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Trading Business Plan

MAR.12, 2024

According to a report, 13% of day traders maintain consistent profitability over six months, and a mere 1% succeed over five years. This is primarily due to inadequate planning and undercapitalization. A well-crafted trading business plan can help you avoid these pitfalls, and this article will guide you.

In this article, you’ll learn:

• The current trends and growth forecasts in the stock trading industry
• A breakdown of the costs involved in starting a trading company
• The key components of a trading business plan (with a trading business plan example)
• Strategies for securing funding and overcoming the barriers to entry

By the end of this article, you’ll understand what it takes to create a business plan for an investment company , positioning your trading business for long-term success in this lucrative but highly competitive industry.

Pros and Cons of Trading Company

Let’s explore the pros and cons associated with running a trading company before diving into the specifics of a trading site business plan. Understanding them will help you make informed decisions:

• Potential for significant profits.
• Flexibility in terms of time and location.
• Opportunity for continuous learning and skill development.
• High risk due to market volatility.
• Emotional stress and psychological pressure.
• Requirement for constant vigilance and discipline.

Trading Industry Trends

Industry size and growth forecast.

According to a report , the global stock trading and investing applications market size was at around $37.27 billion in 2022 and projects to grow at a CAGR of 18.3% from 2023 to 2030 (Source: Grand View Research). The following factors drive this growth:

• Increasing internet penetration
• Rising disposable income
• Growing awareness of investment opportunities.

(Image Source: Grand View Research)

The Services

As per our private equity firm business plan , a stock trading business offers various services, including:

• Facilitating Trades on behalf of clients
• Algorithmic trading services to automatically execute trades
• Market Insights (research reports, market analysis, and economic forecasts)
• Technical and Fundamental Analysis (price charts, historical data, and company fundamentals)
• Investment Recommendations
• Seminars and Webinars
• Online Courses
• Demo Accounts
• Portfolio Diversification
• Stop-Loss Orders
• Hedging Strategies
• Direct Market Access (DMA)
• Global Market Access
• Trading Platforms
• Mobile Apps
• High-Frequency Trading (HFT)
• Legal and Compliance Services
• Educate clients about Risk Disclosure

How Much Does It Cost to Start a Trading Company

According to Starter Story, you can expect to spend an average of $12,272 for a stock trading business. Some key startup costs include:

How Much Can You Earn from a Trading Business?

Earnings in the trading business can vary significantly and depend heavily on:

• Trading strategy and approach
• Market conditions and volatility
• Risk management techniques
• Capital allocation and leverage

While specific income figures are difficult to predict due to these factors. However, here are some statistics showing the earning potential of a stock trading business:

• According to Investopedia, only around 5% to 20% of day traders consistently make money.
• According to Indeed Salaries, the average base salary for a stock trader in the U.S. is $80,086 per year.
• 72% of day traders ended the year with financial losses, according to FINRA.
• Among proprietary traders, only 16% were profitable, with just 3% earning over $50,000. (Source: Quantified Strategies)

What Barriers to Entry Are There to Start a Trading Company

Barriers to entry into the stock trading business include:

• Regulatory Requirements: Obtaining necessary licenses and registrations from governing bodies like the SEC and FINRA is a complex and time-consuming process.
• Capital Requirements: Trading activities require significant capital to manage risks and leverage opportunities, which can be a substantial challenge for new or small firms.
• Technological Expertise: Developing or acquiring sophisticated trading platforms, algorithms, and data analysis tools is costly and requires specialized expertise.
• Market Knowledge and Experience: Gaining in-depth knowledge and practical experience in the complex and dynamic financial markets takes years of dedicated study.
• Competitive Landscape: Breaking into the highly competitive trading industry dominated by established firms and well-funded proprietary trading desks is challenging for new entrants.

You can overcome these barriers by developing unique strategies, leveraging innovative technologies, and offering competitive and specialized services to differentiate yourself in the market. Do check our financial advisor business plan to learn more.

Creating a Trading Business Plan

A well-researched stock trading business plan is crucial to start a trading business. A general trading company business plan is a comprehensive document that defines your goals, strategies, and the steps needed to achieve them. It helps you stay organized and focused and increases your chances of securing funding if you plan to seek investors or loans.

Steps to Write a Trading Business Plan

You can use a business plan template for a trading company or follow these steps to prepare a business plan for a personal trading business:

Step 1: Define Your Goals and Investment Objectives

Step 2: Conduct Market Research

Step 3: Develop Your Trading Strategy

Step 4: Establish Your Business Structure

Step 5: Develop a Financial Plan

Step 6: Outline Your Operational Procedures

Step 7: Create a Marketing and Growth Strategy

Step 8: Implement Risk Management

Step 9: Create an Exit Strategy

What to Include in Your Trading Business Plan

Executive summary, company overview.

• Market Analysis
• Trading Strategy and Risk Management
• Operations and Technology
• Financial Projections
• Management and Organization
• Appendices (e.g., research, charts, legal documents)

Here’s an online trading business plan sample of ABC Trading:

ABC Trading, a recently established stock trading firm, provides online trading services to individuals and institutional investors. Key highlights of our business include:

• Vision – Becoming a leading online trading platform with a wide range of trading products and services.
• Values – Our core focus is innovation, excellence, integrity, and customer satisfaction.
• Target market – Tech-savvy and risk-tolerant investors looking for alternative ways to invest their money and diversify their portfolios.
• Revenue model – Commissions and fees for each trade, as well as subscription fees for premium features and services.
• Financial goal – Break even in the second year of operation and generate a net profit of $1.2 million in the third year.

ABC Trading is seeking $500,000 seed funding to launch its platform, acquire customers, and expand its team.

Company Name: ABC Trading

Founding Date: January 2024

Location: Delaware, USA

Registration: Limited Liability Company (LLC) in the state of New York

Regulated By: Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA)

Our team comprises seasoned professionals with diverse finance, mathematics, computer science, and engineering backgrounds.

Marketing Plan

Marketing Strategy: We aim to leverage online channels, such as social media, blogs, podcasts, webinars, and email newsletters, to create awareness, generate leads, and convert prospects into customers.

Marketing Objectives:

• Reach 100,000 potential customers in the first year of operation
• Achieve a 10% conversion rate from leads to customers
• Retain 80% of customers in the first year and increase customer lifetime value by 20% in the second year

The customer profile of ABC Trading includes the following characteristics:

• Age: 25-65 years old
• Gender: Male and female
• Income: Above $100,000 per year
• Education: Bachelor’s degree or higher
• Occupation: Professionals, entrepreneurs, executives, or retirees
• Location: US or international
• Trading experience: Intermediate to advanced
• Trading goals: Income generation, capital appreciation, risk diversification, or portfolio optimization
• Trading preferences: Stocks, options, or both
• Trading style: Technical, trend following, or volatility trading
• Trading frequency: Daily, weekly, or monthly
• Trading risk: Low, medium, or high

Marketing Tactics:

• Create and distribute engaging and informative content on social media platforms
• Offer free trials, discounts, referrals, and loyalty programs
• Collect and analyze customer feedback and data to improve and personalize the customer experience
• Partner with influencers, experts, and media outlets in the trading and finance niche

Marketing Budget:

We will allocate $10,000 for our marketing campaign, which we will use for the following purposes:

Operations Plan

ABC Trading’s operations plan ensures the smooth and efficient functioning of the company’s platform and services and compliance with the relevant laws and regulations.

Operation Objectives:

• Maintain a 99% uptime and availability of the company’s platform and services
• Ensure the security and privacy of the company’s and customers’ data and funds
• Provide timely and professional customer support and service

Operation Tactics:

• Use cloud-based servers and services
• Implement encryption, authentication, and backup systems
• Hire and train qualified and experienced customer service representatives and technicians
• Monitor and update the company’s platform and services regularly
• Follow the best practices and standards of the industry and adhere to the applicable laws and regulations

Operation Standards:

• Test and verify the quality and reliability of the company’s platform and services before launching and after updating
• Document and report any issues, errors, or incidents that occur on the company’s platform or services
• Resolve any customer complaints or disputes in a timely and fair manner
• Maintain a record of the company’s operations activities and performance

Financial Plan

ABC Trading’s financial plan is to provide a realistic and detailed projection of the company’s income, expenses, and cash flow for the next three years, as well as the key financial indicators and assumptions that support the projection.

Financial Objectives:

• Achieve a positive cash flow in the second year of operation.
• Reach a break-even point in the second year of operation.
• Generate a net profit of $1.2 million in the third year of operation.
• Maintain a healthy financial ratio of current assets to current liabilities of at least 2:1.

Financial Assumptions:

• Launch its platform and services in the first quarter of 2024
• Acquire 10,000 customers in the first year, 20,000 customers in the second year, and 30,000 customers in the third year
• Average revenue per customer will be $50 per month, based on the average number and size of trades and the subscription fees
• Average operating expense per customer will be $10 per month, based on the average cost of salaries, rent, utilities, marketing, and legal fees
• Pay a 25% tax rate on its net income
• Reinvest 50% of its net income into the company’s growth and development

Projected Income Statement:

Projected Cash Flow Statement

Projected Balance Sheet

Fund a Trading Company

To successfully establish and operate a trading company, raising funds to finance daily operations and business expansion is crucial. There are different ways with their advantages and disadvantages:

1. Self-funding (Bootstrapping)

Self-funding, also known as bootstrapping, is when the founder or owner of the trading company uses their own personal savings, family business ideas , assets, or income to finance the business. This is the most common and simplest way to fund a trading company, especially in the early stages.

• Complete ownership and control
• Flexibility in decision-making
• Potential for higher long-term returns
• Limited access to capital
• Personal financial risk
• Slower growth potential

2. Debt Financing

Debt financing involves borrowing money from lenders, such as banks, credit unions, or microfinance institutions, to fund the trading company’s operations. The borrowed funds must be repaid with interest over a specified period.

• Retain ownership and control
• Potential tax benefits from interest deductions
• Disciplined approach due to repayment obligations
• Debt burden and interest payments
• Collateral requirements and personal guarantees
• Difficulty in securing financing for startups

3. Angel Investors

Angel investors are wealthy individuals who invest their own money into early-stage or high-potential trading companies in exchange for equity or convertible debt. Angel investors typically provide smaller funding than venture capitalists and offer mentorship, guidance, and access to their network.

• Access to capital and industry expertise
• Potential for additional mentorship and guidance
• Lower risk compared to traditional investors
• Dilution of ownership and control
• Potential for conflicting visions and expectations
• Limited resources compared to larger investors

4. Venture Capital (VC) Funding

Venture capital firms are professional investment firms that provide capital to high-growth startups in exchange for equity ownership. They typically invest large sums of money and are active in the company’s management and strategic direction.

• Access to substantial capital for growth
• Expertise and industry connections from the VC firm
• Validation and credibility for the business
• Significant dilution of ownership and control
• Intense pressure for rapid growth and return on investment

Depending on your business model, goals, and needs, you may also consider other options, such as grants, subsidies, partnerships, etc. Ensure to check for relevant documents, like the hedge fund private placement memorandum . The best way to fund your trading company is the one that suits your situation and preferences.

