happy trading!
Thanks Adam Its very valuable.
Woow!.. ….. That was really intense and a helpful road map for beginners like me. Thanks Adam.
Thanks Geoffrey!
It is very helpful
very valueble content.
Thank you…!
Best information I could find for trading plans and I did a whole lot of research and this was the best and most effective. Thank you appreciate this!
Thanks for the comment Hussein!
This Will be epic.
Thanks for the comment Kahleal!
Thank you so much for this helpful and valuable information.God bless you
Thanks for the kind words Elijah!
Hey I want to thank you I’m not new as a trader I have a good strategy I was making money with it only to find out I dont have a trading plan that will make me unstoppable because in trading the strategy is not enough.
Thanks Nhlanhla!
Thank you! I knew I needed a trading plan but needed the guidance and you provided all this for free, more blessings to you.
You are very welcome!
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The Ultimate Guide to Developing a Successful Business Trading Plan
Table of Contents
Introduction
A business trading plan is a comprehensive strategy that outlines a trader’s goals, objectives, and methods for trading in the financial markets. It’s a vital tool for managing risk, identifying potential trading opportunities, and achieving long-term success. In this article, we’ll provide a step-by-step guide to developing a successful business trading plan that aligns with your goals and objectives.
Defining Your Trading Goals and Objectives
Defining your trading goals and objectives is a crucial step in developing a successful business trading plan. It provides a clear direction for your trading activities and helps you stay focused on your long-term goals. Here are some tips for defining your trading goals and objectives:
- Determine your motivation: Ask yourself why you want to trade. Are you looking for financial freedom, a new career, or simply a way to supplement your income?
- Set realistic goals: Set realistic goals that align with your motivation and resources. For example, if you’re a new trader, your goal may be to achieve consistent profits over a certain period.
- Establish a timeline: Determine a timeline for achieving your goals. This can help you stay focused and motivated, and allow you to evaluate your progress.
- Prioritize your goals: Prioritize your goals based on their importance and feasibility. Focus on achieving your most important goals first.
- Review and adjust: Continuously review and adjust your goals based on your progress and changing market conditions. Be flexible and willing to adjust your approach as needed.
Conducting Market Analysis
To develop a successful business trading plan, it’s important to conduct a thorough analysis of the market. This includes identifying market trends and patterns, analyzing economic indicators and events, and identifying potential trading opportunities. Here are some tips for conducting market analysis:
- Identify market trends and patterns: Understand the market trends and patterns that influence your trading decisions.
- Analyze economic indicators and events: Keep an eye on economic indicators and events that can impact your trades.
- Identify potential trading opportunities: Look for trading opportunities that align with your goals and objectives.
Identifying and Evaluating Trading Strategies
Identifying and evaluating trading strategies is a crucial component of developing a successful business trading plan. An effective trading strategy should align with your goals and objectives, and provide a structured approach to your trading activities. Here are some steps to identify and evaluate trading strategies:
- Research different trading strategies: There are many different trading strategies available, such as swing trading , day trading, trend following, and scalping. Research the various strategies and determine which ones align with your goals and objectives.
- Test the strategies: Once you have identified potential strategies, test them on historical data or in a demo account to evaluate their effectiveness. This can help you determine which strategies work best for you and your trading style.
- Evaluate the risk and reward: Determine the potential risks and rewards associated with each strategy. Evaluate the strategy’s win rate, average profit, and average loss to determine whether it is a viable strategy.
- Determine your resources and knowledge: Consider your resources and knowledge when selecting a strategy. For example, if you have limited time to dedicate to trading, a long-term trend-following strategy may not be suitable.
- Continuously monitor and adjust: Once you have selected a strategy, monitor its performance and make adjustments as needed. Continuously evaluate its effectiveness and adjust your approach as needed.
Risk Management Strategies
Risk management is an essential component of successful trading, as it helps traders manage potential losses and preserve their trading capital. Effective risk management strategies enable traders to limit their exposure to risk while maximizing their potential for profits. Here are some key risk management strategies that traders should consider:
- Use stop-loss orders: A stop-loss order is an instruction to sell a security when it reaches a certain price, helping traders limit their potential losses.
- Manage position sizing: Position sizing involves determining the appropriate size of a trade based on risk and potential reward. Traders should manage their position sizing to limit their exposure to risk.
- Diversify your portfolio: Diversification involves spreading your investments across different asset classes or securities to minimize your overall risk exposure.
- Set realistic profit targets: Traders should set realistic profit targets that align with their goals and objectives.
- Monitor your trades: Traders should continuously monitor their trades and adjust their risk management strategies as needed.
- Use hedging strategies: Hedging involves using financial instruments to offset potential losses in other positions. Traders should consider using hedging strategies to limit their exposure to risk.
- Understand market volatility: Traders should understand the level of volatility in the markets they trade and adjust their risk management strategies accordingly.
Trading Psychology
Trading psychology is the mental and emotional state that a trader brings to the process of trading. It includes factors such as discipline, patience, focus, and emotional control. Mastering trading psychology is a crucial component of successful trading, as it enables traders to remain objective, avoid making impulsive decisions, and stay committed to their business trading plan. Here are some tips for developing a strong trading psychology:
- Manage your emotions: Emotions can cloud your judgment and lead to impulsive decisions. Practice emotional control by avoiding emotional trading and staying disciplined.
- Stay focused: Focus on your business trading plan and avoid getting distracted by external factors such as news, opinions, or market noise.
- Develop discipline: Trading requires discipline and adherence to a plan. Develop a disciplined approach to your trading and stick to your plan.
- Avoid overconfidence: Overconfidence can lead to poor decision-making and excessive risk-taking. Stay humble and objective in your analysis and decision-making.
- Maintain a positive mindset: A positive mindset can help you overcome challenges and setbacks. Stay optimistic and focus on your long-term goals and objectives.
- Practice patience: Patience is key to successful trading. Wait for the right opportunities and avoid rushing into trades without proper analysis and planning.
- Learn from mistakes: Every trader makes mistakes. Learn from your mistakes and use them as opportunities to improve your skills and knowledge.
Backtesting and Monitoring
Backtesting and monitoring are crucial components of any successful business trading plan. Backtesting involves testing a trading strategy against historical data to evaluate its effectiveness, while monitoring involves tracking trading performance in real-time to identify areas for improvement and make adjustments as needed. Here are some tips for effectively backtesting and monitoring your trading plan:
Backtesting
- Identify the right historical data: Use historical data that is relevant to the markets and trading instruments you plan to trade.
- Use the right backtesting tools: Choose a reliable backtesting tool that provides accurate data and insights.
- Test multiple scenarios: Test your trading strategy against multiple scenarios to evaluate its effectiveness in different market conditions.
- Keep track of your results: Keep track of your backtesting results and use them to identify areas for improvement.
- Track your trading performance: Keep track of your trades and performance metrics, such as profit and loss and win/loss ratio.
- Identify areas for improvement: Analyze your trading performance and identify areas for improvement, such as adjusting your risk management strategy or refining your trading plan.
- Make adjustments as needed: Use the insights gained from monitoring to make adjustments and refine your trading plan.
By incorporating backtesting and monitoring into your trading plan, you can identify areas for improvement and make adjustments to ensure long-term success. Additionally, keeping a trading journal or using specialized trading software can help you track and analyze your trading performance more efficiently. Remember that effective backtesting and monitoring require a disciplined approach and a commitment to continuous improvement.
Implementation and Execution
After developing a comprehensive business trading plan and thoroughly backtesting and monitoring it, the next step is implementing and executing your plan. Implementation and execution are critical steps that can make or break your success as a trader. Here are some tips for effectively implementing and executing your trading plan:
- Follow your plan: Stick to your trading plan and avoid making impulsive trades or deviating from your strategy.
- Keep track of your progress: Monitor your trading performance and keep track of your progress, both in terms of profits and losses and adherence to your plan.
- Evaluate your results: Continuously evaluate your trading results and make adjustments as needed based on your performance.
- Use proper risk management: Implement proper risk management techniques to minimize potential losses and preserve your trading capital.
- Stay disciplined: Maintain a disciplined approach to your trading and avoid letting emotions cloud your judgment.
- Learn from your mistakes: Analyze your mistakes and learn from them, rather than letting them discourage you or lead to further losses.
- Continuously improve: Continuously refine your business trading plan based on your results and the lessons learned along the way.
Developing a successful business trading plan is a crucial step for achieving long-term success in the financial markets. By defining your trading goals and objectives, conducting market analysis, identifying and evaluating trading strategies, implementing risk management strategies, developing a strong trading psychology, backtesting and monitoring your business trading plan, and implementing and executing your plan, you can create a comprehensive strategy that aligns with your goals and objectives. With this guide, you’re now equipped to develop a successful business trading plan and achieve your trading goals.
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The Ultimate Day Trading Beginner's Guide: Mastering the Art of Trading
- Mastering the Basics: Success in day trading starts with a solid understanding of the fundamentals, including stock market operations, volatility, and trading strategies.
