Trading is an active style of participating in the financial markets that seeks to outperform traditional buy-and-hold investing. Rather than seeking profits from long-term uptrends in the markets, traders look for short-term price moves to profit in both rising and falling markets.
Approaching trading as a business is vital to success because trading is a business. A successful trading business requires a strategic plan that covers your actual business and your actual trading. Your business plan will include things like short and long-term goals, the amount of capital you have available for the business and how you will set up your office. You trading plan includes the details of trading: what you will trade and how you will trade it. Your plan should be so objective and concise that you could hand it over to another trader and they would be able to execute it exactly.
It’s important to understand that your trading plan is not simply a set of rules that you think will work or a list of set-ups that you are somehow fond of, of someone else’s plan. A good trading plan is one that you have researched, tested on historical data, tested in a live market and evaluate at regular intervals.
Successful trading involves more than reading a few articles or books; you should plan on devoting a substantial amount of time and effort before ever placing a trade in a live market. All this research and time may sound daunting, but it is realistic and integral to becoming a profitable, independent trader.
For a guide to trading fundamentals such as charting, leverage and risk, see part two of our series. In this tutorial, we provide an introduction to help you get started trading.