OGSCapital: Your Strategic Partner for Business Success

At OGSCapital, we specialize in professional business plans that empower startups, established companies, and visionary entrepreneurs. With over 15 years of experience, our seasoned team combines financial acumen, industry insights, and strategic thinking to craft comprehensive plans tailored to your unique vision. Whether you’re seeking funding, launching a new venture, or optimizing your existing business, we’ve got you covered.

If you have any further questions regarding how to write a business plan for your trading business, feel free to contact us. Our team at OGSCapital is here to support you on your entrepreneurial journey. You can also check our hedge fund business plan sample here.

Download Trading Business Plan Template in PDF

Frequently Asked Questions

What does a trading business include?

A trading business involves trading stocks and other financial instruments under a legal business structure. It includes:

• Market analysis
• Trading strategy
• Risk management

How does a trading company work?

A stock trading company facilitates the buying and selling of stocks (shares) on behalf of investors. These companies operate within stock exchanges, executing trades based on specific trading strategies.

OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.

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Trading Plan Template & Examples: Step-by-Step Guide to Creating a Solid Trading Plan

Bonus Material:

Trading plans are an important part of any trader’s toolkit. The problem is, most traders don’t actively lay out a plan before they begin trading.

The result? They lose money and wonder why . Furthermore, many traders don’t know how to create a trading plan , or what to include.

Successful traders understand that trading plans are crucial to profiting consistently. In this article, I’ll walk you through creating your own plan, step-by-step, plus you can get a head start by using my free trading plan template, download below :

What is a trading plan?

A trading plan is an integral part of a trader’s strategy, outlining how trades are executed. It establishes rules for buying and selling securities, position sizing, risk management, and tradable securities. By following this plan, traders maintain discipline, consistency, and leverage proven strategies.

Why you should create a trading plan

Ask a new trader what they intend to do before the trading day and then ask them what they did at the end of the day. They almost certainly didn’t follow their plan. 

Trading plans are there for us to follow. Trading plans mean we take trades that are consistent with our rules and risk, and it means we remove a lot of emotion and discretion . This is important because humans are not rational agents and outsourcing this work means we can achieve a better P&L and make more money. 

A trading plan should resemble a business plan. A trader’s capital is their business and so we need to include everything that might be useful, but it should always cover the below.

What to include in your trading plan

• The time required to spend on your trading

Your trading goals and targets

• Your risk tolerance and risk management rules

Available capital for trading

Specific markets you wish to trade, the trading strategies you’ll use, your motivation for trading.

Read more information on what to include in your trading plan (with examples) below, and download your free template here:

The time required for trading

We need to define the time we need in order to trade successfully. For example, if you’re in full-time employment, then it’s unrealistic to spend six hours a day trading the market.

For example: Here is a part of my trading plan…

“To trade the UK stock market on a full-time basis I realistically need to spend at least 8-10 hours per day in order to take advantage of intraday opportunities and manage open positions in real time”.

It’s important to set realistic targets in trading. Once you have a target, you can reverse engineer how to achieve it.

For example: A target of increasing a trading account by 20% is an achievable target. To do that, we need to look at our trading capital and work out which trading strategies we’ll use.

Using breakouts to trend follow is a strategy I have had much success with, and I explain how I do this in my guide to breakouts.

There are several trading styles:

• Swing trading: This is a common strategy that attempts to capture moves over several days or weeks. Swing traders look for shorter term trends and then move onto the next trade.
• Momentum trading: This is a trend-following strategy based on upward movement and momentum. It can be a successful strategy over months and years as the stock continues to move higher. This is often coupled with increasing fundamental strength and accelerating earnings.
• Scalping or intraday trading (also known as ‘day trading’): Intraday strategies refer to trades placed and closed within the same trading session. 

Your risk tolerance and risk management rules 

Risk management is the most important part of trading. Position sizing is the first and last line of defence in our trading accounts.

If you take position sizes with 20% of your account, then that means you are risking 100% of that position every time it is risked in the market. Even if the chances are 99%, then eventually that 1 in 100 chance of the stock going to 0p and losing 100% of the position will happen.

Whilst a 20% drawdown on the trading account isn’t fatal, the law of compounding means that we will now need to gain 25% of our account just to get back to where we started. 

Never underestimate the numbers here – a 33% drawdown requires a near 50% gain just to get back to where we started. 

It’s important to put in place risk management rules that will protect the account and prevent us from taking on too much risk.

Only you will know how much risk you’re willing to take, but if you put yourself in a position where you could do yourself material damage, then eventually that outcome will be presented.

If taking a loss hurts, then it means you are trading too large. Most traders blow their accounts due to overexposure. I’ve never heard of a single trader who blew their account due to continuously taking small losses. Position sizing and risk management is covered in detail in my trading handbook.

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Enter your email to receive my free UK stock trading handbook, packed with professional techniques to manage risk and consistently profit on AIM stocks.

Traders should always be clear about what money should be used for trading and what money should stay in their bank accounts. 

Far too many traders have drawdowns in their trading accounts and decide to top up their account with a bank transfer.

Unfortunately, they end up putting far too much money into their account and do not keep track of their losses.

You should never trade with money you can’t afford to lose. I’ve had emails from people asking me what to do because they’ve lost the deposit for their house and they haven’t told their partner. Sadly, there is little that can be done at that point because the money is already lost.

In your trading plan you should be clear about how much is going into your trading account and how much you will top this up each month if that is going to be your strategy to grow your account further. 

However, the best way of growing your trading account is by making money trading successfully in the market. Once you can consistently do this, then it makes sense to increase your funds and scale up. 

A trading plan should also include the specific markets you wish to trade. Do you plan on trading UK stocks, US stocks, foreign exchange (forex), or cryptocurrencies? Once you’ve picked a market, you still need to drill deeper. 

For example: If you pick UK stocks will you trade all of these, or just AIM, or just the Main Market? Will you trade only small cap stocks? Will you trade both SETS and the SETSqx platforms ? 

In my case, I trade all UK stocks, and don’t discriminate between any of them. However, my focus is on smaller stocks under £500 million market cap. 

Your trading strategies are the ways you are going to make money. This part of the trading plan is important because by defining your strategies it will be clear to follow.

For example: I want to trade small-cap stocks that have momentum behind them, and I will find this momentum through technical breakouts and positive RNS announcements.

I will trade gaps and also place orders into the auctions in order to get better fills. I will use various brokers for different types of execution. I will take secondary raises that have news catalysts that can potentially drive the shares higher.

What is your why? What are your goals, and what is your motivation? Trading is hard and there are ups and downs – it’s easy to motivate yourself when the going is good and you’re making lots of money. But it can be harder when you’re suffered several losses in a row, and you keep seeing your account grind lower or flat for weeks on end. 

Writing down your why will make it easier to stay focused and commit to the long-term process and improvement.

For example:

• I want to trade because I enjoy the challenge and I also want to be my own boss.
• I want the freedom that comes with the lifestyle of a full time trader and I want to be around my wife and future children as they grow up.
• I want to offer my family a better life, and by continuing to work on my skillset is putting me closing towards my goals.

Good trading plan example

How do you write a trading plan?

• Know your trading playbook
• Manage your risk 
• Have a realistic profit target

1. Know your trading playbook

You should have a playbook of trades that you know how to execute in the market. A playbook is a list of trades, each with step-by-step instructions on how to trade the pattern. 

If you don’t know what you should trade in your trading plan then building a playbook of trades is a good place to start. 

2. Manage your risk

Risk management is a crucial skill for any trader. I’ve written an in-depth article on trading risk management for further information.

The reason risk management is so important is that without it we would blow up our accounts. Nobody would think about driving a car with no brakes because it would obviously crash – risk management is the brakes and safety system for our trading accounts.

Everyone has different risk profiles. Some are happy to take on high amounts of risk accepting that they may take hefty losses in order for the possibility of excess return. 

Full-time traders like myself tend to be more cautious knowing that if they lose too much capital, they may have to go back to work. 

You should include in your trading plan how much you’re prepared to risk on particular trades in your playbook and how much in your account overall.

3. Have a realistic profit target

Having an idea of a profit target will mean that you don’t end up falling into the trap of never selling. Far too many traders watch a stock rise, see it pullback, then immediately regret not nailing down profit into strength.

By setting out clear take profit targets this avoids indecisiveness and will ensure you execute ruthlessly. 

Bonus tip: Trade the stocks in play

Trading is about being in stocks that are moving. Volatility is the lifeblood of a trader, and a dead stock means dead money. 

The stocks ‘in play’ are the stocks that have moved or are moving in recent sessions, and the stocks we should be immediately keeping tabs on. Stocks can cycle in and out being in play, and so we need to keep track of those that offer the greatest volatility to trade.  

Download my free one-page trading plan template

My opening plan trading template has everything you need to begin the trading day. It forces you to check and review your open positions, so you’re always knowing what to do. 

It also suggests to list the current stocks in play, and how you can trade them, and in what size. Additionally, it asks “What can happen?” so a trader using this template will never be caught out.

By thinking ahead about potential scenarios and how to trade them, this gives the trader an advantage over others who do not put the work in. Traders who punt around their money without a clue or a plan are commonly referred to as “liquidity”.

To download the free template, click the button below and follow the instructions.

About The Author

Michael taylor.

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Trading Business Plan Template

Written by Dave Lavinsky

Trading Business Plan

Over the past 20+ years, we have helped over 500 entrepreneurs and business owners create business plans to start and grow their trading companies.

If you’re unfamiliar with creating a trading business plan, you may think creating one will be a time-consuming and frustrating process. For most entrepreneurs it is, but for you, it won’t be since we’re here to help. We have the experience, resources, and knowledge to help you create a great plan.

In this article, you will learn some background information on why business planning is important. Then, you will learn how to write a trading business plan step-by-step so you can create your plan today.

Download our Ultimate Business Plan Template here >

What is a Trading Business Plan?

A business plan provides a snapshot of your trading company as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategies for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan for a Trading Company

If you’re looking to start a trading company or grow your existing company, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your trading business to improve your chances of success. Your business plan is a living document that should be updated annually as your company grows and changes.

Sources of Funding for Trading Companies

With regards to funding, the main sources of funding for a trading company are personal savings, credit cards, bank loans, and angel investors. When it comes to bank loans, banks will want to review your plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to ensure that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Personal savings and bank loans are the most common funding paths for trading companies.

Finish Your Business Plan Today!

How to write a business plan for a trading company.

If you want to start a trading business or expand your current one, you need a business plan. The guide below details the necessary information for how to write each essential component of your trading business plan.

Executive Summary

Your executive summary provides an introduction to your trading business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your executive summary is to quickly engage the reader. Explain to them the kind of trading company you are running and the status. For example, are you a startup, do you have a trading business that you would like to grow, or are you operating a chain of trading companies?

Next, provide an overview of each of the subsequent sections of your plan.

• Give a brief overview of the trading industry.
• Discuss the type of trading business you are operating.
• Detail your direct competitors. Give an overview of your target customers.
• Provide a snapshot of your marketing strategy. Identify the key members of your team.
• Offer an overview of your financial plan.

Company Overview

In your company overview, you will detail what type of trading business you are operating.

For example, you might specialize in one of the following types of trading businesses:

• Retail trading business: This type of business sells merchandise directly to consumers.
• Wholesale trading business: This type of business sells merchandise to other businesses.
• General merchandise trading business: This type of business sells a wide variety of products.
• Specialized trading business: This type of business sells one specific type of product.