- Analytical Approaches: Effective day trading relies on both technical analysis, for chart and pattern interpretation, and fundamental analysis, for assessing the intrinsic value of securities.
- Risk Management: Implementing risk management strategies, such as stop-loss orders and cautious use of leverage, is crucial to mitigate potential losses in the volatile day trading environment.
- Psychological Insight: Understanding market psychology and managing one's emotions are key factors in making disciplined and rational trading decisions.
- Ongoing Learning: Continuous learning and adapting to market changes, coupled with regular practice and review of past trades, are essential for long-term success in day trading.
Laying the Groundwork: Understanding Trading Basics
Embarking on your adventure into trading begins with laying a strong foundation in understanding the fundamentals. As a day trade beginner, grasping the basics of buying and selling stocks, market volatility, and day trading strategies is essential for your success.
This comprehensive guide will provide aspiring successful day trader with the knowledge and tools needed to navigate the world of trading. From setting up a brokerage account to mastering the art of technical and fundamental analysis, this article covers all the essentials to help you kickstart your day trading journey with confidence. So, let's dive in and lay the groundwork for a successful trading career in the stock market
Demystifying trading: A plain English explanation
Trading, at its core, is the act of buying and selling financial assets, such as stocks, currencies, or commodities, in the hope of making a profit. Day trading, specifically, is a type of trading where positions are opened and closed within the same trading day. This means that the day trader does not hold any positions overnight, and aims to capitalize on the market's short-term fluctuations.
To put it in plain English, imagine you're at a farmer's market buying apples at a low price and selling them at a higher price to make a profit. You would buy the apples in the morning and sell them in the afternoon during the lunch rush when people are willing to pay a higher price than what you initially paid.
Day trading typically involves a high volume of trades, with the day trader relying heavily on technical analysis, real-time news events, and market data to make informed decisions. The goal is to identify and execute trades that have the potential for quick gains. However, this trading style also comes with its share of risks, like market volatility. Don't forget that it is very easy to lose money in the stock market and you should never risk more than you can afford to lose.
Essential Day Trading Terms
To navigate the world of day trading, it's crucial to be familiar with key trading terms. Here are five essential terms that every beginner should know:
Bid and Ask: The bid price is the highest amount a buyer is willing to pay for a financial asset, while the ask price is the lowest amount a seller is willing to accept. The difference between the bid and ask prices is called the spread. A successful day trader will aim to capitalize on the fluctuations in the bid-ask spread to make profits.
Stop-Loss Order: A stop-loss order is a type of trading order that helps protect traders from significant losses by automatically selling a financial asset when it reaches a predetermined price level. This tool is essential in managing trade risk and preventing emotional decision-making during periods of market volatility. This one tool is critical to learn in your efforts to avoid losing money.
Leverage: Leverage is the use of borrowed money to increase the potential return on an investment. In day trading, leverage allows traders to control a larger position with a smaller amount of their own money. However, it's important to remember that while leverage can amplify gains, it can also amplify losses if the day trade goes against you.
Short Selling: Short selling is a strategy where a trader borrows shares of a financial asset from a brokerage firm, sells them at the current market price, and later buys them back at a lower price to return the borrowed shares. The goal is to profit from the decline in the asset's value. However, short selling can be risky, as potential losses are theoretically unlimited if the asset's price increases instead.
Market Order: A market order is an instruction to buy or sell a financial asset immediately at the best available market price. Market orders are typically used when the priority is to execute the trade quickly, rather than to obtain a specific price. The issue here is that the final execution price might differ from the quoted price due to market volatility and rapidly changing bid-ask spreads. Basically, you can end up paying a lot more than you ever expected!
Financial Markets: A Beginner's Overview
Financial markets facilitate the exchange of capital and risk transfer among market participants. As a beginner, it's important to be familiar with some of the key financial markets, such as the stock market, foreign exchange market (Forex market), commodities market, options market, crypto, and bond market.
The Stock Market
The stock market is a public marketplace where shares in publicly traded companies are bought and sold. A successful day trader will often focus on stocks or ETFs, seeking to profit from short-term price fluctuations.
The Forex Market
The Forex market is a decentralized global market that deals with currency trading, and is the largest and most liquid financial market. Forex traders aim to profit from fluctuations in exchange rates between currency pairs.
The Commodities Market
The commodities market deals with the trading of raw materials and primary products like crude oil, metals, and agricultural products. Traders can access this market through futures contracts or exchange-traded funds (ETFs).
The Options Market
The options market is a financial market where options contracts are traded, granting holders the right, but not the obligation, to buy or sell an underlying asset at a specific price before a predetermined expiration date.
The Bond Market
The bond market, also known as the debt market or fixed-income market, is for trading debt securities like government, corporate, and municipal bonds. While a day trader usually focuses on more liquid and volatile assets, bonds can still contribute to a diversified strategy.
The Cryptocurrency Market
Finally, we have the cryptocurrency markets, which can be centralized or decentralized, and allow for the buying and selling of many different currencies. Liquidity is dependent on the exchange being traded on so be cautious with your trading platform.
The Role of Technical and Fundamental Analysis in Day Trading
Technical and fundamental analysis are two key approaches that a day trader can use to evaluate and make decisions about securities. Here's a breakdown of their roles in day trading:
Technical Analysis
Technical analysis involves analyzing securities based on their historical price and volume data. Technical traders use charts and technical indicators to identify trends, patterns, and other signals that may indicate a buying or selling opportunity. This approach focuses on the price action of securities, rather than the underlying fundamentals. Technical analysis can help traders identify potential entry and exit points, set stop-loss orders, and manage risk.
Fundamental Analysis
Fundamental analysis involves analyzing securities based on their underlying financial and economic factors, such as earnings reports, economic indicators, and industry trends. Fundamental traders use this information to determine the value of a security and make decisions about buying or selling. This approach focuses on the underlying aspects of a security, rather than just its price action. Fundamental analysis can help traders identify undervalued or overvalued securities and make informed investment decisions.
In day trading, both technical and fundamental analysis can be used to evaluate securities and make decisions about trading opportunities. Technical analysis is often used to identify short-term price movements and trends, while fundamental analysis is used to identify long-term value and growth potential. Some traders may use a combination of both approaches to gain a more comprehensive understanding of the securities they're trading.
Day Trading Essentials: Building Your Foundation
What is day trading key concepts and definitions.
Day trading is a short-term trading strategy that involves buying and selling securities within the same trading day. The goal of day trading is to profit from intraday price movements in the markets, rather than holding positions for an extended period.
Here are some key concepts and definitions related to day trading:
Securities: Financial assets such as stocks, bonds, options, and futures that are bought and sold in financial markets.
Intraday: Occurring within the same trading day.
Buy and Sell: The act of purchasing and selling securities to profit from the price difference.
Trading Day: The period during which financial markets are open for trading.
Trading Strategies: Specific approaches and techniques used by traders to identify and capitalize on trading opportunities.
Market Volatility: The degree of variation in a security's price over a specific period.
Technical Analysis: A method of analyzing securities that relies on past market data and charts to identify potential trading opportunities.
Fundamental Analysis: An approach to analyzing securities that examine financial and economic factors such as earnings reports, industry trends, and company news.
Margin Trading: The practice of borrowing money from a broker to increase the buying power of a trading account.
Risk Management: The process of identifying and mitigating potential risks associated with trading.
Comparing Day Traders and Active Traders
Day traders and active traders are both types of investors who engage in frequent trading, but there are some key differences between the two.
Active traders typically hold positions for a few days to a few weeks and use various trading strategies, including swing trading and position trading, to capture market movements. They may also use fundamental analysis, technical analysis, and other tools to make investment decisions.
A Day trader, on the other hand, holds positions for a much shorter time, usually a few minutes to a few hours, and aim to profit from intraday price movements. They typically use technical analysis and chart patterns to identify potential trading opportunities and rely heavily on margin trading to increase their buying power.
Day traders and active traders also differ in terms of their trading frequency and the types of securities they trade. A Day trader will execute multiple day trades per day, while active traders may execute a few trades per week. Day traders primarily day trade stocks, options, and futures, while active traders may also day trade currencies, commodities, and other securities.
A Primer on Effective Day Trading Strategies
Effective day trading strategies can help traders identify and capitalize on intraday market movements. Here are some key strategies that day traders often use:
Scalping: A strategy that involves buying and selling securities quickly to profit from small price changes. A Scalping day trader may execute dozens of trades per day.
Momentum Trading: A strategy that involves buying securities that are trending up or selling securities that are trending down. Momentum day trader will look for securities with high trading volume and liquidity to increase their chances of success.
Breakout Trading: A strategy that involves buying securities when they break above a resistance level or selling securities when they break below a support level. A breakout trader will look for securities with high trading volume and volatility to maximize their profits.
News Trading: A strategy that involves buying or selling securities based on news events and earnings reports. A news based day trader rely on fundamental analysis to identify securities that are likely to be impacted by specific news events.
