Business Planning

Disclaimer: This is not some sort of cure all, end all, be all device. I'm just sharing MY PERSONAL EXPERIENCE here because I think a lot of people could hopefully take something away from this and to show how serious this game really is. Inject some reality into things, per se. Forewarning, I will use a lot of metaphors. It's how I talk and how I best explain things. I'm sure you'll see why soon enough. Also, none of this is meant to be construed as solicitable advice and I cannot be held liable for anything that may happen to you if you were to try and copy my personal experiences here. All of this is from the viewpoint of dealing with things here in the USA and things can and are probably markedly different wherever it is you are. And now, let's get to the meat and potatoes:

I recently started my jump over to full time trading and thought I should share some of my experiences with everyone.

Why business planning? Simple, when trading for yourself, you are in fact running your own business. Therefore, you have to have some rules and some policies in place. As all of the heavy hitters will tell you, discipline is king in this game, and giving it anything less than that is suicide. I think too many people try and make the switch without a plan/discipline in place, and it's why they get eaten alive. It's one thing to dink around with a micro account trying different things out, but when you do this for bread and butter on your table, you can't afford to dink around (literally). I will say, some people have exceptional self discipline and may not need external factors. Some of us, such as myself, work better when we have that external watchdog to deal with. Me? I could care less about a lot of things, but as soon as I know it really matters to someone else that matters to me, then of course I'm going to care. Sound familiar? Creating a comprehensive plan functions in the terms of the external for me.

Think of it more like building your own computer. Sure all of the parts are going to be specific pieces that are stamped out left and right by various fabs, but how it's put together and in what way makes it totally your own machine. Building a personal business plan will be the same way. The main premises will be the same as everyone else's, but the details and the execution make it completely your own. There's no need to strive to be completely original, if you work on your plan from your own angle, it will indeed be truly unique. Look at your car, it's a mass produced machine, but I can guarantee you that because of you, it's truly unique thanks to the details.

I'll start with some background. I've been trading forex for the last five years, but I am now finally at the point where I can make the switch to doing this for a living, both from a capital stand point, and more importantly, from an experience and talent stand point. Currently I work in financial planning but I’m tired of that game. Of course, we're about to find out if I'm totally wrong or if I was right to switch, haha. Oh blessed is nervous laughter...

In building a plan, there are a few things to consider. I’m going from the inside out and start with the basics. There a few questions you need to ask yourself, and write them down. All of this needs to be in writing. If it's in writing, you've said it and you can't take it back. If it's in writing, it's permanent.

So, write these questions down and answer them:

1) What are you wanting to accomplish?

2) Why are you doing it?

3) When are you going to start doing it?

4) How are you going to do it?

5) Who is going to be involved, and why?

6) What about the extraneous matters, like insurance or contingency planning?

Let’s take a few minutes to go through each question one at a time, starting with the obvious choice…Number 1. What are your goals? What are you trying to accomplish? You need to be honest with yourself and lay out your goals first. And when I say be honest with yourself, I mean set realistic goals. If you had a $50k account, I would say that making $1k per week is a realistic goal. If you had a $5k account, making $1k per week is a bit of a stretch. Is it doable? Well yeah, it is. In the great words of Ron White, “I would know, I’ve seen me do it.”

Now that you’ve set a realistic goal for yourself, let’s move on to question two. What are you doing this for? What are you going to do with your gains (since that is the pointed direction of the question in this case)? Are you going to pay off excess debt? Are you going to build a cash reserve to supplement your 9 to 5 income and continue to work? Or are you going to pay yourself a salary every week? Yes, combos are allowed, and you also get combo multipliers in respect points for building a large combo. It makes it a lot easier to get somewhere when you know where it is you want to go…

Moving on to question numero tres. When do you want to start this endeavor? Of course it’s easy to sit up and say “Today! Duh!”, but this is also a bit of a trick question. This step has more of a checklist than a calendar date type of answer. Think about everything else that you need to take care of before you can begin this trek. Things like squaring away capital needs, a solid track record (yes, you do need one of those too), support of family & friends, workspace, etc. On the family & friends one, believe me, you need that a lot more than you think you do. The beauty of that paradox is that they will give you that support only when you are truly ready to begin trading full time. Make yourself a checklist of what you’re going to need taken care of before you can give trading your fully undivided attention. It will be your new job after all, and any boss will fire your ass if you don’t make your job a priority.