In addition to explaining the type of trading business you will operate, the company overview needs to provide background on the business.

Include answers to questions such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include the number of customers served, the number of products sold, and reaching $X amount in revenue, etc.
• Your legal business Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry or market analysis, you need to provide an overview of the trading industry.

While this may seem unnecessary, it serves multiple purposes.

First, researching the trading industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your marketing strategy, particularly if your analysis identifies market trends.

The third reason is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section:

• How big is the trading industry (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential target market for your trading business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: individuals, schools, families, and corporations.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of trading business you operate. Clearly, individuals would respond to different marketing promotions than corporations, for example.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, including a discussion of the ages, genders, locations, and income levels of the potential customers you seek to serve.

Psychographic profiles explain the wants and needs of your target customers. The more you can recognize and define these needs, the better you will do in attracting and retaining your customers.

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Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other trading businesses.

Indirect competitors are other options that customers have to purchase from that aren’t directly competing with your product or service. This includes other types of retailers or wholesalers, re-sellers, and dropshippers. You need to mention such competition as well.

For each such competitor, provide an overview of their business and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as

• What types of customers do they serve?
• What type of trading business are they?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you make it easier for customers to acquire your product or service?
• Will you offer products or services that your competition doesn’t?
• Will you provide better customer service?
• Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.  

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a trading company, your marketing strategy should include the following:

Product : In the product section, you should reiterate the type of trading company that you documented in your company overview. Then, detail the specific products or services you will be offering. For example, will you sell jewelry, clothing, or household goods?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your plan, you are presenting the products and/or services you offer and their prices.

Place : Place refers to the site of your trading company. Document where your company is situated and mention how the site will impact your success. For example, is your trading business located in a busy retail district, a business district, a standalone facility, or purely online? Discuss how your site might be the ideal location for your customers.

Promotions : The final part of your trading marketing plan is where you will document how you will drive potential customers to your location(s). The following are some promotional methods you might consider:

• Advertise in local papers, radio stations and/or magazines
• Reach out to websites
• Distribute flyers
• Engage in email marketing
• Advertise on social media platforms
• Improve the SEO (search engine optimization) on your website for targeted keywords

Operations Plan

While the earlier sections of your plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your trading business, including answering calls, scheduling shipments, ordering inventory, and collecting payments, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to acquire your Xth customer, or when you hope to reach $X in revenue. It could also be when you expect to expand your trading business to a new city.  

Management Team

To demonstrate your trading business’ potential to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally, you and/or your team members have direct experience in managing trading businesses. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act as mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing a trading business.  

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet, and cash flow statements.  

Income Statement

An income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenue and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you charge per item or per pound and will you offer discounts for bulk orders? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.  

Balance Sheets

Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your trading business, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a lender writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.  

Cash Flow Statement

Your cash flow statement will help determine how much money you need to start or grow your business, and ensure you never run out of money. What most entrepreneurs and traders don’t realize is that you can turn a profit but run out of money and go bankrupt.

When creating your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a trading business:

• Cost of equipment and supplies
• Payroll or salaries paid to staff
• Business insurance
• Other start-up expenses (if you’re a new business) like legal expenses, permits, computer software, and equipment

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your facility location lease or a list of your suppliers.  

Writing a business plan for your trading business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will understand the trading industry, your competition, and your customers. You will develop a marketing strategy and will understand what it takes to launch and grow a successful trading business.  

Trading Business Plan Template FAQs

What is the easiest way to complete my trading business plan.

Growthink's Ultimate Business Plan Template allows you to quickly and easily write your trading business plan.

How Do You Start a Trading Business?

Starting a trading business is easy with these 14 steps:

• Choose the Name for Your Trading Business
• Create Your Trading Business Plan (use a trading business plan template or a forex trading plan template)
• Choose the Legal Structure for Your Trading Business
• Secure Startup Funding for Trading Business (If Needed)
• Secure a Location for Your Business
• Register Your Trading Business with the IRS
• Open a Business Bank Account
• Get a Business Credit Card
• Get the Required Business Licenses and Permits
• Get Business Insurance for Your Trading Business
• Buy or Lease the Right Trading Business Equipment
• Develop Your Trading Business Marketing Materials
• Purchase and Setup the Software Needed to Run Your Trading Business
• Open for Business

What is a Trading Business?

There are several types of trading businesses:

• Retail trading business- sells merchandise directly to consumers
• Wholesale trading business- sells merchandise to other businesses
• General merchandise trading business- sells a wide variety of products
• Specialized trading business- sells one specific type of product

Don’t you wish there was a faster, easier way to finish your Trading business plan?

OR, Let Us Develop Your Plan For You

Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.   Click here to see how Growthink’s business plan advisors can give you a winning business plan.

Other Helpful Business Plan Articles & Templates

• Uncategorized

How to Create an Excellent and Performing Day Trading Plan

• Real Trading™ Staff
• May 13, 2022

Trading Up Blog > 

Simply put, a trading plan is an all-inclusive setup that makes it easy for you to make concrete decisions regarding your trading activities.

Such a plan is crucial in deciding when, what, and how much you will trade. In fact, even the thriving traders on Wall Street rely on this concept for effective trading.

The key principle in creating successful trading plan is to personalize its content . While you can refer to another trader’s plan, it is important to remember that their capital and willingness to risk is different from yours.

It is important to note that a trading plan is different from a trading strategy . The latter concept focuses on how and when you need to enter or exit a trade .

Benefits of a Trading Plan

Making logical decisions.

Successful traders are those that have mastered the art of making decisions based on logic rather than emotions.

While following your instincts can sometimes bring good results, doing this in the long term relying on emotions can ruin your account .

With an apt trading plan, you will be aware of the point at which you need to stop losses or take profit .

Enhanced discipline

Discipline is one of the principles of successful trading . Sticking to your trading plan will deter you from taking up more risk than you can handle.

Studies show that traders and investors who have a trading plan are more disciplined compared to those who lack it. For example, these traders open trades only when certain market conditions are met .

Ease of trading

You will have planned everything before the actual trading. As such, it will be easy to trade of the pre-determined considerations .

If you have a good plan, you will be at a good position to know when to enter or exit a trade. You will also know when to stay away from the market. In other words, when you have a good plan, your trading approach will be much easier .

Related » Trader’s Journey: Set Up the Next Day Trading Week

Ability to improve

A trading plan encompasses a record of your past trading activities . With the embedded information, you will be in a position to learn from previous mistakes and improve on your trading. When you have a good plan, it becomes substantially easier for you to improve and become a better trader.

Avoid huge losses

Another benefit of having a good trading plan is that it will help you avoid making substantial losses . There are several reasons for this. First, a good trading plan will ensure that you only enter trades that meet your criteria .

Second, a plan ensures that you have all risk management strategies when you open a trade. Examples of these strategies are position sizing , having a stop-loss and a take-profit, and looking at correlations.

It makes trading fun

Further, having a good plan will make your trading fun. Ideally, when you have a plan, you know what to look for in a chart and the catalysts . Most importantly, you know when to be active in the market and when to be aggressive.

How to Create an Apt Trading Plan

Define your driving force.

Why do you want to trade? What do you intend to gain from trading? These questions form the basis of a fruitful trading journey.

The answers you write down will give you the drive needed to execute trading activities consistently .

Specify the amount of time you wish to put into trading

Do you intend to be a full-time trader or do you have other commitments that require your attention on a daily basis?

Based on your occupation, will you be able to trade while at work or will you have to trade late at night or early in the morning?

Related » How to Trade Part-Time When You Have a Full-Time Job

These questions will guide you in creating a schedule that works for you as a trader while still leaving time to deal with your other commitments.

Additionally, the nature of your trading activities will determine the amount of time you should commit to the profession.

For instance, opening several trades in a day will require a substantial amount of time. It is also crucial to note that the time you set aside shouldn’t be used on the actual trading alone.

You need to prepare for trading by reading relevant content , analyzing the markets, and practicing your strategies.

Stipulate your goals

Use the SMART model to define your goals . It is also important to identify your preferred trading style based on the amount of time you intend to input into the profession as well as your attitude towards risk.

The key trading styles are:

• swing trading
• day trading
• position trading

Mental preparedness

Another important aspect that is often overlooked is on psychology and mental preparedness . In this, you should always assess whether your mental state is fine to trade.

For example, you will be able to handle a big loss or not . While strategy plays an important role in the market, the reality is that psychology plays a bigger role .

Related » 5 Trading Psychology Stages to Consider

Select a Risk-Reward Ratio

Before you trade, determine the level of risk you are willing to take on. This evaluation should be on your individual trades as well as the entire trading strategy.

It is possible to lose more times than your wins and still record substantial returns. To calculate your risk-reward ratio , weigh the amount of funds you intend to risk against your potential gains.

Decide on the Amount of Funds You Intend to Input into Trading

One of the principles of successful trading is that you shouldn’t risk more funds than you can manage to lose.

For better risk management, start with a demo account and acquire the skills and experience needed to trade on a live account.

Gain Ample Knowledge About the Market

The market you intend to trade is bound to affect your trading plan. For instance, a stock trading plan is different from one on currencies .

To begin with, get adequate information on the asset markets and classes you intend to trade. Evaluate the market’s volatility , potential gains or losses , and other relevant factors.

If you are unsatisfied with the prevailing conditions, consider a different market.

Have a trading diary

It is important to document the details of your trades to identify the aspects that are effective and those that you need to drop.

In addition to the technical details, include the logic that drove your trading decisions. A detailed trading diary will aid in improving your skills.

Stay up to date

Another way to build a good trading plan is to ensure that you are up to date on the market . Some of the top ways of doing this is to ensure that you have an economic calendar and you have the best sources of news.

Some of the top news sites to use are Bloomberg, Financial Times, and WSJ. Social platforms like Twitter and StockTwits are also vital sources of news.

Review your trading routine

Another part of your strategy is to review your trading routine . Having a routine is a good approach since it helps to simplify your trading process .

An example of a routine is to start by looking the calendar, top movers, and then doing individual analysis.

Final Thoughts

The key to successful trader is ample preparation . A Trading plan is one of the essential tools of preparing for a trade.

By following the steps included in this article, you will be in a position to improve your skills and identify the concepts that work for you as a trader.

External Useful Resources

• How to create a successful trading plan – IG
• The Difference Between A Trading Strategy And A Trading Plan – Rockwelltrading

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10 Elements of a Winning Trading Plan

Mar 18, 2019

Written by: Al Hill

Ask 100 traders if they can send you a copy of their sample trading plan and I guarantee you it will be the highest rejection level event of your life.

Unlike business owners who generally have a business plan in order to provide a strategic vision to employees and to stay focused on their primary line of business, most traders never take the time to create a business, a.k.a trading plan.

What is a Trading Plan?

A trading plan is your roadmap for what you are going to do in the markets. It’s something that you have to create and is not optional.

The trading plan can be whatever works for you, but it needs to be written down. For me, at times it has been illustrations, while other times it has been a technical manual of sorts.

You want the plan to be a page. Now, I’m not suggesting you over complicate your strategy, but you should have a detailed idea of what you are doing. This should go beyond the standard trading setup and needs to touch on items like money management, trading discipline and your overall purpose for trading.