Reversal Trading: A strategy that involves buying securities that have fallen in price or selling securities that have risen in price. A reversal focused day trader will look for securities that are oversold or overbought and expect them to revert to their mean.
Trading & Taxes
Tax Implications for Day Traders
Day traders need to be aware of the tax implications of their trading activity. Day trading profits are taxable income, and traders must report their earnings correctly. Short-term capital gains tax rates are typically higher than long-term capital gains tax rates. The wash sale rule prohibits traders from claiming a tax loss on the sale of a security if they repurchase the same security within 30 days of the sale. Traders who elect mark-to-market accounting may deduct trading-related expenses, but must pay self-employment taxes on their net trading income. Day traders should keep accurate records and consult with a tax professional to ensure compliance with tax laws and regulations.
Pattern Day Trader (PDT)
A pattern day trader (PDT) is a classification given by the U.S. Securities and Exchange Commission (SEC) to traders who execute four or more "day trades" within five business days using a margin account. A "day trade" is defined as buying and selling the same security on the same day.
The pattern day trader rule was put in place to protect traders with limited funds from taking on too much risk. If a trader meets the definition of a PDT, they are required to maintain a minimum account equity of $25,000 in their margin account at all times.
If a trader executes more than three day trades within five business days and does not meet the minimum equity requirement, their account may be restricted from day trading until the minimum equity requirement is met. It's important to note that the PDT rule only applies to margin accounts, not cash accounts.
Overall, the PDT rule is designed to protect traders by limiting their risk exposure and ensuring that they have enough capital to cover potential losses. Traders need to understand the PDT rule and its implications before engaging in day trading activities.
Getting Started with Day Trading: Your First Steps
It's essential to take the right first steps to set the foundation for success in this fast-paced world. In this section, we will walk you through the initial stages of getting started with day trading, offering valuable insights and guidance to help you navigate the process with confidence and make informed decisions along the way.
Finding the right resources to learn trading
Finding the right resources to learn trading is crucial for beginners, as it helps build a solid knowledge base and develop essential skills for success. Begin by determining whether you learn best through reading, watching videos, participating in interactive courses, or a combination of these methods. This will help you focus on resources that cater to your preferred learning style.
Look for well-established educational platforms, renowned trading experts, or respected financial institutions that offer trading education. Ensure the information is up-to-date and relevant to your chosen market. Start with resources that cover the fundamentals of trading, such as terminology, market structure, and trading strategies, and gradually progress to more advanced topics as your understanding grows.
Engage with other traders in forums, social media groups, or chat rooms to exchange knowledge, experiences, and recommendations for educational resources. Be cautious of misinformation, and always verify claims before acting on them. Take advantage of webinars, workshops, or seminars led by experienced traders or industry professionals. These events can provide valuable insights, practical tips, and opportunities to ask questions.
While there are many free resources available, investing in a reputable paid course or mentorship program can provide a structured learning experience, personalized guidance, and additional resources to accelerate your progress. Regularly follow financial news, blogs, and podcasts to stay updated on market trends, economic indicators, and major events that can impact trading opportunities.
How to execute your first trade: A beginner's guide
Your first trade can seem daunting, but with the right approach and guidance, you can confidently execute your first trade. This beginner's guide will walk you through the essential steps to ensure a smooth and informed entry into the trading world, from choosing a reliable broker to learning from your experiences. Follow these steps to kick-start your trading career.
Step 1: Choose a reliable broker. Select a reputable brokerage firm that offers the necessary trading tools, competitive fees, and access to your desired financial markets. Look for a broker that caters to beginners and provides educational resources and customer support.
Step 2: Open a trading account. Follow the broker's account opening procedure, which typically involves providing personal information, verifying your identity, and selecting an account type. Fund your account with an initial deposit based on your risk tolerance and trading goals.
Step 3: Familiarize yourself with the trading platforms. Take the time to explore the different trading platforms features, such as order types, charting tools, and market data. Many brokers offer tutorials or demo accounts to help beginners become comfortable with the trading platforms before trading with real money.
Step 4: Develop a trading plan. Create a trading plan that outlines your objectives, risk management, and preferred trading strategies. This plan will serve as a roadmap, helping you make informed decisions and remain disciplined in your approach.
Step 5: Conduct research and analysis. Before executing your first trade, research the financial market and the specific asset you want to trade. Utilize technical and fundamental analysis to assess potential opportunities and risks.
Step 6: Place your order. Once you've identified a suitable trading opportunity, place your order through the trading platform. Choose the appropriate order type (e.g., market, limit, or stop), specify the quantity, and set any applicable stop-loss or take-profit levels to manage risk.
Step 7: Monitor your trade and manage risk. After executing the trade, closely monitor its performance and the overall market conditions. Be prepared to adjust your strategy or exit the position if necessary to protect your capital and adhere to your trading plan.
Step 8: Review and learn from your experience. Regardless of the outcome, review your trade and identify any lessons learned. Use this feedback to refine your trading plan and improve your decision-making process for future trades.
Assessing the risks and benefits of day trading
The primary advantage of day trading is the potential to generate significant profits in a short period, as traders capitalize on intraday stock price movements. Successful day traders can earn a living from trading, providing flexibility and independence in their work.
However, day trading also involves significant risks. The high volatility of the markets can result in substantial losses if traders fail to manage risk effectively or use leverage unwisely. Additionally, day trading requires a significant time commitment and a deep understanding of the markets, which can be challenging for beginners.
One of the most significant risks of day trading is the pattern day trader rule, which requires traders to maintain a minimum account balance of $25,000 and limits the number of day trades they can execute within a five-day period. Violating this rule can result in restrictions on trading and account suspension.
Day traders also rely heavily on their trading platform and tools, which can malfunction or experience technical issues, leading to missed opportunities or erroneous trades. News events, earnings reports, and other factors can also impact the markets and create unpredictable trading conditions.
Tips and Strategies for Successful Day Trading
In this section, we'll explore some effective tips and strategies for successful day trading. From risk management techniques to effective trading strategies, we'll cover the essentials that aspiring day traders need to know to navigate the fast-paced world of day trading.
5 Practical Day Trading Tips for Beginners
Here are 5 practical day trading tips for beginners:
Start Small: It's important to start small and only trade with money you can afford to lose. This will help you avoid significant losses and keep your emotions in check.
Develop a Strategy: Day traders should have a clear day trading strategy, which includes entry and exit points, risk management techniques, and a plan for managing trades.
Use Limit Orders: Limit orders allow traders to specify the price at which they want to buy or sell a security. This can help prevent significant losses if the market moves against your position.
Stay Informed: Day traders should stay informed about news events, earnings reports, and other factors that can impact the markets. This can help traders make informed decisions about their trades.
Practice, Practice, Practice: Before risking real money, it's important to practice your day trading strategy through paper trading or a demo account. This will help you refine your strategy and gain experience without incurring real losses.
Utilizing Advanced Trading Tools and Platforms
Utilizing advanced trading tools and platforms can provide a significant advantage for new traders. By taking the time to research and select the right platform, traders can gain access to a wide range of features and tools that can help them make more informed trading decisions. It's important to take the time to learn the different tools and features offered by the platform, such as charting tools, technical indicators, and real-time data.
Customizing your workspace can also help you organize your tools and data in a way that's most effective for your trading style. It's also important to practice using the platform with demo accounts before investing real money. This allows you to gain experience and become more familiar with the platform's features and capabilities.
As you start using advanced trading tools and platforms, it's important to monitor your performance closely. Use the platform's data and analytics tools to evaluate your trades and identify areas for improvement. This will allow you to refine your trading strategy and improve your overall performance over time. With dedication and discipline, new traders can utilize advanced trading tools and platforms to become more efficient and successful in the world of day trading.
Setting Realistic Expectations for Day Trading Success
Day trading can be an exciting and potentially lucrative endeavor, but it's important to approach it with realistic expectations. Many new traders are drawn to day trading because of the promise of quick profits and financial independence. However, the reality is that day trading is a challenging and highly competitive field that requires a significant amount of time, effort, and dedication to succeed. Here are some key factors to keep in mind when setting realistic expectations for day trading success:
Day trading involves taking on significant financial risk. While it is possible to make substantial profits, there is also a high potential for losses. It's important to understand the risks involved and to approach day trading with a sound risk management strategy.
Day trading requires a significant investment of time and effort to develop the skills and knowledge needed to succeed. Traders must be willing to invest time in learning about trading strategies, market analysis, and risk management. This may involve reading books, watching tutorials, and practicing in a simulated trading environment.
It's important to start small when beginning day trading. This means starting with a small amount of capital and gradually increasing it as you gain experience and confidence. Starting small can help you manage risk and avoid significant losses.
Day trading success does not happen overnight. It takes time and effort to develop the skills and knowledge needed to consistently make profitable trades. Traders must be patient and persistent in their efforts to achieve success.
