No | Step | Tick when completed |
1 | Understand why you want to trade. ü What do you want out of life? ü How does trading fit into this life plan? ü What are your beliefs about the markets? ü What are your beliefs about your ability to trade the markets?
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2 | Are you up to the task of becoming a trader? ü What personal strengths will you bring to your trading? ü What personal weaknesses will impact your efforts? ü What is your attitude to risk? ü How motivated are you to achieve success? ü What are the consequences of failure, and are you prepared to face this possibility?
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3 | Do you wish to trade part-time or full-time? ü Why? ü If full-time, how do you plan to make the transition from working for a living to trading for a living?
· When will you quit work? · Will you phase it out? · How will you support yourself or your family during this period? · What is your fallback plan? | ÿ |
4 | What timeframe do you wish to trade? ü How much time do you have to devote to trading? ü Would you prefer daytrading, swing trading or position trading?
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5 | What are your goals from trading? ü What return on investment are you seeking?
· Daily, weekly, monthly or annual? ü Why? ü Consider whether that return is realistic? ü Are you trading for cashflow or capital growth? ü How long are you expecting it to take for you to learn to trade and achieve this result?
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6 | Review your financial situation. ü What initial capital will you have available to commence your trading? ü How much can you afford to spend on trading education? ü How much are you willing to lose during the ‘learning’ period?
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7 | Review your current time schedule. ü How much time can you commit to learning to trade? ü Produce a weekly planner to ensure that time is always available.
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8 | Seek advice from a licensed financial adviser. ü Discuss your desire to trade, and how it can best be safely incorporated into your wider portfolio and wealth management strategy.
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9 | It’s time for a reality check. ü Accept that approximately 95% of traders fail in their ability to consistently profit from the markets. ü Research the cause of trader failure. ü Why do you believe that you can be a part of the 5% consistently profitable traders? ü Accept that trading success will most likely take longer than you anticipate, and cost more than you expect. How will that impact your plans? ü Do you have realistic expectations with respect to the time and effort required to learn to trade, and the returns that are possible from trading?
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10 | Confirm you have the full support of your family. ü Discuss any concerns you may have, and your plans to minimize any negative impact. ü Discuss any concerns they may have about the impact on relationships, or your financial future.
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11 | Trading Psychology. ü Understand that you need to take personal responsibility for your trading decisions, and ultimately for your trading success or failure. ü Understand that the nature of the markets is uncertainty. ü Understand the probabilistic nature of the trading.
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12 | What market do you wish to trade? ü Stocks, options, forex, futures, CFDs? ü Research the above choices and choose the market that you feel most comfortable with. ü Understand why you want to trade this market.
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13 | Study your chosen market. ü Understand the fundamental drivers of that market. ü Is there sufficient liquidity in the market to allow ease of entry and exit? If not, consider selecting another market. ü Is there sufficient volatility in the market in order to achieve your profit objectives within your chosen trading timeframe? If not, consider selecting another market or timeframe. ü Define a broad strategic concept that could be applied to this market to produce profits, such as:
· Capturing trends. · Capturing momentum swings. · Support or resistance. · Reversal from extremes. · Gap plays. · Volatility or time decay option strategies. ü What capital is required for trading your chosen market & timeframe?
· What margin do you require? · What is the minimum position size? · If you cannot afford this market, then either § Continue studying while saving more capital, or § Consider finding another more suitable market or timeframe that suits your available capital. ü Understand the benefits and dangers of the leverage available in this market.
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14 | Study price movement. ü Understand the movement of price from the perspective of supply and demand imbalances.
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15 | What is your preferred analysis style? ü Technical Analysis? ü Fundamental Analysis? ü Statistical Analysis? ü A combination of the above methods? ü Research all of the above methods and find the style that you most relate to.
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16 | Study your chosen analysis style. ü Become familiar with all analysis tools and choose those that you most relate to.
ü For example, with technical analysis:
· Do you prefer bar, candlestick or point & figure charts? · Will you use tools such as Level II, market profile or time of sales? · Do you prefer price action analysis or indicator based analysis? | ÿ |
17 | Consider the need for personal coaching or mentoring. ü Do you prefer live trading rooms? ü Do you prefer after-market coaching? ü Do you prefer one-on-one coaching? ü Do you prefer a group or seminar setting? ü Do you prefer self-coaching?