Now, let’s dive into how to create a trading plan using the 10 elements of a winning trading plan you can create to help improve your performance.

#1:  How Many Trades will You Use to Evaluate Your Performance?

How Many Trades?

In most lines of business, time is the main driver for evaluating performance.  Companies report on a quarterly basis to the street, which fundamental analysts then feverishly work through the data to assess a company’s future growth potential.

Well, how long should you wait to evaluate your trading performance …yearly, monthly, daily?

The answer to this question is very simple.  Base your evaluation period on the number of trades placed and not by the amount of time passed.

Time is irrelevant in the world of trading.  Trading is one of the few areas in this realm, where the space-time continuum are of no relevance.

Those of us that have been trading for some time know that one-year’s stellar trading performance can lead to a 2-month binge of destruction, which can easily eradicate everything you’ve worked so hard to create.

The way to address the tracking of your performance is to create a set number of trades that you will evaluate against key performance metrics, which we will touch upon next.

You will need to identify the right number of trades for you to evaluate, but this number needs to be high enough that you have a decent sample set, but low enough where it prevents you from going on a destructive trading binge.

For me, that number is 10 trades.  This applies to both my swing trading and day trading activities.  On average, it will take me approximately 3 months to place 10 swing trades and about 4 days to place 10-day trades.  I only mention the time element so you can see how long it takes me to place that number of trades based on my trading style , but you can easily perform the same math in your head.

So, what is the number of trades you will use when evaluating your trading activity?

#2:  Identify Your Key Performance Metrics

Performance Metrics

I use the KISS method or Keep It Simple, Stupid (for those new to the term) for measuring my trading performance.   To that aim, I only care about the following two metrics:

This is a ratio of your profitable trades divided by your losing trades.  Over a 10 trade cycle, I would take, for example, $15,000 (winners)/$5,000 (losers), which would equal an R of 3.  This essentially translates to the fact I profit three times more than I lose.  You will want to measure R over every cycle.  There is no set minimum or maximum R value; however, you will want to track your performance over time and quickly identify when you are below your historical average.

• This is the lowest intraday dollar value of your account within a trading cycle. Most max drawdowns require a new high to take place in order to mark the drawdown.  I, however, feel this is not the right approach, because it could take you a series of trading cycles before you hit a new portfolio high.  I recommend that you determine how low your account has gone from the starting point of the cycle in percentage terms. For example, if I have a starting portfolio value of $100k for a 10-sprint cycle and my account value hits $80k, then my max drawdown was 20%.  Just like R, there is no hard and fast rule on maximum drawdown.  Over time, you should aim to reduce your drawdowns, as this will ultimately lead to a portfolio balance that continues pointing up and to the left, with very little pullbacks.

#3:  What Time of Day will You Trade?

For my day traders, I highly recommend you limit your trading activity.

For me, I trade from 9:50 am – 12:00 pm. Any trade activity occurring before or after this zone, I am purely a spectator on the sideline.

#4:  Define Your Trading Edge

Similar to the times of day you will trade; keep your trading edge down to one or two setups when starting out.  The more strategies you hope to master, the more difficult it will become to consistently make money in the market.

Below are the details of my trading edge:

• Early Range Breakouts
• High Volume
• Tight Spreads
• Consolidation prior to the breakout
• Only enter new positions between 9:50 am and 10:10 am

That’s it.  If you feel your list bubbling up to 20+ criteria, you will drive yourself crazy trying to respect all of your rules

#5: Identify Stocks to Trade

Develop a standard methodology for identifying plays. You will have to first ask yourself the question, what is my time horizon for this trade? Day traders will want to focus on stocks in the news, while long-term traders will want to focus on stocks that are developing new business models that show the potential for multi-year growth. Whatever your trading style, make sure you identify the plays that have the highest odds of profitability.

For day traders, you will want to focus on the market movers.  This provides you with the greatest opportunity for locating stocks that are trending hard with high liquidity.  Within TradingSim, our market movers component provides you the top list of gainers and losers in real-time.  This way you don’t have to navigate through hundreds of charts manually.

TradingSim – Market Movers

Once you have found a stock you like, you will need to add the stock to your watchlist, so you can keep an eye on the security.

TradingSim – Watchlist

#6:  Place Your Stop Loss

Stop losses are not a negative thing; they are what keep you in business over the long haul

My stop loss is once the position goes against me by 2%.  The 2% threshold is based on the volatility of the stocks I trade and may not be suitable for your trading style.  The point here is just to make sure you have a stop loss.  If you find your stop is consistently being hit, then you need to take a deeper look into the volatility of the stocks you are trading .

#7:  When to Exit

You have heard all the market wizards say, “Let your winners run”.  Well, once you figure out what that means please let me know.

The greed in you will prevent you from closing your winning trades, even after you hear that little voice in your head tell you the run has come to an end.  The way to avoid this scenario is to have a clear exit strategy.

Again, keep it simple.  The exit strategy should be as simple as when the stock crosses below a moving average or the VWAP.

If you would like more insight into my own exit strategy for swing trading please take a look at the article I wrote titled ‘ How to Let Your Winners Run – 7 Tips for Success’ .

#8: How Much Money Can I Use per Trade?

Without money management, you will not stand a chance of making it in the business of trading.  For me, the amount of money I can use per trade largely depends on how well I am performing.  If I am going through a rough patch and my key performance indicators are down, then I use less money to minimize the damage to my account balance.

However, for keeping it simple in this article, I only use 10% of my available day trading buying power per trade.  For example, if I have $250,000 cash, this would translate to $1,000,000 in day trading buying power; hence, I would use $100,000 per trade.

#9:  When to Take Breaks

Take a Break from Trading+

This is something you will not see in other trading plans on the web.  When will you take a break from trading?  Sounds like a no-brainer, but you will be surprised how many traders I talk to that never take breaks.  Whether the trader has just had the best series of trades or an all-out massacre of their account, the vast majority of traders just keep placing trades, day after day.

I take a break after I have placed 100 trades.  I will take a day off just to give myself time to relax and reflect on my trading activity.  You could be asking yourself; couldn’t I just take a break on the weekend or over federal holidays?  Very true, but taking a self-imposed break goes back to discipline and exercising my control of the market.  While the market is always there, I don’t always have to respond to her every move.

#10: Limit Up/Limit Down

The major exchanges and prop firms think in terms of limit up and limit down.  This concept of curbs in was originally created after the 1987 crash and like everything else has become so complicated, it’s not worth trying to explain in less than 5,000 words.

For prop firms, their risk management rules will closely monitor how much a trader is up or down for the day.  Once a trader reaches a particular extreme based on their past trading performance, this trader is not allowed to place any additional trades for the day.

Why do we as traders not think in terms of limit up or limit down?

For me, if I lose 2% of my trading capital at any point of the day, I need to exit all positions and go fishing.  Conversely, if I make 7.5% of my trading portfolio in one day, it is time to go fishing.

Have you ever thought in terms of limit up/limit down?  What are your limit up/limit down targets?

Sample Trading Plan

Now that we have covered the 10 inputs of a trading plan, below is a sample trading plan for your review.  While this is a sample trading plan for day trading, you can simply change the parameters and apply them to any trading period for success.

Beach Photo by Trish Hartmann

Time Photo by Sean MacEntee

Performance Metrics by Alan O’Rourke

Tea Cups by Clyde Robinson

Tags: Day Trading Basics

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• Search Search Please fill out this field.
• 1. Knowledge Is Power
• 2. Set Aside Funds
• 3. Set Aside Time
• 4. Start Small
• 5. Avoid Penny Stocks
• 6. Time Those Trades
• 7. Cut Losses With Limit Orders
• 8. Be Realistic About Profits
• 9. Reflect on Investment Behavior
• 10. Stick to the Plan

How To Start Day Trading

What makes day trading difficult, deciding what and when to buy, deciding when to sell, day trading charts and patterns.

• How to Limit Losses

Day Trading Strategies for Beginners

How much do day traders make, is day trading worth it, how much money do i need to start day trading stocks, the bottom line.

• Trading Skills

10 Day Trading Tips and How To Get Started

Day trading involves buying and selling financial instruments at least once within the same day. If played correctly, taking advantage of small price moves can be a lucrative game. Yet, it can be dangerous for beginners and anyone else who doesn't have a well-thought-out strategy.

Not all brokers are suited for the high volume day trading generates. Meanwhile, some fit perfectly with day traders. Check out our list of the best brokers for day trading that accommodate individuals who would like to day trade.

The online brokers on our list, Interactive Brokers and Webull, have professional or advanced versions of their platforms with real-time streaming quotes, charting tools, and the ability to enter and modify complex orders in quick succession.

Below, we'll take a look at 10 day trading strategies for beginners. Then, we'll consider when to buy and sell, basic charts and patterns, and how to limit losses.

Key Takeaways

• Day trading is only profitable in the long run when traders take it seriously and do their research.
• Day traders must be diligent, focused, objective, and unemotional in their work.
• Interactive Brokers and Webull are two recommended online brokers for day traders.
• Day traders often look at liquidity, volatility, and volume when deciding what stocks to buy.
• Some tools that day traders use to pinpoint buying points include candlestick chart patterns, trend lines and triangles, and volume.

1. Knowledge Is Power

In addition to knowledge of procedures, day traders need to keep up with the latest stock market news and events that affect stocks. This included the Federal Reserve System's interest rate plans, leading indicator announcements, and other economic, business, and financial news.

So, do your homework. Make a wish list of stocks you'd like to trade. Be informed about the selected companies, their stocks, and general markets. Scan business news and bookmark reliable online news outlets.

2. Set Aside Funds

Assess and commit to the amount of capital you're willing to risk on each trade. Many successful day traders risk less than 1% to 2% of their accounts per trade. If you have a $40,000 trading account and are willing to risk 0.5% of your capital on each trade, your maximum loss per trade is $200 (0.5% x $40,000). Moreover, only trade with suitable online brokers and trading platforms .

Earmark funds you can trade with and are prepared to lose.

3. Set Aside Time

Day trading requires your time and attention. In fact, you'll need to give up most of your day. Don’t consider it if you have limited time to spare.

Day trading requires a trader to track the markets and spot opportunities that can arise at any time during trading hours. Being aware and moving quickly are key.

4. Start Small

As a beginner, focus on a maximum of one to two stocks during a session. Tracking and finding prospects is easier with just a few stocks. It's now common to trade fractional shares . That lets you specify smaller dollar amounts that you wish to invest.

This means that if Amazon.com ( AMZN ) shares are trading at $170, many brokers will now let you buy a fractional share for as low as $5.

5. Avoid Penny Stocks

You're probably looking for deals and low prices but stay away from penny stocks . These stocks are often illiquid and the chances of hitting the jackpot with them are often bleak.

Many stocks trading under $5 a share become delisted from major stock exchanges and are only tradable over-the-counter (OTC). Unless you see a real opportunity and have done your research, steer clear of these. Finding real undervalued stocks can be demanding.

6. Time Those Trades

Many orders placed by investors and traders begin to execute as soon as the markets open in the morning , contributing to price volatility. A seasoned player may be able to recognize patterns at the open and time orders to make profits. For beginners, it may be better to read the market without making any moves for the first 15 to 20 minutes.

The middle hours are usually less volatile. Then, the movement begins to pick up again toward the closing bell. Though rush hours offer opportunities, it’s safer for beginners to avoid them at first.