It's important to have realistic expectations about the profits that can be made through day trading. While it is possible to make substantial profits, it's also important to recognize that losses are a normal part of trading. Traders should focus on developing a profitable trading strategy and managing risk rather than trying to make a quick profit.
Common Reasons Why Day Traders Fail and How To Avoid Them
Day trading can be a challenging and competitive field, and many traders fail to achieve success. Here are some common reasons why day traders fail and how to avoid these pitfalls:
One of the biggest reasons why day traders fail is a lack of knowledge and skills. Successful day traders have a deep understanding of trading strategies, market analysis, and risk management. To avoid this pitfall, traders should invest time in learning about trading and practice their skills in a simulated trading environment before risking real money.
Another common reason why day traders fail is that they allow emotions to influence their trading decisions. Successful traders can stay calm and objective, even when the market is volatile or their trades are losing money. To avoid this pitfall, traders should develop a trading plan and stick to it, regardless of market conditions or emotional impulses.
Overtrading is another common mistake made by day traders. This occurs when traders make too many trades in a short period of time, leading to excessive transaction costs and increased risk of losses. To avoid this pitfall, traders should focus on quality over quantity and only make trades when there is a clear and profitable opportunity.
Successful day traders have a solid risk management strategy that allows them to limit losses and maximize profits. Traders who fail often need better risk management practices, such as not setting stop-loss orders or trading with too much leverage. To avoid this pitfall, traders should develop a sound risk management strategy and stick to it.
Day trading requires a great deal of patience and discipline. Traders who lack these qualities often make impulsive or reckless trades, leading to losses. To avoid this pitfall, traders should be patient and disciplined in their approach to trading, sticking to their trading plan and avoiding emotional decisions.
Setting Achievable Goals and Maintaining a Growth Mindset
To become a successful day trader, setting achievable goals and maintaining a growth mindset are essential. Here are some tips to help you achieve your goals:
The first step is to define what you want to achieve. Make sure your goals are specific, measurable, and realistic. This will help you stay focused and motivated.
Next breaking down the goals into smaller, achievable steps is a great way to stay motivated and focused on progress. You will find it easier to achieve your goals if you break them down into smaller, achievable milestones.
Developing a plan is essential for achieving your goals. Develop a plan that outlines the actions you need to take to achieve your goals. Make sure your plan is flexible and adaptable to changes in the market.
To achieve your goals, you need to stay focused and avoid distractions. This means avoiding social media and other time-wasting activities during trading hours.
Regularly reviewing your goals and assessing how you are doing is important to stay motivated and track your progress. Celebrate your successes and use any setbacks as an opportunity to learn and improve.
Maintaining a growth mindset means believing that your abilities and skills can be developed through hard work and dedication. It is essential for success in day trading as it encourages you to view mistakes and setbacks as opportunities to learn and improve.
The Importance of Market Psychology in Day Trading
Market psychology is crucial in day trading, as it can significantly impact traders' decision-making and trading performance. Traders need to understand the psychological factors that drive market movements, such as fear, greed, and herd mentality.
Successful day traders are not only skilled in analyzing charts and executing trades, but they also have a strong understanding of market psychology. They can manage their emotions and maintain discipline, even in high-stress situations. This allows them to make rational decisions based on their trading strategy, rather than reacting emotionally to market movements.
Moreover, understanding market psychology can help day traders identify and take advantage of market inefficiencies and opportunities. Traders who can accurately predict market sentiment and investor behavior can position themselves to profit from market movements.
6 Tips for Managing Emotions in Day Trading
Managing emotions is one of the most challenging aspects of day trading. Emotions such as fear, greed, and anxiety can cloud a trader's judgment and lead to irrational decision-making. Here are some tips to help manage emotions in day trading:
Develop a trading plan: Having a well-defined trading plan can help reduce emotional responses to market fluctuations. Traders who have a plan in place are less likely to react impulsively to market movements.
Stick to your trading plan: Once you have a trading plan, it is essential to stick to it. Avoid making impulsive decisions based on emotions, and instead, rely on the trading plan's rules.
Practice risk management: Managing risk is a crucial aspect of day trading. Traders should always have a stop-loss order in place to minimize losses if the market moves against them.
Take breaks: Day trading can be mentally exhausting. Traders should take regular breaks to clear their minds and refocus their attention.
Keep a trading journal: A trading journal can help traders identify patterns in their emotional responses to different market conditions. By tracking their emotions, traders can develop strategies to manage them more effectively.
Seek support: It's important to have a support system in place to help manage the emotional challenges of day trading. This can include talking to a mentor or joining a trading community.
Final Thoughts and Next Steps for Aspiring Day Traders
Day trading can be a lucrative and exciting way to invest in the financial markets. However, it also involves significant risks, and beginners should approach it with caution. It is essential to have a solid understanding of the fundamentals of day trading, including trading strategies, risk management, and technical and fundamental analysis. Additionally, day traders must be prepared to manage their emotions and maintain a growth mindset, while setting realistic goals and developing a well-defined trading plan. By following these principles and continuously learning and adapting, aspiring day traders can increase their chances of success in this challenging yet rewarding field.
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How to start trading with a small account – Avoid pattern day trader rule
When I started out trading back in 2020, there was the allure of starting with a small amount of money and turning it into a large fortune. Since then I have learned several ways of starting with a small amount of money, and growing it exponentially, without having to deal with the Pattern Day Trader Rule (PDT Rule) restrictions. What follows will be the best ways to avoid the PDT restrictions, but first, what is the PDT rule?
Pattern Day Trading Rule
The PDT Rule:
A pattern day trader (PDT) is a trader who executes four or more day trades within five business days using the same account. Pattern day trading is automatically identified by one’s broker, and PDTs are subject to additional regulatory scrutiny and limitations.
Unfortunately, Pattern day traders are required to hold $25,000 in their margin accounts. If the account drops below $25,000, they will be prohibited from making any further day trades until the balance is brought back up.
Alternatives:
To Avoid the $25,000 requirements there are a few ways around to start trading now with as little as $50:
Avoid intraday trades. By not opening and closing a position within one day, you can avoid the PDT rule entirely. Only open and close trades when one day has passed, you can save up your 3-free intraday trades for emergencies when you need to get out of a position.
Trade Futures. My favorite option is to trade the futures market, there are many brokers that let you trade futures with as little as $50. In the past I have grown accounts from $250 to $4,000 USD in just 2 short months. After trying futures and understanding the margin/movements you’ll probably be hooked just like me. Just be aware futures have a lot of leverage.
Trade FOREX. Foreign exchange (FOREX) markets, similarly to futures, are exempt from capital requirements. This means you can start trading FOREX with very little money. This is often safer than futures, because futures have a lot of leverage.
Open an offshore trading account. This is the real fourth option. However, I don’t really recommend this. Still, some traders might choose to do this because only US brokers have to follow the FINRA and SEC rules including PDT. This should be the last option because it is less safe than the others.
There we have it, my best options for new-traders to start with a small account and turn it into a large stockpile. It will take some time, but even if you only made 3% a day, you can turn $500 into $1,000,000 in one year! Pretty crazy to think about.
FURTHER DISCLOSURES AND DISCLAIMER CONCERNING RISK, RESPONSIBILITY AND LIABILITY Trading in the Foreign Exchange market is a challenging opportunity where above average returns are available for educated and experienced investors who are willing to take above average risk. However, before deciding to participate in Foreign Exchange (FX) trading, you should carefully consider your investment objectives, level of xperience and risk appetite. Do not invest or trade capital you cannot afford to lose. EME PROCESSING AND CONSULTING, LLC, THEIR REPRESENTATIVES, AND ANYONE WORKING FOR OR WITHIN WWW.ELLIOTTWAVE- FORECAST.COM is not responsible for any loss from any form of distributed advice, signal, analysis, or content. Again, we fully DISCLOSE to the Subscriber base that the Service as a whole, the individual Parties, Representatives, or owners shall not be liable to any and all Subscribers for any losses or damages as a result of any action taken by the Subscriber from any trade idea or signal posted on the website(s) distributed through any form of social-media, email, the website, and/or any other electronic, written, verbal, or future form of communication . All analysis, trading signals, trading recommendations, all charts, communicated interpretations of the wave counts, and all content from any media form produced by www.Elliottwave-forecast.com and/or the Representatives are solely the opinions and best efforts of the respective author(s). In general Forex instruments are highly leveraged, and traders can lose some or all of their initial margin funds. All content provided by www.Elliottwave-forecast.com is expressed in good faith and is intended to help Subscribers succeed in the marketplace, but it is never guaranteed. There is no “holy grail” to trading or forecasting the market and we are wrong sometimes like everyone else. Please understand and accept the risk involved when making any trading and/or investment decision. UNDERSTAND that all the content we provide is protected through copyright of EME PROCESSING AND CONSULTING, LLC. It is illegal to disseminate in any form of communication any part or all of our proprietary information without specific authorization. UNDERSTAND that you also agree to not allow persons that are not PAID SUBSCRIBERS to view any of the content not released publicly. IF YOU ARE FOUND TO BE IN VIOLATION OF THESE RESTRICTIONS you or your firm (as the Subscriber) will be charged fully with no discount for one year subscription to our Premium Plus Plan at $1,799.88 for EACH person or firm who received any of our content illegally through the respected intermediary’s (Subscriber in violation of terms) channel(s) of communication.