I wanted to make question 4 it’s own section, since this is a beefy one. How are you going to do this? This is where outlining your system(s) and methodologies come into the picture.

First off, you have to have a clearly refined and defined system to work with. Remember, just like launching a piece of software, you’re going live here. There are no mulligans! Not only do you have to have a system, it has to work! You need a proven track record of at least a year, and more realistically, up to three years. You have to be able to prove beyond a doubt that your trading is profitable over the long run. I want you to write down the mechanical rules of your system and have them handy at any given second. You’re about to begin to repeat these rules mindlessly and mechanically. This is going to get boring, and you want to be bored. You’re here to make money, not experiment! Just like a good marriage, this is here to last between you and (third person pronoun), not to experiment around on. If you can’t commit, you should quit.

Money management changes here. And by changes, I mean the rules get added to (If you just read rules as guidelines, you’re not ready yet. You need to treat your capital by RULES, not suggestions). You have to begin doing some accounting to take notice of certain things like if you’re periodically paying yourself, or if you need to make transfers between accounts. If you’re paying yourself, you need to establish a SET schedule. You need to know for absolute fact when you are making your withdrawals or transfers. This matters because when you may be about to enter a trade, you need to know if you’re about to have a portion of your equity missing and recalculate your position sizing accordingly. Obviously, if you’re just accumulating for something else, you’re not going to be doing any sort of withdrawal in there.

If you’re trading for income, you need to build a cash reserve account in order to provide some buffer for the inevitable down cycles. A cash reserve needs to be a completely separate account from your trading account. A good rule of thumb is your reserve target should be six months of your committed expenses. Committed expenses do not include nights out at the pub or a new gadget, just the essentials such as your rent/mortgage, a food budget, utilities, etc. This way, if you’re having a down week/month/year, you have some money sitting aside in order to help float yourself. Winning the game is great, but in order to finish first, first you have to finish.

Where are you going to be working at? Most of us can do this from home (yippee!), but some people can find a prop shop, or a collective to trade with. Remember, if this is your job, you need to treat it like one. Get yourself a good sequestered place to work from. You don’t mix your business and personal life in any other job setting, so why would you want to start here? Especially since this business literally involves millions of dollars flowing back and forth under your command! If the SO is going to be nagging and distracting you, find someplace else quiet to work at, or you need to schedule yourself some time to trade where they know they are not allowed to interrupt (short of being shot of course). I know most of us want to trade for a living specifically for freedom of time, but we all know that we have to spend time at the screen (I never said 70 hours a week though!). Of course, you can’t just stare mindlessly at the screen all day. If you know you just need to be around for a setup to show itself every few hours or so, there’s no reason why you can’t get yourself a TV and an Xbox 360 to jack around with in the downtime (speaking from experience here).

As an extension of place where, do you have all the facilities you need? Do you have a secure trading terminal with backups? Do you have a place to keep all your paperwork neat and orderly and separate?

The question of who is going to be involved and why is also a bit of a trick question. You need to define who is going to be party to this business, including yourself. You need to figure out and lay out if you need someone else to help, whether it’s a group of you trading together, or if you need a coach of some sort. Is this a one man show, or is this three people working in rotating shifts, or is this everyone takes a slice of the firm capital and does as good as they can on their own? You need to understand and know your place in this venture.

But what about all the details that we take for granted at our current job? Things like retirement savings, or insurance benefits, or paid time off?
Your retirement savings are a fun proposition since here in the USA you can trade your own self-directed IRA/Roth IRA. Why not trade up your retirement account while you’re at it? Just remember, any sort of retirement savings are your own doing now. There’s no automatic payroll deduction to your retirement account (401k, 403b, etc) anymore.

Insurance…Insurance is a bitch for the self employed trader. Not only are you at the mercy of a fluctuating paycheck (unless you made yourself a reserve buffer!), but we get stuck in our own insurability table here in the USA along with pilots…and it’s not pleasant. Unless you have built up a large capital base that can cover any outstanding liabilities, or you really have no liabilities, it’s going to be a good idea to invest in life insurance coverage to cover any expenses should you croak.

Health insurance is also going to be a bitch. It’s already expensive enough as is, but now you have to pay it all yourself! Behold, the power of the high deductible/HSA combo! Health insurance can be reasonably affordable once you start reaching the higher deductibles, but you still have to pay the deductible of course. So, set up a health savings account to cover that deductible and the minor things like a regular checkup from time to time. Not only that, the cost of insurance and the HSA are tax deductible expenses.