7. Cut Losses With Limit Orders

Decide what type of orders you'll use to enter and exit trades. Will you use market orders or limit orders? A market order is executed at the best price available, with no price guarantee. It's useful when you want to enter or exit the market and don't care about getting filled at a specific price.

A limit order guarantees the price but not the execution. Limit orders can help you trade more precisely and confidently because you set the price at which your order should be executed. A limit order can cut your loss on reversals. However, if the market doesn't reach your price, your order won't be filled and you'll maintain your position.

More sophisticated and experienced day traders may also employ options strategies to hedge their positions.

8. Be Realistic About Profits

A strategy doesn't need to succeed all the time to be profitable. Traders can be successful by only profiting from 50% to 60% of their trades. However, they need to profit more on their winners than they lose on their losers. Ensure the financial risk on each trade is limited to a specific percentage of your account and that entry and exit methods are clearly defined.

9. Reflect on Investment Behavior

For day traders, frequent reflection on investment behavior is crucial. It helps them identify patterns, learn from past mistakes, and fine-tune their strategies. This fosters continuous learning and adapting to ever-changing market conditions. In addition, it encourages discipline and emotional control, which are key to successful trading.

10. Stick to the Plan

Successful traders have to move fast, but they don't have to think fast. Why? Because they've developed a trading strategy in advance, along with the discipline to stick to it. It is important to follow your formula closely rather than try to chase profits. Don't let your emotions get the best of you and make you abandon your strategy. Bear in mind a mantra of day traders: plan your trade and trade your plan.

Investopedia / Madelyn Goodnight

Getting underway in day trading involves putting your financial resources together, setting up with a broker who can handle day trading volume, and engaging in self-education and strategic planning. Here's how to start in five steps:

Step 1 : Educate yourself. Before you start trading, it's crucial to understand the trading principles and specific strategies used in day trading. Read books, take courses, and study financial markets. The major topic to study is technical analysis , which should include reading up on trading psychology and (this is a must) risk management.

Step 2 : Develop your trading plan. Outline your investment goals, risk tolerance, and specific trading strategies you've picked up from Step 1. Your plan should specify your entry and exit criteria, how much capital you are willing to risk on each trade, and your overall risk management strategy. Before investing real money, put your plan into practice with a real-time trading simulator. This helps you get familiarized with market behavior and the trading platform without financial risk.

Step 3 : Choose a trading platform and fund your account. You'll want a reputable broker that caters to day traders and has low transaction fees, quick order execution, and a reliable trading platform. Once you're ready, fund your account. It's advisable to begin with a relatively small amount in your trading account and only put in money you can afford to lose.

Step 4 : Begin trading with small positions. This reduces the risks of losing all your money on one or a series of bad trades while you're still learning. As you do so, continuously review your trades and check them against your learning resources to adjust your strategy. Day trading requires constantly adapting to changing situations.

Step 5 : Maintain discipline. Adjusting to changing circumstances does not mean shifting your stop-loss and stop-limit settings or other trading criteria as you take on more risk. Successful day trading relies very much on discipline and emotional control. Stick to your trading plan; don't let emotions drive your decisions. That's the way to quick ruin.

Day trading takes a lot of practice and know-how, and several factors can make it challenging .

First, know that you're competing against professionals whose careers revolve around trading. These people have access to the best technology and connections in the industry, which means they're set up to succeed. Jumping on the bandwagon usually means more profits for them.

Next, understand that Uncle Sam will want a cut of your profits, no matter how slim. You'll have to pay taxes on any short-term gains —investments you hold for one year or less—at the marginal rate. The upside is that your losses will offset any gains.

Also, as a beginning day trader, you may be prone to emotional and psychological biases that affect your trading—for instance, when your capital is involved and you're losing money on a trade. Experienced, skilled professional traders with deep pockets can usually surmount these challenges.

Day Traders Lose

An early popularizer of day trading, Toby Crabel, is also credited with a classic day trading strategy, the opening range breakout. Crabel has had some influence on technical analysis, and he often suggested that day traders are social psychologists with a computer program.

What To Buy

Day traders try to make money by exploiting minute price movements in individual assets (stocks, currencies, futures, and options). They usually leverage large amounts of capital to do so. In deciding what to buy—a stock, say—a typical day trader looks for three things:

• Liquidity . A security with this allows you to buy and sell it easily and, hopefully, at a reasonable price. Liquidity is an advantage with tight spreads, or the difference between the bid and ask price of a stock, and for low slippage, or the difference between the expected price of a trade and the actual price.
• Volatility. This measures the daily price range—the range in which a day trader operates. More volatility means greater potential for profit or loss.
• Trading volume measures the number of times a stock is bought and sold in a given period. It's commonly known as the average daily trading volume. High volume indicates a lot of interest in a stock. An increase in a stock's volume is often a harbinger of a price jump, either up or down.

When To Buy

Once you know the stocks (or other assets) you want to trade, you need to identify entry points for your trades. Tools that can help you do this include:

• Real-time news services : News moves stocks, so it's important to subscribe to services that alert you when potentially market-moving news breaks.
• ECN/Level 2 quotes : Electronic communication networks (ECNs) are computer-based systems that display the best available bid and ask quotes from market participants and then automatically match and execute orders. Level 2 is a subscription-based service that provides real-time access to the Nasdaq order book, which has price quotes from market makers in every Nasdaq-listed and OTC Bulletin Board security. Together, they can give you a sense of orders executed in real-time.
• Intraday candlestick charts :  Candlesticks provide a raw analysis of price action. More on these later.

Define and write down the specific conditions under which you'll enter a position. For instance, buying during an uptrend isn't specific enough. Instead, put down something more specific and testable: buy when the price breaks above the upper trendline of a triangle pattern, where the triangle is preceded by an uptrend (at least one higher swing high  and higher  swing low  before the triangle formed) on the two-minute chart in the first two hours of the trading day.

Once you have specific entry rules, scan more charts to see if your conditions are generated each day. For instance, determine whether a candlestick chart pattern signals price moves in the direction you anticipate. If so, you have a potential entry point for a strategy.

Next, you'll need to determine how to exit your trades.

There are several ways to exit a winning position, including  trailing stops  and profit targets . Profit targets are the most common exit method. They refer to taking a profit at a predetermined price level. Here are some common profit target strategies:

Often, you will want to sell an asset when there is decreased interest in the stock as indicated by the ECN/Level 2 and volume. The profit target should also allow for more money to be made on winning trades than is lost on losing trades. If your stop loss is $0.05 away from your entry price, your target should be more than $0.05 away.

Just as with your entry point, define exactly how you will exit your trades before you enter them. The exit criteria must be specific enough to be repeatable and testable.

Here are three common tools day traders use to help them determine opportune buying points:

• Price charts using depictions such as candlesticks. Also, various chart patterns, including engulfing candles, dojis, and many others.
• Other technical analysis, including trend lines and various indicators such as the relative strength index, moving average convergence divergence, and many others.

There are many candlestick setups a day trader can look for to find an entry point. If followed correctly, the doji reversal pattern (highlighted in yellow in the chart below) is one of the most reliable.

Also, look for signs that confirm the pattern:

• A volume spike on the doji candle or the candles immediately following it, which can indicate that traders are supporting the price at this level
• Prior support at this price level, such as the prior low of day or high of day Level 2 activity, which will show all the open orders and order sizes

If you use these three confirmation steps, you may determine whether the doji is signaling an actual turnaround and a potential entry point.

Chart patterns also provide profit targets for exits. For example, the height of a triangle at the widest part is added to the breakout point of the triangle (for an upside breakout), providing a price at which to take profits.

How to Limit Losses When Day Trading 

Stop-loss orders.

It's important to define exactly how you'll limit your trade risk. A stop-loss order  is designed to limit losses on a position in a security. For long positions, a stop-loss can be placed below a recent low and for short positions, above a recent high. It can also be based on volatility.

For example, if a stock price is moving about $0.05 a minute, then you might place a stop-loss order $0.15 away from your entry to give the price some space to fluctuate before it moves in your anticipated direction.

For a triangle pattern, a stop-loss order can be placed $0.02 below a recent swing low if buying a breakout , or $0.02 below the pattern.

You could also set two stop-loss orders:

• Place an actual stop-loss order at a price level that suits your risk tolerance. This level represents the most money that you can stand to lose.
• Set a mental stop-loss order at the point where your entry criteria would be violated. If the trade takes an unexpected turn, you'll immediately exit your position.

However you decide to exit your trades, the exit criteria must be specific enough to be testable and repeatable.

Set a Financial Loss Limit

It's smart to set a maximum loss per day that you can afford. Whenever you hit this point, exit your trade and take the rest of the day off. Stick to your plan. After all, tomorrow is another (trading) day.

Test Your Strategy

You've defined how you enter trades and where you'll place a stop-loss order. Now, you can assess whether the potential strategy fits within your risk limit. If the strategy exposes you to too much risk, you need to alter it in some way to reduce the risk.

If the strategy is within your risk limit, then testing begins. Manually go through historical charts to find entry points that match yours. Note whether your stop-loss order or price target would have been hit. Paper trade in this way for at least 50 to 100 trades. Determine whether the strategy would have been profitable and if the results meet your expectations.

If your strategy works, proceed to trading in a  demo account in real time. If you take profits over the course of two months or more in a simulated environment, proceed with day trading with real capital. If the strategy isn't profitable, start over.

Finally, keep in mind that if you trade on  margin , you can be far more vulnerable to sudden price movements. Trading on margin means borrowing your investment funds from a brokerage firm. It requires you to add funds to your account at the end of the day if your trade goes against you. Therefore, using stop-loss orders is crucial when day trading on margin.

Now that you know some of the ins and outs of day trading, let's review some of the key techniques new day traders can use.

When you've mastered these techniques, developed your own trading styles, and determined your end goals, you can use a series of strategies to help you in your quest for profits.

Although some of these techniques were mentioned above, they are worth going into again:

• Following the trend: Anyone who follows the trend will buy when prices are rising or short sell when they drop. This is done on the assumption that prices that have been rising or falling steadily will continue to do so.
• Contrarian investing: This strategy assumes a rise in prices will reverse and drop. The contrarian buys during a fall or short sells during a rise, with the express expectation that the trend will change.
• Scalping: This is a style by which a speculator exploits small price gaps created by the bid-ask spread. This technique normally involves entering and exiting a position quickly—within minutes or even seconds.
• Trading the news: Investors using this strategy will buy when good news is announced or short sell when there's bad news. This can lead to greater volatility, which can lead to higher profits or losses.

Why Is It Difficult to Make Money Consistently From Day Trading?

Doing so requires combining many skills and attributes—knowledge, experience, discipline, mental fortitude, and trading acumen.

It's not always easy for beginners to carry out basic strategies like cutting losses or letting profits run. What's more, it's difficult to stick to one's trading discipline in the face of challenges such as market volatility or significant losses.

Finally, day trading means going against millions of market participants, including trading pros who have access to cutting-edge technology, a wealth of experience and expertise, and very deep pockets. That's no easy task when everyone is trying to exploit inefficiencies in the markets.

Should a Day Trading Position Be Held Overnight?