Editors’ Picks
Eur/usd stays in positive territory near 1.1000, looks to post weekly gains.
EUR/USD trades modestly higher on the day at around 1.1000 in the American session on Friday. Although the cautious market stance limits the upside, the pair remains on track to post its highest weekly close of 2024.
GBP/USD climbs to multi-week highs above 1.2900
GBP/USD trades at its highest level in three weeks at around 1.2900 in the American session on Friday. The bearish opening seen in Wall Street points to a negative tilt in risk mood and makes it difficult for the pair to gather further bullish momentum.
USD/JPY extends pullback below 149.00 despite upbeat mood
USD/JPY extends losses below 149.00 early Friday, reversing the overnight rise to a nearly two-week high. The divergent BoJ-Fed policy expectations continue to weigh on the pair, though the risk-on mood could undermine the safe-haven Japanese Yen and help limit the pair's downside.
Editors’ Picks
Gold retreats after setting a new record high of $2,500.
Gold stages a technical correction and trades below $2,490 after setting a new record high of $2,500 earlier in the day, boosted by falling US Treasury bond yields. Profit-taking could ramp up the volatility heading into the weekend.
Dogecoin price is set for a downturn as it encounters its resistance barrier
Dogecoin price is testing the resistance around the 100-day EMA at $0.1073, with an impending decline ahead. On-chain data shows DOGE's daily active addresses decreasing and dormant wallets moving again, signaling a bearish move.
Easing inflation worries despite robust sales data
The market mood got a further boost yesterday after the latest data release from he US hinted that the economy is not doing that bad, after all.
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What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.
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MORE FROM VAULT
7 Best Trading Platforms for Day Trading of August 2024
Contributor
Dori Zinn is a personal finance journalist with more than a decade of experience covering credit, debt, investing, budgeting, saving, retirement, college affordability, jobs and careers and more. She loves helping people learn about money.
Robert Thorpe
Senior Editor
Robert is a senior editor at Newsweek, specializing in a range of personal finance topics, including credit cards, loans and banking. Prior to Newsweek, he worked at Bankrate as the lead editor for small business loans and as a credit cards writer and editor. He has also written and edited for CreditCards.com, The Points Guy and The Motley Fool Ascent.
Updated August 15, 2024 at 7:37 pm
The best day trading platform has the latest research and data, low fees and easy access to making trades wherever you are.
Day trading is a popular strategy where investors buy and sell securities quickly within a day. But this strategy requires a lot of work and attention, and a previous study by the University of California, Berkeley suggests only 13% of day traders were successful.
If you want to succeed at day trading, the right brokerage or online trading platform can help. The best day trading platforms offer low commissions and fees and top-of-the-line features Whether you’re a current day trader or looking to become one, here are a few of the best trading platforms for day trading.
Our research is designed to provide you with a comprehensive understanding of personal finance services and products that best suit your needs. To help you in the decision-making process, our expert contributors compare common preferences and potential pain points, such as affordability, accessibility, and credibility.
Best Overall: Interactive Brokers
- Best for platform options: Charles Schwab
- Best for promos: SoFi investing
- Best for commission-free trading: Fidelity
- Best mobile app: E*TRADE
- Best basic beginners: Ally Invest
- Best bank pairing: Merrill Edge
Best Day-Trading Platforms of 2024
Interactive Brokers
Vault Verified
Why We Chose It
Why we chose it: With low rates, two service tiers to choose from and advanced trading tools and insight, Interactive Brokers offers a wealth of features for new and advanced day traders.
- Customizable dashboard
- Discounts for large volumes
- Low per-share pricing
- Lots of tradable assets and securities, including crypto
- Big learning curve for new day traders
- Pricing tiers can be hard to understand
- Some features only available on certain tiers
Additional Information*
- Cost per stock: $0.005 per share for IBKR Pro, $0 for IBKR Lite
- Cost per options: $0.65 per contract
- Earn $200 for each referral. Restrictions apply
Best for Platform Options: Charles Schwab
Charles Schwab
Why we chose it: You get to pick between multiple trading platforms with few or no fees, and Schwab’s Day Trade Buying Power feature helps you avoid triggering a margin call. And with an impressive list of educational resources, Schwab makes it easy to move from novice to advanced day trader.
- Desktop and mobile platforms for different levels of day traders
- Detailed research and education data
- Large selection of funds to trade
- No crypto trading available
- Limited fractional shares available
- $0 for stocks and ETFs; $0.65 per-contract fee for options; $2.25 per contract for futures
- Get up to $1,000 when referred and become a new Schwab client. Referral code required.
Best for Promos: SoFi Investing
Why we chose it: SoFi is one of the best active investing apps for beginners thanks to commission-free trades, fractional shares and free financial planning. It also offer discounts and promotions on investing and other financial products.
- Fractional shares available for as little as $5
- Easy to access, manage and navigate
- Mobile app for on-the-go trades
- No mutual funds
- No tax-loss harvesting available
- Get up to $1,000 in free stock when you sign up for a new account and download the mobile app; referral bonus; discounts on other SoFi products as a member
Best for Commission-Free Trading: Fidelity
Why we chose it: For low costs and extensive research tools, Fidelity is one of the best trading platforms for day traders. It also offers stellar customer support, minimal or no fees and gives you a mountain of options through its mobile app.
- Offers extensive mutual funds trading
- Fractional shares available
- Desktop and mobile app platforms
- International investing available
- Offers crypto trading separately
- No futures or forex options
- High fees if you get broker assistance
- Cost per stock trades: $0
- Cost per options trade: $0.65 per contract
Best for Mobile App: E*TRADE
Why we chose it: E*TRADE’s two mobile apps feature powerful tools that can help any type of investor. Features include streaming quotes and news. It also offers access to financial consultants and deep research.
- Individual, joint and custodial accounts available
- No commissions for stocks, options, ETFs and mutual funds
- Easy-to-use mobile apps
- Limited fractional share options
- No forex trading
- Crypto investing separate option
- $0 for stocks, options, mutual funds and ETFs; $0.65 for options contracts, $1 for bonds and $1.50 futures contracts
- Open a new brokerage account and get $100 to $1,000, depending on your deposit amount
Best for Basic Beginners: Ally Invest
Why we chose it: Ally has expanded its online-only options from more than just savings accounts and loans. Now with Ally Invest, beginners can get started with low trading costs and 24/7 customer service.
- Low-cost trading
- Rich research and data available
- Can move uninvested cash into high-yield savings account
- No fractional shares
- No interest earned on uninvested cash
- $0 for stocks, ETFs and mutual funds; $0.50 per options contract; 0.75-0.85% annual advisory fee
Best Bank Pairing: Merrill Edge
Merrill Edge
Why we chose it: Merrill Edge offers plenty of robust features, including research tools from Morningstar and CFRA. Plus Bank of America customers can enjoy quick money transfers and view all eligible account balances for both.
- Seamless integration with Bank of America
- Quick trade feature lets you make a trade from nearly anywhere
- Plenty of research and educational tools
- No IPO access
- $0 for stocks and ETFs; $0.65 per-contract for options
- Preferred rewards program available for current Bank of America customers; guided investing free 6-months with fee waiver
What Risks Should You Consider With Day Trading Apps?
If you want to get into day trading or you’re looking to move your money from one broker to another, make sure you’re aware of the risks.
While the rewards for day trading can be significantly higher than other investments, it comes with a lot of risk. Some day trading platforms have a high minimum account balance requirement—upwards of $25,000 and more, depending on the broker—which not everyone has.
Aside from balance requirements and market conditions, also be mindful of the day trading apps themselves. For instance, you’re at the mercy of machines. So there’s bound to be technical difficulties or failures. You might also run into security breaches. Check to see what security measures potential brokers are taking to make sure your money is safe when using their platforms.
How Much Do You Need To Start Day Trading?
Many online brokers have minimum deposit amounts as low as $0. But there are some key differences in regular trades and pattern day trading (PDT), which can impact how much you need to get started with day trading.
According to the Financial Industry Regulatory Authority (FINRA), a pattern day trader is someone who makes four or more day trades within five business days. Pattern day traders must have at least $25,000 and maintain that minimum equity amount in their margin account on any day trades are made.
If you’re just making trades, there’s no minimum set requirement for all brokerages to follow. So it varies based on where you plan to open your account and move your money around.
Why Would You Need a Trading App Geared for Day Trading?
An online trading application makes day trading easy for a few reasons. You can check out detailed history on a particular investment as well as research companies you want to trade. Some platforms make it easy to invest in alternative investments, fractional shares and international exchanges.