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18 | Risk Management. ü What is the maximum risk that you will allow per trade? ü What is the maximum portfolio heat that you will allow?
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19 | Money Management. ü How will you determine position sizing? ü When will you increase or decrease position size? ü What are your plans for profit reinvestment? ü What are your plans for drawing capital?
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20 | Rewards Program. ü All work and no play isn’t fun, so please implement a rewards program. ü How and when will you reward yourself for progress towards becoming a trader? ü How and when will you reward yourself for profitability?
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21 | Trading Psychology. ü Understand the qualities of a successful trader. ü Determine strategies to maximize these qualities within yourself. ü Understand the qualities of a losing trader ü Determine strategies to limit the impact of these qualities within yourself.
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22 | Study basic business skills, such as: ü Time Management. ü Goal Setting. ü Record Keeping. ü Bookkeeping.
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23 | Business Management - Business Setup and Planning: ü Seek advice regarding appropriate strategies for:
· Business structure. · Asset protection. · Tax minimization. | ÿ |
24 | Business Management – Process: ü Documented trading plan – use this checklist as a guide for documenting your trading plan. ü Documented procedural steps to ensure consistent application of your trading plan. ü Documented routine:
· Pre-market routine. · During trading. · Post-market routine. ü Documented record keeping and performance tracking process:
· Trading Journals, equity curves and Profit & Loss statements. · Recording of personal trading performance and psychology. · Will you use a spreadsheet, paper, or portfolio management software? ü Documented review process:
· Daily, weekly, monthly, quarterly, or annual reviews. · Performance based review upon exceeding daily, weekly or monthly drawdown. | ÿ |
25 | Business Management – Personnel: ü Consider the need for the following support personnel:
· Broker. · Adviser. · Coach / Mentor. · Trading Partner. · Accountability Partner. · Accountant / Bookkeeper. ü Will they be employed or outsourced?
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26 | Business Management – Resources: ü Ensure appropriate office space for trading.
· Home office or dedicated trading office? · Desk. · Comfortable chair. · Suitable lighting. · Minimal distractions. ü Ensure appropriate hardware for implementation of your trading plan:
· Computer system. · Internet Service Provider. · Telephone system. ü Ensure appropriate software for implementation of your trading plan:
· Charting application. · Data provider. · Scanning software. · Research tools. · Testing software. · Trading journals (may be soft copy or hard copy). · Portfolio Management. · Record Keeping / Bookkeeping. | ÿ |
27 | Business Management - Contingency Planning: ü Develop contingency plans for hardware failure. ü Develop contingency plans for software failure:
· Of particular importance is your ability to contact your broker and exit all positions if you lose access to your charting and order entry applications. ü Develop contingency plans for additional income streams, if required. ü Halt trading criteria:
· During a trading session. · Drawdown limits – daily, weekly or total. | ÿ |
28 | Personal Management: ü What is your plan to ensure maintenance or improvement of health? Establish plans for:
· Physical health. · Fatigue management. · Time away from the markets. ü What is your plan to ensure a healthy mindset? Establish plans for:
· Relaxation. · Visualization. · Affirmations. | ÿ |
29 | Learn how to use all your trading hardware and software resources. ü In particular, be familiar with all order types available. Understand the advantages and disadvantages of each, and when to use each type of entry or exit order.
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30 | Do you prefer systems that are: ü Discretionary? ü Rule based? ü Why?
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31 | Define your trading strategy. ü Will you develop your own, or purchase a system? (contact us for a list of recommended systems if you wish to purchase one) ü Understand why the chosen strategy works. ü Does this strategy fit your beliefs for how and why the market moves? ü Does this strategy suit any time constraints you may have? ü Asset allocation – what percentage of your total capital will be applied to this strategy and/or market? ü Can this strategy provide the rewards you are seeking? ü Does this strategy provide a maximum drawdown that is within your financial and psychological limits?
ü Document clear rules for:
· Position sizing. · Risk control. · Trade setup. · Trade entry. · Trade management. · Trade exit. | ÿ |
32 | Ensure your strategy has a proven edge. ü Conduct back testing to ensure profitability, either by hand if your system is discretionary based, or with appropriate testing software if you system is rule based. ü Conduct forward testing to ensure profitability, using a demo or simulation platform if available, otherwise via paper-trading. ü Ensure any testing was conducted exactly in accordance with your trading plan, and over sufficient sample size to ensure valid results.
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