Happy New Year, I hope you had a fun holiday! I took some time off from writing, but I'm back. It was good to get away for a bit to recharge and work on some projects that needed some catching up on.
Even though the new year is now staring us square in the face, we need to put resolutions OUT of our minds. Oscar Wilde said:
“Good resolutions are simply checks that men draw on a bank where they have no account.”
What we really need is a plan. Plans have legs, fists and a backbone. They are the map that shows us how to get there.
But what is your plan?
That's not always an easy question to answer. The possibilities are endless and the task of nailing down a core list of items to check off can be daunting.
But don't worry, it doesn't have to be difficult but you have to actually DO them. Here is how to get started with your trading plan for the coming year.
What Do You Really Want?
Making a billion dollars trading is great, but what will that money actually get you? Of course, we are not necessarily talking about a billion dollars, but whatever sum of money you want to make a year in trading.
A Lamborghini would be nice, but is that what you really want? Maybe you just want some additional income so you can put in fewer hours at your job. Or perhaps you want to take your family on that vacation you have been talking about for the last 5 years. Take a moment to write that down.
What I really want my trading to provide is _______________.
Be sure to concentrate on the feeling you will get or give other people. For example: The togetherness your family will feel while on vacation, the options you will have with more income or, if you must, the sheer exhilaration you will feel when you drive that new Aventador.
This might sound really kumbaya, but stick with me for a minute.
Now Step Backwards
Imagine that you already have that thing that you want and are feeling exactly how you want to feel after achieving it. This is the key because you really want a feeling, not money.
Now tell me how you did it. Huh?
That's right, act as if you achieved your goal and tell me exactly what you had to do to get it. A friend showed me this exercise and I thought it was silly before, but as he talked me through, it really forced me to think through the steps of how I could have achieved that goal.
Not so silly anymore.
OK, let's take a simple example. Say that your first goal is to pay for your family mobile phone bill with your trading. Everyone in your family is always stressing about going over with minutes, data and number of text messages, so you want to be able to afford a plan where everyone is free to do whatever the hell they want.
Now pretend that your trading is already paying for your phone bill every month. What does that feel like? You wouldn't fight with your kids/spouse about it and it would be one less thing on your mind. Beautiful.
So how did you do it?
First, here is the maths. To fix this problem, you need $200 per month to cover the bill (including taxes).
Now let's say that you think you could realistically make 3% a month trading. So going back to a little basic algebra:
(Trading Capital) x .03 = $200
(Trading Capital) = $6,666.67
So you need about a $7,000 account, making an average of 3% a month.
This is one way that you could say that you achieved this:
“I started working odd jobs on the weekend and built up a trading account of $7,000. In the meantime, I searched online and found a trading method that was relatively low risk and creates an average return of 3% per month. I learned the method, backtested it and demo traded it for 6 months before I ever risked real money. When I was finally confident in the system, I started trading and was able to cover my family's phone bill. It feels so good not to have to worry and fight about that anymore.”
Now it becomes clear. Your plan is:
- Work odd jobs to build up a $7,000 trading account.
- Find a trading method where there is documented proof that it averages about 3% a month or more (of course, past performance is not a guarantee of future results).
- Learn the method.
- Backtest the method.
- Demo trade the method until you are comfortable, consistent and averaging 3% a month or more.
- Trade the method with your $7,000 account.
- Use the profits to pay the phone bill.
Yes, there may be months where you lose money, so be sure to have some buffers. No guarantees in trading.
But I hope that this example gives you an idea of how to create a concrete plan and not just another worthless New Year's Resolution.
Now go take action on your plan!!
Care To Share?
What is your plan? Feel free to leave a comment below.