Before trading platforms, you’d have to call a broker to make and manage trades. This removes the broker as the middleman and you can initiate trades almost instantaneously. It also saves you from losing money, since you don’t have to pay a stockbroker to make the trades, and you’re not waiting on another person to initiate the trade for you.
How to Choose the Best Day Trading App for You
Everyone has different standards and expectations from trading platforms. Day traders are typically experienced in the market and it’s an extremely risky endeavor. So if you don’t know what you’re doing or you don’t have the right tools available, it could also become a very expensive experience.
Day traders act fast. You’ll need fast internet yourself but you’re also at the mercy of another company to trust that it’s trying to act as swiftly as possible on your behalf. Executing quick transactions is paramount to making sure your order goes through as fast as possible.
Tradable Assets
The more options you have, the more trades you can execute. That comes down to how many choices you have in individual stocks, bonds, mutual funds, ETFs, options and more. For most folks, the more choices, the better.
Educational Tools and Resources
Day traders want to explore the history of companies and stocks before making their decision. The more robust the platform is, the more educated they become on potential trades. Look for a day trading platform with robust educational resources. Data and charts can make a world of difference between a good platform and a bad one, so easy-to-navigate educational data is important.
Day Trading Platforms vs. Trading Platforms for Investing
Some folks are active day traders while others are casual traders. So the platform you use matters. Here are some comparisons to regular trading platforms.
Charles Schwab vs. Fidelity
These are two of the most popular brokerages right now that are good for most investors. Schwab offers more no-fee mutual funds but doesn’t offer forex. Fidelity doesn’t offer crypto investing or futures, but charges less for mutual funds that aren’t on the no-fee list than Schwab. With more international trading opportunities, day traders might be more inclined to go with Charles Schwab, while regular, active traders may go with Fidelity.
SoFi vs. Ally
Ally and SoFi have about the same amount of investment options and are great options for novice active investors. But both are more suited for regular trading applications rather than day trading. Ally might be better than SoFi for research and product opportunities.
E*TRADE vs. Merrill Edge
Merrill makes it easier to open and manage an account and has better customer service than E*TRADE. But E*TRADE has more research and educational data than Merrill, which is a win for active traders.
Frequently Asked Questions
What trading platform do most day traders use.
The type of trading platform most folks use depends on the type of trader they are. While Interactive Brokers might be one of the best options for day traders, other types of traders may like the variety of Charles Schwab or the versatility of Fidelity. New traders may appreciate Ally Invest or SoFi Investing. The right one for you may not be the right one for others.
What Type Of Trading Is Best For Day Trading?
While you can also trade bonds, mutual funds, and even exchange-traded funds (ETFs), stocks are still a big favorite among day traders.
How Much Do The Top 1% Of Day Traders Make?
The average annual salary of a day trader is almost $97,000, according to ZipRecruitier . The very top earners are getting upwards of around $185,000 a year while others traders may earn anywhere from $56,000 to $105,000.
Editorial Note: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, hotel, airline or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post. We may earn a commission from partner links on Newsweek, but commissions do not affect our editors’ opinions or evaluations.
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Global stocks climb as US recession fears ease
The stock index of the UK's biggest publicly-listed companies edged higher on Friday after concerns eased over the state of the US economy.
The FTSE 100, which is made up of the country's biggest businesses including banks, airlines and housebuilders, rose in early trading.
It follows stronger trading in the US where stock markets had their best day in almost two years on Thursday.
Global financial markets have been spooked in the past seven days over fears that world's biggest economy could be heading for a slowdown.
But on Thursday, official data revealed US unemployment claims rose by less than expected.
The benchmark S&P 500 index ended the day 2.3% higher. The Dow Jones Industrial Average rose 1.8%, and the Nasdaq jumped 2.9%.
In London, the FTSE 100 ticked up 0.7%. Stock markets indexes in Paris and Frankfurt followed a similar path.
Stocks in Asia made modest gains, recovering some of the losses after Japanese indexes had their worst day since 1987 earlier in the week.
"The [US] latest jobless claims data, though not normally a major market event, supports the view that recent pessimism may have been overdone," said UBS Global Wealth Management.
Official figures from the US Labor Department showed first-time claims for unemployment benefits in the US had fallen more than expected to 233,000 last week.
But despite the apparent recovery in global markets, analysts warn that trading will likely remain choppy for the time being.
Is the US really heading for recession?
Us stocks tumble on fears over slower growth.
"The market volatility is creating trading opportunities for investors over the short term," said Peter McGuire from trading platform XM.com.
"It will be a bumpy ride over the election season and we all await the [US Federal Reserve] policy decision in September."
The Federal Reserve held off cutting interest rates last week - something that typically boosts growth - in contrast to other central banks such as the Bank of England .
But, this week's market upheaval stoked further speculation about when - and by how much - the Fed will cut borrowing costs.
"[The] Fed is now likely to cut rates up to 50bps in September which in turn supports expanding valuation for the market," said Jun Bei Liu, portfolio manager at Tribeca Investment Partners.
Money blog: Couples reveal how they split finances when one earns more than other
Welcome to the Money, your place for personal finance and consumer news and tips. Read our weekend feature on relationship finances below and let us know how you and your partner divide money in the comments box. We'll be back with live updates on Monday.
Saturday 17 August 2024 12:43, UK
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Ask a question or make a comment
By Emily Mee , news reporter
Openly discussing how you split your finances with your partner feels pretty taboo - even among friends.
As a consequence, it can be difficult to know how to approach these conversations with our partner or what is largely considered fair - especially if there's a big imbalance salary-wise.
Research by Hargreaves Lansdown suggests in an average household with a couple, three-quarters of the income is earned by one person.
Even when there is a large disparity, some couples will want to pay the same amount on bills as they want to contribute equally.
But for others, one partner can feel resentful if they are spending all of their money on bills while the other has much more to spend and is living a different lifestyle as a result.
At what stage of the relationship can you talk about money?
"We've kind of formally agreed there is some point in a relationship you start talking about kids - there is no generally agreed time that we start talking about money," says Sarah Coles, head of personal finance at Hargreaves Lansdown.
Some couples may never get around to mentioning it, leading to "lopsided finances".
Ms Coles says if you want to keep on top of finances with your partner, you could set a specific date in the year that you go through it all.
"If it's in the diary and it's not emotional and it's not personal then you can properly go through it," she says.
"It's not a question of 'you need to pull more weight'. It's purely just this is what we've agreed, this is the maths and this is how we need to do that."
While many people start talking about finances around Christmas, Ms Coles suggests this can be a "trying time" for couples so February might be a "less emotional time to sit down".
How do you have the conversation if you feel the current arrangement is unfair?
Relationship counsellor at Relate , Peter Saddington, says that setting out the balance as "unfair" shouldn't be your starting point.
You need to be honest about your position, he says, but your conversation should be negotiating as a couple what works for both of you.
Before you have to jump into the conversation, think about:
- Letting your partner know in advance rather than springing it on them;
- Making sure you and your partner haven't drunk alcohol before having the conversation, as this can make it easy for it to spiral;
- Having all the facts to hand, so you know exactly how much you are spending;
- Using 'I' statements rather than 'you'. For example, you could say to your partner: "I'm really worried about my finances and I would like to sit down and talk about how we manage it. Can we plan a time when we can sit down and do it?"
Mr Saddington says if your partner is not willing to help, you should look at the reasons or question if there are other things in the relationship that need sorting out.
If you're having repeated arguments about money, he says you might have opposite communication styles causing you to "keep headbutting".
Another reason could be there is a "big resentment" lurking in the background - and it may be that you need a third party such as a counsellor, therapist or mediator to help resolve it.
Mr Saddington says there needs to be a "safe space" to have these conversations, and that a third party can help untangle resentments from what is happening now.
He also suggests considering both of your attitudes to money, which he says can be formed by your early life and your family.
"If you grew up in a family where there wasn't any money, or it wasn't talked about, or it was pushed that you save instead of spend, and the other person had the opposite, you can see where those conversations go horribly wrong.
"Understanding what influences each of you when it comes to money is important to do before you have significant conversations about it."
What are the different ways you can split your finances?
There's no one-size-fits-all approach, but there are several ways you can do it - with Money blog readers getting in touch to let us know their approach...
1. Separate personal accounts - both pay the same amount into a joint account regardless of income
Paul Fuller, 40, earns approximately £40,000 a year while his wife earns about £70,000.
They each have separate accounts, including savings accounts, but they pay the same amount (£900) each a month into a joint account to pay for their bills.
Paul says this pays for the things they both benefit from or have a responsibility for, but when it comes to other spending his wife should be able to spend as she likes.
"It's not for me to turn around to my wife and expect her to justify why she thinks it's appropriate to spend £150 in a hairdresser. She works her backside off and she has a very stressful job," he says.
However, their arrangement is still flexible. Their mortgage is going up by £350 a month soon, so his wife has agreed to pay £200 of that.
And if his wife wants a takeaway but he can't afford to pay for it, she'll say it's on her.
"Where a lot of people go wrong is being unable to have those conversations," says Paul.
