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 September 5, 2004 Commentary (weekend
edition)-
I'm going to start out today's commentary
with a little story, and then we'll move on to something I think will be
helpful. I called up Scott today, my friend over at Harmonic Trader. I asked
him if he was going to be in the chat room later. We have been getting together
at night, sometimes with a few other traders, and discussing the FX markets. He
asked me why, and I said to talk FX.
I'm not exactly clear about what he said
because his cell phone began to fade in and out, but I'm pretty sure it was
some kind of a string of expletives, and something about being on his way to a
party. He asked what I was doing, and I said I was trading FX. Again, I think
there were more expletives, and we agreed to talk later.
I started to
think that maybe I'm still overdoing it. I needed a breather once I finished
this last book, as that put me under a great deal of stress. But my idea was to
take the rest and get my focus back as intensely as possible on my trading.
Tonight seemed like a good time to really focus. The book is done, and I'm
sitting here, well rested. Everyone is gone off on vacation or to parties, and
I'm ready to get to work. Then it hit me: today is commentary day.
Well, I
thought, no problem, I can watch the screen and write up the column, which is
about the norm anyways. It just seems that I never really get all that much of
a break nowadays. So, everyone is off on vacation or to a gathering, and I'm
here writing up a commentary for my faithful readers.
I hope that
the effort that I put out is appreciated, because I do put a lot of work into
this, and it's free for everyone. I don't charge anything for you to come and
read this column. I'm not fishing for compliments, but it wouldn't hurt my
feelings if I got a few e-mails here and there telling me you appreciate the
column. It's nice to know the effort is worthwhile to the readership.
With that,
let's get on to my topic for the day. I have still been getting lots of e-mails
about creating a 'Trading Plan', from a business standpoint. I'd like to
discuss, for just a few moments, some aspects of this. First, I must say that I
know that many people would like me to write up something formal on this. I
know that it needs to be done. But as I said, I am going to finish up Trade Management after my rest, and
then I'm going to lay off writing for a while.
I think that I may be willing to
write something up on this business plan topic, perhaps in late winter or early
spring, once I'm back to a more normal life, and I've taken a reasonable break.
I'd love to do it right now, but it's just not realistic for me to keep working
this hard. I am going to ponder this topic, and if I feel I can put together
something fairly short I may move up that timeframe just a little. If I feel it
needs a lot more space, then I'm not going to start until I've had a nice, long
break.
In the meantime, I'll try to throw out little bits and pieces of
information here and there, as I think of things. Right now I'll lay out just a
few very simple ideas. The 'Trading
Plan', as I call it, with the single quotes around it, is the entire
business plan for the business. Sure, everyone says run your trading like a
business, but then they leave it at that. I've yet to see anyone explain how
they would suggest doing that. And that is what I keep getting asked.
I have been
thinking a lot about this lately, with all the questions I have been getting.
I've been trying to understand why it is so hard for people to grasp this
concept. It came to me that I have a lot of small business experience myself.
It was not an issue for me to come up with my own business plan, because I
approached trading as a business proposition from square one. I adapted what I
had learned in business up to that point, and molded a business approach, and
plan, for trading.
I have frequently toyed with the idea of starting a
consulting business for small, home-based start-ups. I've always felt that I
have gained a lot of knowledge, know-how, and practical experience in that
realm. I take all that for granted, to some extent. I assume that everyone
understands bookkeeping, taxes, inventory, shipping, expenses, balance sheets,
etc., etc., just as I do. I took one look at trading and I immediately started
to think how I would run it just like any other business.
I didn't
start by just trading and seeing what happened. Although I kept running another
business simultaneously for a period of time, I started right out setting it up
just like I would any other business venture. And this is what I think most
people struggle with. I really see this more clearly now, as I have been having
a lot of conversations lately with a friend who has started his own business,
but has come from the 'work world'.
He struggles endlessly with simple business
issues that I could resolve in seconds. What is easy and obvious for me is
unnatural and difficult to grasp for him. I began to think that perhaps a lot
of potential traders are from the 'work world', and have little or no small
business experience. It would be very difficult, indeed, to try and set up a
business plan if you have no business experience to call upon. From watching
the struggles of my friend, I have seen just what a chore it can be.
So, let me
throw out a few tidbits here, and hopefully I will write up something really
helpful in the early part of next year. First, start by getting some books on
running a small business, preferably ones that focus on small, home-based
businesses. Study up as much as possible, and learn the basics of running a
small business. I treat my trading business just as I have any other small
business that I have run.
Get a hold of some business plan templates, which can be
found in some software programs on the topic, or in various books. Start
sketching out your plan, based on the knowledge that you have gained from the
books. Let me add that the 'core' of the plan is how you actually trade. If you
were opening a pizza place, the core is making the pizza. What ingredients,
what suppliers, what recipe(s), what ovens, everything that revolves around the
product. From there, the location and setup, and all the details surrounding
the operation, would be laid out.
Short and long term goals would also be a
part of the plan, as well as contingency plans if a slew of possible
'unforeseen' events happen to take place. (Again, the better books on small
businesses and small business plans should cover this.) For trading, the 'core'
for me is what I have laid out in my book series, plus what will be in Trade Management. Perhaps a lot of
people haven't understood that. The variations I choose, and the circumstances
that I use them in, are the core starting point for my business plan. That's
the method that the business would make money, like the making of a
pizza.
From there, I fill in all the aspects that are common to most, if
not all, businesses. I look over and make decisions on expenses, time
management, contingency plans, and so on. I lay out everything from the
day-to-day operations to all the possible things that I might have to do if
certain events transpire (such as having a maximum drawdown, and how that would
be handled, or experiencing a catastrophic market event). In my opinion,
nothing that could happen in my business should be left out of my
business plan.
I understand that this all may sound great, but that it may be very
difficult to implement. Understand this is almost like saying that you want to
be an auto mechanic, so you are going to read a few books. I am always saying
around here: "…for those who are willing to do the work." Trading is a
very difficult skill to master, in my opinion.
My goal with this website, and with
my books, has always been to try to provide the type of information that I
wished I had when I started. I've wanted to try to help save people the time
and anguish of making some of the mistakes that I have made. In that regard I
feel that I've done a pretty good job so far. But now we get on to the second
phase. Trading as a business.
This takes a second skill set, and that's the
skill set to run a business. For me, that's something that I feel I had when I
started as a trader. That's something that I didn't have to learn. For many of
my readers, if not most, it seems that this is not a skill set that is 'already
in place'. I can try to write up another book or article to assist in this, but
as I frequently say in my books, I'm not going to cover material that is
written up elsewhere.
I will try to write something up that
addresses what I have learned about the peculiarities of trading as a business,
and the aspects of integrating those peculiarities into a 'Trading Plan'. But
understand that I can't also teach the entire scope of business fundamentals in
such a work. I am saying right now, with plenty of lead-time, get to the
bookstore or the library and study up on running a small, home-based business.
Get yourself ready for my upcoming book or article sometime early next
year.
Use this time to get the basics down, so that when I do offer
something up, you will be able to take that information and create your own
business plan for your trading business. What I will produce will assume you
are familiar with running a small business, just as I assume in Kane Trading on: Multiple Timeframes and
'Context' that the reader is fully familiar with 5-point patterns. Get
ready, because you know that if I do this, the effort will be there on my part
to create something that I think will help the reader as much as I possibly
can. You need to do your part.
The next commentary will be the mid-week
edition, once everyone gets back to trading, and it will be posted on
Wednesday. And yes, it will have charts.
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