Did you know that there are critical steps that you need follow to become a very successful trader? Through my modeling work with top traders I’ve discovered 17 key steps that will ensure your consistent success as a trader.So let’s take a look at these steps one by one, with the first seven steps involving the development of a sound business plan.Van Tharp Institute
First, assess your beliefs about trading and about yourself. Although it’s difficult to grasp, did you know that nobody actually trades the market? Instead, you always trade your beliefs about the market.So isn’t it time you learned exactly what you are trading?
Second, determine your objectives for trading. System experts know that understanding your objectives thoroughly is half the battle in developing a system, yet most people have never taken the time to even consider what their objectives might be. Thus, you need to determine exactly what you want out of your trading system. We’ve found that most traders and investors are missing one key ingredient in their objectives—financial freedom. For example, at a recent workshop one of the attendees told me that he had made 1000% return in 2005—that’s right 1000%. But that trader was missing this critical ingredient. And because he didn't have any objectives on what it meant for him to be financially free in terms of profit-taking, it’s probably the difference between whether or not all of that profit will be put to good use or lost in future trading. The topic of financial freedom is covered extensively in my book Safe Strategies for Financial Freedom.
Third, understand the big picture. What’s the market doing overall and how can I measure it for myself? This is a very important skill—and if you really take the time to do it, it will probably help you prevent a disaster.
Fourth, include three strategies in your business plan that are compatible with the big picture. Although there are thousands of systems out there, there are not many types of strategies. These are things like trend following, band trading, and value investing. You need to learn how the strategies that you plan to adopt work, why they work, and how you can adapt them for yourself.
Fifth, learn what your personal edges might be and how they set you off from the crowd. Having an edge in the markets isn’t just a slight advantage; it could be the pivotal difference in your success. So it’s very important to list your edges in your business plan and to be able to capitalize on them. Discover the key edges that almost any investor has over market makers or institutional investors. Or if you are a CTA, hedge fund, or portfolio manager, learn your particular edges.
Sixth, understand the key systems that almost every business must understand and start to think about developing structures for those systems. From marketing to cash flow, to back office and clients, trading should be regarded as a business and developing the right structures and systems is crucial for business success. For example, even if you are a private trader, you must deal with clients—even if your only clients are you and your family.
Seventh, develop a worst-case contingency plan. They key to a successful business plan is to be able to overcome disaster. Most people don’t even consider this until it’s too late. Learn how to generate an extensive worst-case contingency plan with strategies of how to deal with each disaster so that they minimize the effect on your trading business. Learn the key areas around which your worst-case contingency plan should revolve and get a good start on creating them.
Steps 8 through 13 are designed to deal with the general formula for developing strategies and trading systems for your business plan.Eighth, select your trading market. Are you going to trade stocks? Are you going to trade futures? Are you going to trade mini-forex or real forex through the big banks? Are you going to do options on any of these? Whatever you select must take into account the big picture and what is likely to happen in the next five to ten years. Ninth, prepare to develop a strategy. This involves doing an extensive study of the primary markets that you wish to trade. It also involves developing realistic, but challenging goals, about your performance. And you must determine your current beliefs about the market you wish to trade and the strategies that must work.
Tenth, master the key steps in strategy development and how to test for each. You need to learn about testing exit signals, how to determine your initial risk, and how to select and test your profit taking exits. This is not a substitute for any of our specific system development work. It just involves taking these key stops and being able to test your work.
Eleventh, properly evaluate your system. Here are four major ways to evaluate your system, listed in terms of importance:· Your win rate.· Your expectancy.· Your expectunity.· And your system quality number.These are all basic Tharp concepts, but you must master them
.Twelfth, get to know your system well without a lot of cost. The best way to do this is to trade at a low position size to determine if your initial testing was accurate. Through this testing, you’ll be able to develop a simple position sizing model to fit your objectives.
Thirteenth, develop a position sizing model to meet your objectives. You must understand that the key to developing a system is to develop position sizing models that will do the job. This step is one of the keys to developing a system that fits you and very few people understand how to do it.
The remaining steps involve working on the most important factor in your trading—you. Most people totally ignore this point, but it's critical to top trading performance.Fourteenth, do a complete self-assessment.In order to do this you must understand the following:· How your personality type impacts your trading.· How to develop the personal responsibility that you must have as a trader and assess yourself on it.· How to assess your beliefs and values.· And you must understand some of the key issues that might really interfere with your trading.Fifteenth, do something on a regular basis to really improve you discipline and emotional control. This is the step that will separate you from other traders and launch you toward top trader status. We at the Van Tharp Institute have a lot of suggestions along this line and the most important is working on the Peak Performance Course.Sixteenth, get your body in top condition. You mind can only be in top condition if your body is in top condition. There are various procedures for doing so, including both diet and exercise. Your job is to decide what’s right for you.
Seventeenth, develop a top-down approach to discipline. The procedures for doing this are covered in our Psychology CD series. But we strongly recommend that you attend the Blueprint for Trading Success Workshop so that you can get worksheets and immediately apply this process to working on the 17 steps. And if you combine top-down discipline with regular self-work, you’ll be amazed at the difference in your trading.If you’d like more information on how we can help you with the 17 steps, then continue reading. Some people take years to discover just a portion of the 17 steps. What we recommend is that you listen to the teleconference on the 17 Steps (which is free) and then consider attending our Blueprint for Trading Success Workshop. And here is why.When you leave this workshop you’ll have:· Filled in worksheets to get your started on developing your own trading business plan. And when you leave, trading won’t just be a hobby for you. You’ll have the core of your new plan, and the tools to turn it into a professional business. We find that less than 5% of all traders and investors have a business plan to guide their trading. But when you leave this workshop, you’ll have everything you need to join them. Imagine what a boost that will be to your trading.· You’ll also have the logic worked out for how to develop at least one new trading system designed for your personality. In addition, you’ll have worksheets completed on the major steps involved in developing a great trading system. When you get home, all you’ll need to do is put the steps into practice. Most people fill their heads with the details of various trading systems and never even begin to develop a sound system. However, when you finish day two, you’ll have a broad overview of exactly what you’ll need to do. Perhaps for the first time, you’ll be able to see the whole forest, instead of just the trees. How do you think you’ll feel when you have that in place?· And lastly, you’ll have a daily procedure worked out to improve the most important factor in your trading—you. You’ll have three daily routines (diet, exercise, and psychology) that will really make you a better, happier, and more effective trader. In addition, we’ll help you develop the structure for a top-down approach to discipline, which is the key to your success. You’ll have in place the critical advantages that few other traders have. This will not only improve your trading, it will improve your entire life. And isn’t that what you really want?
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