2. Separate personal accounts - whoever earns the most puts more into a joint account
This is a more formal arrangement than the hybrid approach Paul and his wife use, and many Money blog readers seem to do this in one form or another judging by our inbox.
There's no right or wrong way to do the maths - you could both put in the same percentage of your individual salaries, or come up with a figure you think is fair, or ensure you're both left with the same amount of spending money after each payday.
3. Everything is shared
Gordon Hurd and his wife Brenda live by their spreadsheet.
Brenda earns about £800 more a month as she is working full-time while Gordon is freelance. Previously Gordon had been the breadwinner - so it's a big turnaround.
They each have separate accounts with different banks, but they can both access the two accounts.
How much is left in each account - and their incomings and outgoings - is all detailed in the spreadsheet, which is managed weekly.
Whenever they need to buy something, they can see how much is left in each account and pay from either one.
Gordon says this means "everyone knows how much is available" and "each person's money belongs to the other".
"We have never in the last decade had a single disagreement about money and that is because of this strategy," he says.
Money blog reader Shredder79 got in touch to say he takes a similar approach.
"I earn £50k and my wife earns just under £150k. We have one joint bank account that our wages go into and all our outgoings come out of. Some friends can't get their head around that but it's normal for us."
Another reader, Curtis, also puts his wages into a joint account with his wife.
"After all, when you have a family (three kids) it shouldn't matter who earns more or less!" he says.
Reader Alec goes further and says he questions "the authenticity of any long-term relationship or the certainly of a marriage if a couple does not completely share a bank account for all earnings and all outgoings".
"As for earning significantly more than the other, so what? If you are one couple or long-term partnership you are one team and you simply communicate and share everything," he says.
"Personally I couldn't imagine doing it any other way and I do instinctively wonder what issues or insecurities, whether it be in trust or something else, sit beneath the need to feel like you need to keep your finances separate from one another, especially if you are a married couple."
A reader going by the name lljdc agrees, saying: "I earn half of what my husband does because I work part-time. Neither of us has a solo account. We have one joint account and everything goes into this and we just spend it however we like. All bills come out of this too. Sometimes I spend more, sometimes he spends more."
4. Separate accounts - but the higher earner pays their partner an 'allowance'
If one partner is earning much more than the other, or one partner isn't earning for whatever reason, they could keep separate accounts and have the higher earner pay their partner an allowance.
This would see them transfer an agreed amount each week or month to their partner's account.
Let us know how you and your partner talk about and split finances in the comments box - we'll feature some of the best next week
By Jimmy Rice, Money blog editor
The centre-point of a significant week in the economy was inflation data, released first thing on Wednesday, that showed price rises accelerated in July to 2.2%.
Economists attributed part of the rise to energy prices - which have fallen this year, but at a much slower rate than they did last year.
As our business correspondent Paul Kelso pointed out, it felt like the kind of mild fluctuation we can probably expect month to month now that sky high price hikes are behind us, though analysts do expect inflation to tick up further through the remainder of the year...
Underneath the bonnet, service inflation, taking in restaurants and hotels, dropped from 5.7% to 5.2%.
This is important because a large part of this is wages - and they've been a concern for the Bank of England as they plot a route for interest rates.
On Tuesday we learned average weekly earnings had also fallen - from 5.7% to 5.4% in the latest statistics.
High wages can be inflationary (1/ people have more to spend, 2/ employers might raise prices to cover staff costs), so any easing will only aid the case for a less restrictive monetary policy. Or, to put it in words most people use, the case for interest rate cuts.
Markets think there'll be two more cuts this year - nothing has changed there.
Away from the economy, official data also illustrated the pain being felt by renters across the UK.
The ONS said:
- Average UK private rents increased by 8.6% in the 12 months to July 2024, unchanged from in the 12 months to June 2024;
- Average rents increased to £1,319 (8.6%) in England, £748 (7.9%) in Wales, and £965 (8.2%) in Scotland;
- In Northern Ireland, average rents increased by 10% in the 12 months to May 2024;
- In England, rents inflation was highest in London (9.7%) and lowest in the North East (6.1%).
Yesterday, we found the UK economy grew 0.6% over three months to the end of June.
That growth rate was the second highest among the G7 group of industrialised nations - only the United States performed better with 0.7%, though Japan and Germany have yet to released their latest data.
Interestingly, there was no growth at all in June, the Office for National Statistics said, as businesses delayed purchases until after the general election.
"In a range of industries across the economy, businesses stated that customers were delaying placing orders until the outcome of the election was known," the ONS said.
Finally, a shout for this analysis from business presenter Ian King examining what's gone wrong at Asda. It's been one of our most read articles this week and is well worth five minutes of your Friday commute or weekend...
We're signing out of regular updates now until Monday - but do check out our weekend read from 8am on Saturday. This week we're examining how couples who earn different amounts split their finances.
Each week we feature comments from Money blog readers on the story or stories that elicited most correspondence.
Our weekend probe into the myriad reasons for pub closures in the UK prompted hundreds of comments.
Landlords and campaigners, researchers and residents revealed to Sky News the "thousand cuts" killing Britain's boozers - and what it takes to survive the assault.
Here was your take on the subject...
I've been a publican for 19 years. This article is bang on! It's like you've overheard my conversations with my customers - COVID, cost of living, wages - the traditional British boozer going out of fashion. (My place: no food, no small children). Hey Jood
I own a small craft ale bar or micropub as some say. The current climate is sickening for the whole hospitality sector. This summer has been ridiculously quiet compared to previous ones. Micropubs were on the rise pre-COVID, but not now even we're struggling to survive… Lauren
I am an ex-landlord. It's ridiculous you can buy 10 cans for £10 or one pint for £5 now. It's not rocket science, it's a no-brainer: reverse the situation. Make supermarket beer more expensive than pub beer, then people will start to go out and mix again rather than getting drunk at home. Ivanlordpeers
Bought four pints of my regular drink at a supermarket for less than one pint in our local pub. It's becoming a luxury to go to a pub these days. Torquay David
Traditional pubs are being taken over by conglomerates who don't sell traditional beer, only very expensive lager, usually foreign, and other similar gassy drinks. How can they be called traditional pubs? Bronzestraw
The main reason for pubs closing is twofold! 1: The out-of-reach rents that the big groups charge landlords. 2: Landlords are told what stock they can hold and restrict where they can purchase it from. Strange, but most pubs belonged to the same groups! A pub-goer
Less pubs are managed now, pub companies are changing them to managed partnerships, putting the pressure onto inexperienced young ex-managers. Locals complain that their local pub has gone. but they don't use them enough. Can government regulate rents and beer prices for business owners? John Darkins
I was a brewery tenant in Scotland for many years and sequestrated because of the constant grabbing at my money by greedy brewers who wanted more and more. I made my pub very successful and was penalised by the brewery. James MacQuarrie
The only reason pubs are closing is locals only use them on Boxing Day, New Year's Eve, and one Sunday a year. Plus breweries don't need pubs, they sell enough through supermarkets! Use them or lose them. Peter Smith
The closing of pubs is a terrible shame. I still go to my local and have great memories of getting drunk in many in my hometown. They are important places in society. As someone once said: "No good story ever started with a salad." Kev K
It's the taxman killing pubs. £1 of every £3 sold. Utter disgrace. Stef
I go with my girlfriend, Prue, every day to my local. It's a shame what's happening to prices. It used to be full of people and joy but now it's a ghost town in the pub since prices are too high now. I wish we could turn back time and find out what went wrong. Niall Benson
Minimum wage is around £11 and the tax threshold is £12,600 per year. How can you possibly afford a night in a pub out when a pint costs between £3 and £8 a pint on those wages? Allan7777blue
Unfortunately, the very people who have kept these establishments going over the years (the working man) have been priced out, and they're paying the price. Dandexter
The pubs are too expensive for people to go out regularly as we once did a decade or so ago. People's priorities are on survival, not recreation. Until the living wage increases beyond an inflation that wages haven't risen above in years, then we will see shops, pubs, etc. close JD
Who wants to spend hard-earned money going into a pub that's nearly always empty. It takes away one of the main attractions - socialising. Michael
Monzo has been named the best bank in the UK for customer satisfaction, according to a major survey.
More than 17,000 personal current account customers rated their bank on the quality of its services and how likely they would be to recommend to friends or family.
Digital banks made up the top three, with Monzo coming out on top, followed by Starling Bank and then Chase.
Some 80% of Monzo customers said they would recommend the bank.
The digital banking app said topping the tables "time and time again" was not something it would "ever take for granted".
Royal Bank of Scotland (RBS) was bottom of the ranking for another year.
The banks with the best services in branches were Nationwide, Lloyds Bank and Metro Bank.
Gail's bakery chain has come under fire for repurposing unsold pastries into croissants and selling them for almost £4 the next day.
The retailer lists the "twice baked" chocolate almond croissants as part of its "Waste Not" range, which means it is made using leftover croissants that are then "topped with almond frangipane and flaked almonds".