And who can forget the scariest specter of them all, taxes? Taxes are going to be a tricky to do as a trader. The Obama administration closed the hole where we could get away with cap gains taxation. Now it’s treated as regular income, which truthfully, is really only fair. Of course, the “fairness” of those tax brackets is a different story to me…Be sure to meet with a tax accountant in order to review everything and make sure it all looks legit. You’re going to need to keep all of your records too, so be sure to keep them some place safe and organized.

Here shortly I’ll post my own personal plan that I drew up to put my money where my mouth is.

Here is a pdf of my plan as it stands for now. It's a living document that will be changed as I change.

Here is the journal I started here on FF to track my progress as well

fxRichard was kind enough to send me a PM with some help on the self employed health insurance:

Here is a copy of the message:
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I use the NASE for health insurance (actually Mega life and health), the rates are amazing for self employed people. NASE actually stands for the National Association of the Self Employed. Just thought I would share, their rates are less than half of Blue Cross Blue Shield and the insurance is good. Anyway, happy trading.

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Sounds like I've got some homework to be doing! Thanks for the head's up.

How do you plan to handle income taxes next year? Capital gains, regular income, or maybe you have something else up your sleeve?

Just want to wish you everything of the best in your "new" career,Skyhook! Trading for a living is what most on this forum aspire to. Going out and actually doing it,no matter how experienced or seemingly talented you are, is quite a step, sort of stepping out of a comfort zone. Still got to get out of mine,my friend.

Knock 'em dead,S!!

PS Keep us posted.

It's been a long time since I've posted, but I feel that I should post the resolution to all of this. I've since quit trading as of two weeks ago; and let me tell you, I couldn't be happier.

As James16 says, unless you've got some serious capital, this is really something you shouldn't bother with. If I had enough capital to make 25 pips a day/week worth my time, then that's one thing, but when it's still the same as less than half a day's wages, what's the point? I don't know if I'll give up on trading 4x entirely, but for now it's definitely been marked off as something unproductive.

There are also certain ethical and psychological dilemmas I have come to grapple with. The one way I know to make consistent money week over week is to give in to the algo trading way of doing things that is currently melting up the markets, but I'm not sure I can fully get behind that. I've really begun to question what the virtue or merit of what people do as currency traders really is? I don't believe the "liquidity" answer. Has no one seen what Goldman has done to any market lately vis a vis "liquidity"? I feel that I have to actually produce something instead of leveraging e-paper into more e-paper.

So with that, it's been fun. It's been a five year journey for me, and much longer for others I know. I hope everyone the best, and supreme being of your chosing bless you all.

I think I can understand your frustration Skyhook and I really appreciate that you took the effort to update your old post. I hope that this will provide you closure and that you won't look back.

Just out of curiosity, what kind of system would you use to make a consistent 25 pips per week ? Automated, that would produce a nice yearly return and you could always try to get into fund management or a trading house.

As for the merit of trading, one of many interpretation is that the profits come from your understanding of the social mechanisms behind trading, just like you can seduce a wider range of women by better understanding them or have better grades by understanding what the system wants you to produce.

I feel bad for you that it didn't work out mate... but one piece of advice(am I qualified?) I'd give is not to get in to the whole "what's the value of this" line of thought. You decided to do it so that you could realise a dream, provide for yourself and (maybe) family to a greater extent... there's nothing wrong with that. Life is (IMO) all about finding desires and fulfilling them and it's what makes the world go round.

I suspect you have a track record, so have you not considered trading OPM? A decent record and marketing yourself might get enough money behind you to make it worth your while.

Regardless, you're a good guy, and I wish you well.
Regards, Leon

I appreciate the kind words.

To make sure it is clear, I have nothing against people who do trade (just the too big to fail banks that are screwing it all up for everyone else). I just came to the conclusion that trading is not for me. I have other things that I wish to devote my capital to, both human and otherwise. While I can create a good amount of wealth for myself trading and can then consume quite a bit, I don't want to. I want to produce, I want to build, I want to create.

I've always had that personality, I just cast it aside when I picked up trading. Lately as I've grown up some more and come into my own, I've come to realize that was who I really am and who I really want to be. For those of you able to read between the lines, I just figuratively and tangibly realigned everything to connect past, present, and future.

Trust me, once you reach a certain point, it's pretty simple to turn 25 pips a week. I could do it on Sunday evenings before dinner, but it's just not worth it to me anymore.