A day trader may wish to hold a trading position overnight either to reduce losses on a poor trade or to increase profits on a winning trade. Generally, this is not a good idea if the trader simply wants to avoid booking a loss on a bad trade.

Risks involved in holding a day trading position overnight may include having to meet margin requirements, additional borrowing costs, and the potential impact of negative news. The risk involved in holding a position overnight could outweigh the possibility of a favorable outcome.

Day traders' earnings vary widely based on experience, skill level, trading strategy, and market conditions. Some may earn a substantial income, while others may not be as successful. It's important to note that day trading involves significant risk and is not suitable for everyone.

This largely depends on individual circumstances, risk tolerance, and expertise. While it can offer significant profits and flexibility for some, it's high-risk, time-consuming, and not suitable for everyone. It's estimated that a majority of day traders don't profit, indicating the need for careful consideration and preparation.

The Financial Industry Regulatory Authority's (FINRA) pattern day trader rule requires a $25,000 minimum balance if you want to make four or more day trades within a five-business day span. Beyond that, consider transaction costs (commissions, fees) that will eat into your profits and the need for a financial cushion to handle potential losses—the FINRA rule is meant to be a minimum. It's prudent to have significantly more capital to trade effectively and, frankly, reduce the psychological pressure of trading with money you can't afford to lose. Day trading is highly risky, and most individual traders don't achieve success. It should be approached with the understanding that it takes significant skill and a high tolerance for risk. Day trading is not the path to quick or easy profits.

Day trading is difficult to master. It requires time, skill, and discipline. Many who try it lose money, but the strategies and techniques described above may help you create a potentially profitable strategy.

Day traders, both institutional and individual, play an important role in the marketplace by keeping the markets efficient and liquid. With enough experience, skill-building, and consistent performance evaluation, you may be able to beat the odds and improve your chances of trading profitably.

U.S. Securities and Exchange Commission. " Limit Orders ."

P. J. Kaufman. " Trading Systems and Methods ," Pages 733-775. John Wiley & Sons, 2019, sixth edition.

Internal Revenue Service. “ Topic No. 409 Capital Gains and Losses .”

Tony Crabel. " Day Trading with Short Term Price Patterns and Opening Range Breakout ." Traders Press, 1990.

Nasdaq. " Nasdaq BookViewer ."

P. J. Kaufman. " Trading Systems and Methods ," Pages 681-733. John Wiley & Sons, 2019, sixth edition.

U.S. Securities and Exchange Commission. " Stop Order ."

Mark Andrew Lim. " The Handbook of Technical Analysis, " Pages 887-889. John Wiley & Sons, 2015.

P. J. Kaufman. " Trading Systems and Methods ," Pages 1022-1027. John Wiley & Sons, 2019, sixth edition.

Financial Industry Regulatory Authority. " Day Trading ."

Doojin, Ryu. " The Profitability of Day Trading: An Empirical Study Using High-Quality Data ." Investment Analysts Journal , vol. 41, no. 75, pp. 43–54.

• Day Trading: The Basics and How to Get Started 1 of 23
• Day Trader: Definition, Techniques, Strategies, and Risks 2 of 23
• Is Day Trading Profitable? How to Get Started 3 of 23
• Stocks: What They Are, Main Types, How They Differ From Bonds 4 of 23
• Getting Acquainted With Options Trading 5 of 23
• Forex (FX): Definition, How to Trade Currencies, and Examples 6 of 23
• What Is a Trading Platform? Definition, Examples, and Features 7 of 23
• Choosing the Right Day-Trading Software 8 of 23
• The Complete Guide to Choosing an Online Stock Broker 9 of 23
• Using Paper Trading to Practice Day Trading 10 of 23
• Market Order: Definition, Example, Vs. Limit Order 11 of 23
• What Is a Limit Order in Trading, and How Does It Work? 12 of 23
• Stop Order: Definition, Types, and When to Place 13 of 23
• 10 Day Trading Tips and How To Get Started 14 of 23
• How to Choose Stocks for Day Trading 15 of 23
• Top 10 Rules for Successful Trading 16 of 23
• Short Selling: Pros, Cons, and Examples 17 of 23
• A Guide to Day Trading on Margin 18 of 23
• Market Risk Definition: How to Deal with Systematic Risk 19 of 23
• Risk Management Techniques for Active Traders 20 of 23
• Risk/Reward Ratio: What It Is, How Stock Investors Use It 21 of 23
• Trading Psychology: Definition, Examples, Importance in Investing 22 of 23
• Trading Psychology: What it is and Importance 23 of 23

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Starting a Business in Day Trading: A Beginner’s Guide 

Starting a business as a day trader is a great career to embark upon, but like any professional path it comes with its potential pitfalls and difficulties. You can operate from the comfort of your own home and are working for yourself, but that also brings a lot of pressure and the requirement for high self-motivation. If you are considering day trading, this beginner’s guide to starting a business in day trading outlines the key steps you need to consider before you begin, from getting the right equipment to choosing a trading market, when to trade and how much risk to take. 

Choosing a day trading market

It’s possible that you have already decided which market you are going to trade in, but there are a few options to consider. For example, you could trade in shares in certain companies, cryptocurrencies, indices or the forex market. There is plenty of potential for profit in each market, but in the beginning of your career it’s best to focus on a single market.

Get the right equipment in place

To become a day trader you will need some essential equipment, starting with a laptop or computer. It should have sufficient memory and a fast processor to ensure you can run your live trading software without interruption as this could cause you to miss out on profitable trades or get stuck in less favorable ones. You will also need a quick and reliable internet connection for the same reasons. Your next step is to choose a trading platform which will suit your type and style of trading. It’s best to download a few and trial them before choosing one to use. Finally, you will need a broker to facilitate your trades. They will charge a commission for each trade so look for low fees balanced with experience and excellent support.

Work out when you will trade 

Consistency is key in day trading so it’s often advisable to conduct your trading during the same hours every day. Most stock markets only trade for a specific 2-3 hour period at a time depending on the markets they are trading in. A popular time to trade is the first 1-2 hours after the market opens as it is often the most volatile period, and towards the end of the trading day there are often more significant shifts.   

Consider your trading risk

Now you have chosen a market to trade in and have your software and equipment in place, it’s time to consider how you will manage trading risk. There are 2 sides to trading risk known as trade risk and daily risk. Trade risk is how much you are comfortable risking on each individual trade. A good benchmark is never to risk more than 1% of your capital on a single trade. You can do this by choosing an entry point and establishing a stop loss point which will automatically remove you from the trade if the loss will exceed that point. Daily risk is setting a daily loss which you can manage such as 3% of your capital. When you have lost 3%, you stop trading for the day and start again tomorrow.

Define a trading strategy

It’s not possible to learn everything there is to know about day trading strategies when you begin, so don’t waste your time trying. Instead, focus on finding a single pattern which repeats enough to enable you to make a profit. Find a strategy which you can use in a demo account until you get used to the rhythm on trading. You should practice for at least 3 months before attempting live trading with real money. 

Transition from demo to live trading

A lot of day traders see a drop in their performance when they change from demo to live trading. While demo trading provides essential practice, it cannot give you a realistic experience in terms of fluctuating markets or the pressure of dealing with real money. It’s important to be aware that a drop in performance is natural when you start live trading and that you will need some time to adjust, take control of your emotions and hone your strategy.   If you want further resources or help, consider forex trading brokers . 

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Trading Plan: 6 Steps to Create One + Examples

Trading Plan: Key Takeaways

• The keys to building a personalized trading plan…
• How to fit your plans to your unique trading style…
• Discover how trading plans help me find the day’s potential movers within 60 seconds of the market open…

See this BEFORE the market opens tomorrow! 

It can be hard to navigate the markets in today’s crazy world. Constructing a bullet-proof trading plan that will carry you through is a must … It can be the difference between surviving and fading out of the market.

How do you do that? Let me show you…

Table of Contents

• 1 What Is a Trading Plan?
• 2 Do You Need a Trading Plan?
• 3 Planning: The Key to Long-Term Trading Success
• 4 Trading Plan Essentials
• 5.1 #1. Set Goals 
• 5.2 #2. Focus on Risk 
• 5.3 #3. Do Your Research 
• 5.4 #4. Plan Your Entry and Exit 
• 5.5 #5. Write It Down 
• 5.6 #6. Review the Trade Afterward
• 6 Trading Plan Examples
• 7 Trading Plan and Trading System: What’s the Difference?
• 8 How to Combine Your Goals With Your Trading Style
• 9 Long-Term Benefits of Trading Plans
• 10 Frequently Asked Questions About Trading Plans
• 11 Who Uses a Trading Plan?
• 12 Can I Alter My Trading Plan Any Time?
• 13 What Key Elements Should Be in a Trading Plan?
• 14 What’s Next?
• 15 Conclusion

What Is a Trading Plan?

It’s your outline of a given trade. It defines why you’re making the trade and how you’ll execute it.

A good plan takes into account your trading style, risk management , and expectations. It lays out your entire approach to trade, from the ticker to your entry, exit, goals, stops, and more.

Traders who build thorough plans and follow them are more likely to keep a level head — and less likely to make big mistakes…

Do You Need a Trading Plan?

Trading plans aren’t sexy. Many traders are quick to dismiss them as unnecessary. They’d rather focus on the more exciting aspects of trading … like hot stocks, chart spikes, or catalysts.

Big mistake! While those things can help you choose stocks to trade, you need to combine them with a plan to get the best results.  

Technically, no, you don’t need a plan to make a trade … But if you want to follow the trajectory of consistent traders before you, you’d be smart to use one.

A good way to build a trading plan to fit your account is to use an all-in-one trading platform like StocksToTrade . It has the essential trading tools and features that can help you formulate a game plan for each day. Try StocksToTrade today — start your 14-day trial now!

Planning: The Key to Long-Term Trading Success

A trading plan gives you a clear-cut plan of attack for entering and exiting a trade.

It’s the difference between a calculated trade and the ‘hold and hope’ mentality that causes so many traders to lose money .

You know how I feel about bag-holding (DON’T DO IT)…

Without a plan, you’re pretty much gambling. You might win here and there, but your progress won’t be as reliable as it would be with a plan in place.

Many traders who don’t use plans begin to see their losses exceed their gains, and they ultimately give up on day trading.

Don’t become a cautionary tale … Make a plan every time!

Trading Plan Essentials

Your plan for a trade should cover essentials such as an entry/exit plan, risk management, and trading goals.

• An entry/exit plan should cover the key points at which you’ll enter a trade (buy) and when you’ll exit a trade (sell)… 
• Risk management is all about limiting your losses . The less money you lose — especially in your early trades — the longer you can stay in the game. This can help you build healthier long-term trading habits. Determine how much you’re willing to lose on every trade. Not every trade will be a winner.
• Stop-loss orders and limit orders are great ways to help minimize risk. Losses are part of the game. Be ready to cope with that.

Each trader’s plan is unique. There’s no one plan to fit all. Build one that best suits your trading needs and goals.

6 Tips for Creating a Useful Trading Plan

Now that you understand the benefits of building plans for your trades, here are some tips on how to do it…

#1. Set Goals 

What do you hope to gain from this trade? Do you want a 10%, 20% gain? Set realistic profit goals. 

And if you’re new, it can help to start small. Then increase your goals as you become consistent. Focus on gaining practice and experience.

