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How To Treat Your Investing Practices Like A Business

May 02 2011

Most people think of investing as a casual practice. You sit down, read the paper, surf the web, talk to friends at the golf course and at social outings, and you make investment decisions. However, this is probably the worst thing a person can do. Now, let’s be clear. This method of investing without any kind of a plan will actually work during a strong, trending, bull market. But, let’s also be clear—anyone can make money in a strong, trending bull market because everything is going up! However, the market does not move in a strong, bull market all the time, so what happens when recession hits and the market dives? Then what? This is why having a business plan in place is essential.

Furthermore, we know that most small business ventures fail, and experts estimate that over 50% of new small businesses do not have a written business plan. A detailed, written business plan is essential for business success, and trading and investing is no different. If you take the time to sit down and write out a detailed plan of how you plan to approach investing, your chances of success will be much higher than if you do not. Now, let’s discuss how to actually write an investing business plan.

What Market Will You Trade?

Are you going to trade stocks, commodities, futures, currencies, options? Are you going to trade any foreign markets? What instruments will you trade? These are all questions you need to answer. Now, as with any business, it may be a good idea to specialize. For example, if you want to trade Forex, but have never traded currencies, then your path to launch will be much different than if you are going to trade stocks and you already know how to trade stocks. This all needs to be spelled out in detail, but the thing to remember is do not spread yourself too thin. Stick to what you know, and if you are going to venture into a new area of investing, make sure you get adequately educated before you move on.

When Will You Trade?

What will your trading routine be? Are you short-term, intraday, swing trader, position trader, etc? Much of this will most likely depend on your work environment. Are you able to check your positions during the day and adjust positions if needed? If so, then you will be able to be more short-term oriented and in and out of the market on a more frequent basis.

Education

How will you get educated initially, and what is your plan for ongoing education? Create a list of books to read during the next 6 months. Oftentimes a stock or Forex broker will offer some education on how to trade, but this education will usually be very general. How are you going to learn the fine details of trading for a living? Have a plan in place. If you can learn from a professional, this can often cut down the learning curve tremendously.

Remember, a business plan is never something you simply write and forget about. You want to constantly return to your plan to make sure you are following it, and make adjustments accordingly.

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