The scheme has been hit with criticism online, with many pointing out the £3.90 price tag is 95p more than the original croissant.
One X user said: "The audacity of bragging about it being part of their 'Waste Not' range like we should be grateful to them and proud of ourselves for contributing to reducing food waste when they could just sell it for less money – not one pound more than yesterday.
"Unsure whether to be impressed or horrified that someone has come up with a concept to capitalise on yellow sticker goods to make more profit."
It should be added, however, that the practice was not invented by Gail's - and almond croissants were originally created by French boulangeries to reuse day-old croissants and stop them going stale.
When factoring in the extra ingredients (almond frangipane and flaked almonds) and baking time, the bakery chain would likely defend the increased price by pointing to the additional costs incurred.
It comes as locals in a trendy London neighbourhood signed a petition against a Gail's bakery setting up shop in their area.
After (unconfirmed) rumours began circulating that the chain was looking to open a site in Walthamstow village, more than 600 have signed a petition opposing the plans.
The petition says the village "faces a threat to its uniqueness" should Gail's move into the area (see yesterday's 11.54am post for more).
Gail's has been contacted for comment.
British retailers saw a rise in sales last month after a boost from Euro 2024 and summer discounting, according to official figures.
High street retailers said sales of football shirts, electronics such as TVs, and alcoholic drinks were all stronger amid the Three Lions' journey to the final.
Total retail sales volumes rose by 0.5% in July, the Office for National Statistics (ONS) said. It was, however, slightly below predictions, with economists forecasting a 0.7% increase.
It followed a 0.9% slump in volumes in June as retail firms blamed uncertainty ahead of the general election and poor weather.
ONS director of economic statistics, Liz McKeown, said: "Retail sales grew in July led by increases in department stores and sports equipment shops, with both the Euros and discounting across many stores boosting sales.
"These increases were offset by a poor month for clothing and furniture shops, and falling fuel sales, despite prices at the pump falling."
The data showed that non-food stores saw a 1.4% rise, driven by a strong performance from department stores, where sales grew by 4% for the month as summer sales helped to stoke demand.
However, clothing and footwear shops saw a 0.6% dip, whilst homeware retailers also saw volumes fall 0.6%. Food stores, meanwhile, saw sales remain flat for the month.
There are fears that the £2-cap on single bus fares could be scrapped after the government declined to say whether the policy would continue past December.
Bus companies said it was vital the cost of using their services is kept low for young people to "enhance their access to education and jobs".
Alison Edwards, director of policy and external relations at industry body the Confederation of Passenger Transport, said: "Bus operators are working closely with the government so that together we can find a way to avoid a cliff edge return to commercial fares.
"Analysis has shown that supporting fares, which can be done in a range of different ways, is great value for money and can support many other government objectives.
"For example, keeping fares low for young people would enhance their access to education and jobs, while also encouraging them to develop sustainable travel habits to last a lifetime."
Transport Secretary Louise Haigh said in a recent interview with the PA news agency that her officials were "looking at various options" in relation to the cap, including whether they could "target it better".
It's been a busy week on the economic front.
There was no major shift in the overall outlook - since Monday we've had it confirmed that the UK economy has lower inflation and more growth than the last two years, while wages have grown faster than the overall pace of price rises.
On the back of all that news the pound is at the highest rate since early this month against the dollar, worth $1.2882, and the highest since July when it comes to buying euro with one pound equal to €1.1733.
Signs of a recovery from the global market sell-off of Monday last week can be seen in the share prices of companies listed on the London Stock Exchange.
Share prices have grown among the most valuable companies on the stock exchange, those that comprise the Financial Times Stock Exchange (FTSE) 100 list of most valuable companies.
Today though, this benchmark UK index fell 0.19% but finishes the week higher than the start.
Also finishing the week higher than the start are the more UK-based companies of the FTSE 250 (the 101st to the 250th most valuable firms on the London Stock Exchange).
On Friday morning that index was up 0.08%.
With tensions in the Middle East and Eastern Europe high as Iran mulled a retaliatory strike on Israel and Ukraine made incursions into Russian territory, there had been concern about energy price spikes.
But the benchmark oil price has remained steady at $80.13 dollars for a barrel of Brent crude oil.
Gas prices have remained below the Monday high of 100 pence a therm (the measurement for heat) and now are 94.50 pence a therm.
A Cabinet Office minister has said it is "unfair" to suggest other public sector workers will be queuing up for a pay rise after the government's offer of a 15% increase for train drivers and junior doctors.
"I think that's an unfair characterisation as well," paymaster general Nick Thomas-Symonds told Times Radio.
"I think what is absolutely crucial here is we are a Government again that is sticking to the promises we made in opposition.
"We promised we would sit down and find solutions, and people expressed scepticism about that, but actually that is precisely what we have done in Government."
Last month, the government and the British Medical Association struck an improved pay deal for junior doctors in England worth 22% on average over two years.
Meanwhile, train drivers will vote on a new pay deal following talks between representatives of drivers' union ASLEF and the Department for Transport.
The new offer is for a 5% backdated pay rise for 2022/23, a 4.75% rise for 23/24, and 4.5% increase for 24/25.
The Dartford Crossing is the highest-earning toll road in the UK, new data shows.
The Kent to Essex route raked in £215.9m in the last year - 2,159 times more than the Whitney toll bridge in Hereford.
The crossing, which was supposed to stop charging customers in 2003, costs between £2 and £6 to use (depending on the vehicle you're driving) between 10am and 6pm every day.
Car finance company Moneybarn found it earned just over £209m in 2022.
It topped the chart of 13 toll roads in the country, making over £100m more than the second highest-earning road in 2023 - the M6 Toll in the West Midlands.
In third place was the Mersey Gateway Bridge between Halton and Cheshire, which made £48.9m.
You can see how the other toll roads fared below...
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A trading business plan is a roadmap for success in the financial markets. Learn how to create a business plan for trading with this detailed guide and template ... 72% of day traders ended the year with financial losses, according to FINRA. Among proprietary traders, only 16% were profitable, with just 3% earning over $50,000. (Source ...
2. Knowledge and a Day Trading Business Plan. Starting a day trading business also requires a firm understanding of the financial markets, as well as a solid business plan - a.k.a your trading plan. It should outline how much you'll stake on each position, how you'll cut your losses, how you'll define winners, and how you'll evaluate ...
Here are the key steps to consider when writing a business plan: 1. Executive Summary. An executive summary is the first section planned to offer an overview of the entire business plan. However, it is written after the entire business plan is ready and summarizes each section of your plan.
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Welcome to our intro on learning how to set up a day trading business which will give you a better understanding of what you'll need and your expectations.
There are also some basic rules of day trading that are wise to follow: Pick your trading choices wisely. Plan your entry and exit points in advance and stick to the plan. Identify patterns in the ...
Work out when you will trade. Consistency is key in day trading so it's often advisable to conduct your trading during the same hours every day. Most stock markets only trade for a specific 2-3 hour period at a time depending on the markets they are trading in. A popular time to trade is the first 1-2 hours after the market opens as it is ...
Unlike business owners who generally have a business plan in order to provide a strategic vision to employees and to stay focused on their primary line of business, most traders never take the time to create a business, a.k.a trading plan. ... While this is a sample trading plan for day trading, you can simply change the parameters and apply ...
Day trading is not easy. It is a serious business, and you should treat it as such. Success in day trading comes from risk management - finding low-risk entries with a high potential reward. The minimum win:lose ratio should be 2:1. Day trading is not a strategy to get rich quickly. Indicators only indicate; they should not be allowed to dictate.
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It makes trading fun. How to Create an Apt Trading Plan. Define Your Driving Force. Specify the amount of time you wish to put into trading. Stipulate your goals. Mental preparedness. Select a Risk-Reward Ratio. Decide on the Amount of Funds You Intend to Input into Trading. Gain Ample Knowledge About the Market.
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Day trading without a true business plan is a lot like gambling. You say to yourself, I'm going to throw my life savings at these internet gurus' wisdom and hope for the best. A year later, you've probably coughed up half your savings, if you're lucky to still have any.
The Ultimate Trading Plan Template. A proper Trading Plan is essential to your success as a trader. Anyone thinking of starting a business wouldn't begin without a plan, if they do, they probably won't like the end results. Day trading is no different than any other business. As they say, "If you fail to plan, then you've already ...
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A pattern day trader (PDT) is a classification given by the U.S. Securities and Exchange Commission (SEC) to traders who execute four or more "day trades" within five business days using a margin account. A "day trade" is defined as buying and selling the same security on the same day.
Feb 2025 - Onwards - Refine trading business plan for transition into trading on a full-time basis and then transition into becoming a professional full-time day trader. Objectives for Paper Trading. Note: This is written for the phase described in the timeline as "Paper Trading".
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A pattern day trader (PDT) is a trader who executes four or more day trades within five business days using the same account. Pattern day trading is automatically identified by one's broker, and ...
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