Some of the best stock traders recommend starting small . You can size up once you learn and find some consistency.

#2. Focus on Risk 

What’s your risk tolerance? Only YOU can answer that. 

Before you enter a trade, consider how much of your portfolio you’re willing to risk on a given trade. Many traders stick to a rule of risking no more than 1% or 2% of their account. 

If you have a small account, you may decide to risk a little more to gain a bigger position… 

Or you may decide to risk less to try to nail down your process and avoid blowing through your account. Either way, only trade with money you can afford to lose. Trading is risky!

#3. Do Your Research 

Before you enter any trade, do your research. Seek out the big gainers , study the stock charts, and research potential catalysts. 

Be diligent! Research can help you determine how a stock might perform. You can never be 100% sure, but you want to be able to say you did all you could.

I find a lot of the big potential plays within 60 seconds of the market opening … But I wouldn’t know which ones I feel comfortable trading if I didn’t do my due diligence beforehand.

#4. Plan Your Entry and Exit 

Make a specific plan about when you’ll enter and exit a trade. 

Decide which buy signals will be your green light to enter a trade and only enter when you see them. StocksToTrade’s Oracle Scanner does a wonderful job of showing good entry and exit points.

The exit is just as important as the entry, if not more … Consider what you’ll do if a trade starts going south. 

What’s your stop loss? When will you get out if things don’t go your way? Resolve to get out at this point, and don’t take it personally. Never trade on your emotions. 

Using easily identifiable chart markers like the low of the day can be a good point of support to set risk. And certain resistance levels, like the high of day, can act as good points of entry.

Know your profit target, too. Get out once the trade hits your goal. Don’t get greedy.

#5. Write It Down 

Write down your plan. Literally. 

There’s a sense of accountability that comes with physically writing down your plan. And keep it where you’ll see it. 

It’s another way to hold yourself accountable. And you have that information to review for future trading…

Trading is a game of lessons. Knowing what works and what doesn’t helps guide your future trading.

#6. Review the Trade Afterward

After you make a trade, take time to consider how things went. 

Keep your notes from your plans and on how your trades play out in a trading journal or log. That can give you insight into what went right or wrong. And again, you can use that knowledge in future trades. 

You’ll get an idea of where you need to be more diligent.

Trading Plan Examples

Here are a few examples of a potential trading plan with some recent runners…

EZFL 2-day chart (Source: StocksToTrade)

EZFill Holdings, Inc. (NASDAQ: EZFL) was a great example of one of my favorite patterns to trade — the dip and rip . It checked off a lot of boxes:

• Early-morning press release
• Low floater

EZFL dipped before the market open and continued up. Your plan could have been to set your entry at an appealing premarket level and your exit close to that premarket high.

I personally would wait for it to reclaim premarket highs. But my plan doesn’t work for everyone. Some like to buy off the initial bounce.

EZFL tried that level a few times and failed, showing why it’s important to stick to your plan and not get greedy.

Another good example is ChemoCentryx, Inc. (NASDAQ: CCXI).

CCXI 5-day chart (Source: StocksToTrade)

This was a swing trade idea as a weak open red-to-green …

It ran in previous days and was holding up despite a weak open. This showed it had the buyers to support its current level despite the huge gap-up days before.

It ended up running the next morning before finally seeing a sell-off…

You could have used a current day or prior day level of support as your risk and that well-defined top as your exit point.

Remember, write down all of these decisions as well as WHY you make them.

Trading Plan and Trading System: What’s the Difference?

Trading systems don’t rely on individual decision-making whatsoever … It relies on algorithms to determine everything.

This isn’t necessarily a bad thing. A lot of traders use this style. 

A trading plan is more personalized. Also, algorithms can’t account for traders’ emotions.

Doing research and understanding how the market might react to a stock can give you a huge edge. It’s not just indicators and trading signals like a trading system.

How to Combine Your Goals With Your Trading Style

Every trader has different goals. Some want to day trade. Others want to hold long term. You may have to tinker around to find what suits you.

Do you know what kind of trader you are and what your goals are?

How often do you want to trade? What kinds of stocks do you want to trade? What’s your risk tolerance? 

These are all important questions to ask yourself before you begin trading.

If you hold a 9-to-5 job, day trading may not work for you. You may want to swing trade or even hold stocks longer term. 

The type of trading you choose should play a big role in your plans.

Long-Term Benefits of Trading Plans

Trading plans can change your relationship with trading. They can help you stop chasing ‘bright and shiny’ stocks and start making calculated trades.

So much in trading is beyond your control. But you can control when you exit and enter of trades. 

Learning how to create a plan is essential to your trading education.

Frequently Asked Questions About Trading Plans

Here are some common questions about trading plans…

Who Uses a Trading Plan?

Any trader can and should make plans — new traders, long-time traders, day traders, swing traders. It’s a key step. If you want to be a smarter trader, consider using one.

Can I Alter My Trading Plan Any Time?

Of course! Don’t set your plans in stone. They’re something you’ll work on and improve throughout your trading career. That said, stick to your plan once you’re in a trade. Remember your entry/exit and risk management.

What Key Elements Should Be in a Trading Plan?

At a minimum, set your entry and exit, risk management, and trading goals. Those are the key elements of any plan. You can include as much detail as needed for your research. Remember, the details you track for every trade can help your analysis down the road.

What’s Next?

Using the tips I just gave you, take the time to learn how to craft your trading plan. Test strategies to find what works best for your trading goals. 

And if you’re looking to take your trading to the next level, consider joining the SteadyTrade Team. It’s a community of dedicated traders from around the world, run by seasoned pros. 

Our SteadyTrade Team mentorship program is all about helping traders learn to navigate today’s volatile markets. Sign up for the SteadyTrade Team today!

Adaptation is a key to surviving the markets. Building a trading plan around the ever-changing market can help you find your edge.

That’s why it’s important to study up and continue to learn. 

Adapting doesn’t have to mean changing your risk levels or goals. Keeping those in mind will help you stay true to yourself while finding your way forward.

Now, time to get your trading plans in order!

How do you plan your trades? What’s essential for your plans? Let me know with a comment below!

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Starting a trading business can be challenging because you have to build contacts, negotiate, and whatnot. But amidst worrying about all these things, planning is the last thing you want to worry about.

While anyone can start a new business, you need a detailed business plan when it comes to raising funding, applying for loans, and scaling it like a pro!

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How to Write A Trading Business Plan?

Writing a trading business plan is a crucial step toward the success of your business. Here are the key steps to consider when writing a business plan:

1. Executive Summary

An executive summary is the first section planned to offer an overview of the entire business plan. However, it is written after the entire business plan is ready and summarizes each section of your plan.

Here are a few key components to include in your executive summary:

Introduce your Business:

Start your executive summary by briefly introducing your business to your readers.

Market Opportunity:

Mention your product range:.

Highlight the product range of your trading business you offer your clients. The USPs and differentiators you offer are always a plus.

Marketing & Sales Strategies:

Financial highlights:, call to action:.

Ensure your executive summary is clear, concise, easy to understand, and jargon-free.

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2. Business Overview

The business overview section of your business plan offers detailed information about your company. The details you add will depend on how important they are to your business. Yet, business name, location, business history, and future goals are some of the foundational elements you must consider adding to this section:

Business Description:

Describe your business in this section by providing all the basic information:

Describe what kind of trading company you run and the name of it. You may specialize in one of the following trading businesses:

• Retail trading
• Wholesale trading
• Export-import
• Dropshipping
• Describe the legal structure of your trading company, whether it is a sole proprietorship, LLC, partnership, or others.
• Explain where your business is located and why you selected the place.

Mission Statement:

Business history:.

If you’re an established trading business, briefly describe your business history, like—when it was founded, how it evolved over time, etc.

Future Goals

This section should provide a thorough understanding of your business, its history, and its future plans. Keep this section engaging, precise, and to the point.

3. Market Analysis

The market analysis section of your business plan should offer a thorough understanding of the industry with the target market, competitors, and growth opportunities. You should include the following components in this section.

Target market:

Start this section by describing your target market. Define your ideal customer and explain what types of services they prefer. Creating a buyer persona will help you easily define your target market to your readers.

Market size and growth potential:

Describe your market size and growth potential and whether you will target a niche or a much broader market.

Competitive Analysis:

Market trends:.

Analyze emerging trends in the industry, such as technology disruptions, changes in customer behavior or preferences, etc. Explain how your business will cope with all the trends.

Regulatory Environment:

Here are a few tips for writing the market analysis section of your trading business plan:

• Conduct market research, industry reports, and surveys to gather data.
• Provide specific and detailed information whenever possible.
• Illustrate your points with charts and graphs.
• Write your business plan keeping your target audience in mind.

4. Products And Services

The product and services section should describe the specific services and products that will be offered to customers. To write this section should include the following:

Describe your products:

Mention the trading products your business will offer. This may include product categories, product range, product features, product sourcing, etc.

Describe each service:

Mention the trading services your business will offer. This may include:

• Logistics & shipping
• Warehousing & storage
• Distribution & fulfillment

Additional Services

In short, this section of your trading plan must be informative, precise, and client-focused. By providing a clear and compelling description of your offerings, you can help potential investors and readers understand the value of your business.

5. Sales And Marketing Strategies

Writing the sales and marketing strategies section means a list of strategies you will use to attract and retain your clients. Here are some key elements to include in your sales & marketing plan:

Unique Selling Proposition (USP):

Define your business’s USPs depending on the market you serve, the equipment you use, and the unique services you provide. Identifying USPs will help you plan your marketing strategies.

Pricing Strategy:

Marketing strategies:, sales strategies:, customer retention:.

Overall, this section of your trading business plan should focus on customer acquisition and retention.

Have a specific, realistic, and data-driven approach while planning sales and marketing strategies for your trading business, and be prepared to adapt or make strategic changes in your strategies based on feedback and results.

6. Operations Plan

The operations plan section of your business plan should outline the processes and procedures involved in your business operations, such as staffing requirements and operational processes. Here are a few components to add to your operations plan:

Staffing & Training:

Operational process:, equipment & machinery:.

Include the list of equipment and machinery required for trading, such as office equipment, warehouse equipment, transportation vehicles, packaging & testing equipment, etc.

Adding these components to your operations plan will help you lay out your business operations, which will eventually help you manage your business effectively.

7. Management Team

The management team section provides an overview of your trading business’s management team. This section should provide a detailed description of each manager’s experience and qualifications, as well as their responsibilities and roles.

Founders/CEO:

Key managers:.

Introduce your management and key members of your team, and explain their roles and responsibilities.

Organizational structure:

Compensation plan:, advisors/consultants:.

Mentioning advisors or consultants in your business plans adds credibility to your business idea.

This section should describe the key personnel for your trading business, highlighting how you have the perfect team to succeed.

8. Financial Plan

Your financial plan section should provide a summary of your business’s financial projections for the first few years. Here are some key elements to include in your financial plan:

Profit & loss statement:

Cash flow statement:, balance sheet:, break-even point:.

Determine and mention your business’s break-even point—the point at which your business costs and revenue will be equal.

Financing Needs:

Be realistic with your financial projections, and make sure you offer relevant information and evidence to support your estimates.

9. Appendix

The appendix section of your plan should include any additional information supporting your business plan’s main content, such as market research, legal documentation, financial statements, and other relevant information.

• Add a table of contents for the appendix section to help readers easily find specific information or sections.
• In addition to your financial statements, provide additional financial documents like tax returns, a list of assets within the business, credit history, and more. These statements must be the latest and offer financial projections for at least the first three or five years of business operations.
• Provide data derived from market research, including stats about the industry, user demographics, and industry trends.
• Include any legal documents such as permits, licenses, and contracts.
• Include any additional documentation related to your business plan, such as product brochures, marketing materials, operational procedures, etc.

Use clear headings and labels for each section of the appendix so that readers can easily find the necessary information.

Remember, the appendix section of your trading business plan should only include relevant and important information supporting your plan’s main content.

The Quickest Way to turn a Business Idea into a Business Plan

Fill-in-the-blanks and automatic financials make it easy.

This sample trading business plan will provide an idea for writing a successful trading plan, including all the essential components of your business.

After this, if you still need clarification about writing an investment-ready business plan to impress your audience, download our trading business plan pdf .

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Frequently asked questions, why do you need a trading business plan.

A business plan is an essential tool for anyone looking to start or run a successful trading business. It helps to get clarity in your business, secures funding, and identifies potential challenges while starting and growing your business.

Overall, a well-written plan can help you make informed decisions, which can contribute to the long-term success of your trading company.

How to get funding for your trading business?

There are several ways to get funding for your trading business, but self-funding is one of the most efficient and speedy funding options. Other options for funding are:

• Bank loan – You may apply for a loan in government or private banks.
• Small Business Administration (SBA) loan – SBA loans and schemes are available at affordable interest rates, so check the eligibility criteria before applying for it.
• Crowdfunding – The process of supporting a project or business by getting a lot of people to invest in your business, usually online.
• Angel investors – Getting funds from angel investors is one of the most sought startup options.

Apart from all these options, there are small business grants available, check for the same in your location and you can apply for it.

Where to find business plan writers for your trading business?

There are many business plan writers available, but no one knows your business and ideas better than you, so we recommend you write your trading business plan and outline your vision as you have in your mind.

What is the easiest way to write your trading business plan?

A lot of research is necessary for writing a business plan, but you can write your plan most efficiently with the help of any trading business plan example and edit it as per your need. You can also quickly finish your plan in just a few hours or less with the help of our business plan software .

About the Author

Upmetrics Team

Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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Quick Summary

Should day traders use an llc, what are the advantages of trading with an llc, day trading and taxes, how do day traders avoid taxes, how do i start a day trading business, exploring the nuances of trading through an llc, should you start an llc for day trading (explained).

In the dynamic world of day trading, every decision can lead to significant financial outcomes. First, you have the choice to trade as an individual or sole proprietor or trade through a business entity such as a limited liability company.

Is an LLC the right structure for your day trading business? Will you benefit from liability protection while minimizing your tax obligations? How would an LLC impact and give your day trading a competitive edge?

Drawing from my experience as an LLC business expert, I will explore the potential benefits, legal implications, and financial effects of forming an LLC for day trading to make that determination.

Continue reading to find out how an LLC could be a game-changer in your day trading career.

• You should start an LLC for day trading to reduce capital gains taxes and gain liability and asset protection.
• An LLC offers advantages such as pass-through taxation, limited liability protection, and a flexible management structure for day traders.
• Utilizing a self-directed IRA LLC allows investors to diversify investments and potentially cut taxable income by up to 30% through strategic allocations in real estate and cryptocurrencies.
• While the tax benefits of trading through an LLC can be appealing, in my opinion, it's crucial to balance these advantages against potential costs and limitations, ensuring that decisions align with one's overall trading strategy.

From my own journey in day trading, I've realized that whether day traders should use an LLC largely depends on the source of capital.

First, it’s important to note that there are two types of day traders:

• Prop trading firms: These firms provide capital to their traders and take on all the risk. The firm may require the trader to trade under its name and be employed by the firm. The firm would likely set up an LLC for the trader in this case.
• Self-employed: These traders are not employed by a prop trading firm but trade with their capital. If you are self-employed, you can set up an LLC using a company like ZenBusiness for your day trading business.

The advantages of trading with an LLC are that it offers protection from personal liability and can help save on taxes.

Having traded both as an individual and through an LLC, I can vouch for the advantages of the latter. An LLC provides notable tax savings.

For tax purposes, an LLC can help you reduce self-employment tax .

This also includes:

• Pass-through taxation : LLCs are taxed as pass-through entities , meaning the business's ordinary income and losses are "passed through" to the owners' individual tax returns. This can provide significant tax savings compared to being taxed as a sole proprietor.
• Limited liability protection : As an LLC owner, you are not personally liable for the debts and obligations of the company. This protection is especially important for day traders, who can incur significant losses in a short period.
• Flexible management structure : Limited liability companies can be managed by their owners, known as LLC members , or by a manager. This flexibility can be helpful if you want someone else to manage your business's day-to-day operations.

Although establishing an LLC for day trading comes with certain advantages, it's important to weigh these against potential disadvantages.

Consult a tax advisor or attorney before setting up an LLC for day trading.

You'll want to make sure that it makes sense for your specific situation and that you understand the potential risks involved.

In my early days of day trading, I quickly learned that it's not just about making profits; it's also about understanding the tax implications. Like any business, day trading is subject to taxation, and it's crucial to report your profits and losses accurately.

Here are some significant tax considerations that exist when setting up an LLC for day trading:

• First, you must file a business tax return for the LLC. This return will need to include your business income and expenses.  
• Second, you will need to file an individual tax return for yourself. On this return, you will report the income and losses from your LLC, such as business expenses. You will need to file a joint tax return if you are married.
• Lastly, you should consult with a tax advisor or attorney before setting up an LLC for day trading, the former especially for tax purposes.

You'll want to make sure that it makes sense for your specific situation and that you understand the potential risks involved, especially for business expenses.

One way a day trader can avoid taxes is by setting up an LLC for day trading. As mentioned above, an LLC offers protection from personal liability and can help to save on tax purposes.

Another way to reduce your tax burden is to use a self-directed IRA account [ 1 ]. According to the Smart Asset, by leveraging a self-directed IRA LLC, investors can diversify across a broad range of assets, potentially reducing their taxable income by up to 30% through strategic investments in alternatives like real estate and cryptocurrencies.

Finally, you may be able to use a tax-deferred account such as a Roth IRA or 401(k) to save on taxes [ 2 ]. These accounts allow you to defer taxes on your earnings until you retire. This can be a helpful way to reduce your tax bill in the short term.

By strategically planning withdrawals, day traders over 73 can navigate the RMD requirements, introduced in 2023, to minimize taxes on their retirement savings, aligning with strategies for reducing 401(k) taxes.

Day traders should consult with a tax advisor or attorney to learn more about avoiding paying taxes on their profits.

There are a variety of strategies that can be used, and each trader will have unique needs. You can maximize your ordinary income by understanding the options available.

To start a day trading business, acquire knowledge and skills in financial markets, develop a trading strategy, open a brokerage account, and set aside sufficient capital.

When I decided to dive into day trading, the first steps I took were to acquire knowledge about the financial markets, hone my trading strategy, and open a dedicated brokerage account. If you're considering this path, ensure you have sufficient capital and are prepared for the ups and downs.

First, you'll need to determine if your business qualifies as a day trading business. This can be done by consulting with a tax advisor or attorney.

Second, you must set up a business entity, such as a limited liability company or corporation. This will protect you from personal liability and help to save on taxes.

Third, you'll need to open a trading account with a broker. Fourth, you'll need to fund your account and begin trading.

It's important to remember that day trading is a risky business. You will need to make money. Before starting a day trading business, consult with a tax advisor or attorney to ensure you know the risks involved.

When diving into the world of day trading, it's essential to understand the intricacies of tax implications and the potential benefits of trading through a business entity.

While our previous sections have delved into the advantages of setting up an LLC for day trading, let's explore some nuances that often go unnoticed:

• IRS Trader Designation vs. Business Entity : While forming an LLC might seem like a straightforward way to enjoy tax benefits, it's crucial to differentiate between the IRS's trader designation and merely setting up a business entity for trading. The former requires meeting specific criteria, which, if met, can offer certain tax advantages without the need for an LLC.
• Beware of Hidden Costs : Trading through an LLC might come with unexpected costs. For instance, you might find yourself incurring professional market data fees, which can quickly add up. It's essential to factor in these costs when considering the overall profitability of trading through an LLC.
• Brokerage Policies : Not all brokerage firms treat individual and LLC accounts the same. Some might have different margin policies for LLCs, potentially limiting your trading strategies. It's always a good idea to have a chat with your broker to understand any potential limitations.
• Seek Expert Advice : The world of taxes and trading is complex. While doing your research is commendable, sometimes it's best to consult with the experts who can offer insights tailored to your specific situation.

Remember, while the potential tax benefits of trading through an LLC can be enticing, it's essential to weigh these against the associated costs and limitations.

Always keep your trading goals in focus and make informed decisions that align with your overall strategy.

"With minimal costs, time and significant legal protection, it makes sense to start an LLC as soon as you start day trading." - Alison Plaut, Contributor, Benzinga

Are There Any Regulatory Requirements or Licenses Needed for a Day Trading LLC?

There are regulatory requirements and licenses necessary for a day trading LLC to operate legally. Compliance with financial regulatory bodies, such as the SEC and FINRA, is essential for ensuring legitimacy and protecting investors. Fulfilling these obligations is crucial to maintaining a credible and lawful day trading enterprise.

Can I Trade Under My Personal Name Instead of Starting an LLC for Day Trading?

You can trade under your personal name as a sole proprietorship instead of starting an LLC for day trading. However, this exposes your assets to potential liabilities. An LLC, on the other hand, offers better asset protection and credibility for your day trading enterprise.

References:

• https://smartasset.com/retirement/self-directed-ira-llc-investment-guide
• https://www.investopedia.com/articles/personal-finance/081115/how-minimize-taxes-401k-withdrawals.asp

About The Author

Jon Morgan is the CEO and Editor-in-Chief of Venture Smarter, a leading consulting firm that specializes in helping startups and small businesses scale and grow.

With over 10 years of experience in the industry – working with both early-stage startups and large corporations – Jon has a wealth of knowledge and expertise in areas such as strategic planning and management, market research, finance, sustainability, technology, entrepreneurship, and financial analysis.

Born and bred in California where he got his degree in business management at University of California, Davis, Jon also earned a Master's degree in Business Administration (MBA) from Harvard Business School in 2010.

In addition to his consulting work, Jon is also a sought-after speaker and author, sharing his insights on business growth and success with audiences around the world.

A father of two and a loving husband, Jon is also a certified fur dad to their poodle Sophie. In his downtime, he is committed to mastering Spanish as a second language.

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NerdWallet, Inc. is an independent publisher and comparison service, not an investment advisor. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. They are not intended to provide investment advice. NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance.

We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.

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Day Trading: Definition, Risks and How to Start

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

The goal of day trading is to earn a lot of small profits from the short-term movements of stocks and other assets by buying and selling quickly.

Day trading is not without risks — experienced day traders use an array of strategies and practices to make informed trading decisions and control risk.

Novice day traders may consider starting small, keeping their day jobs and only using money they can afford to lose, along with learning popular day trading strategies such as range trading, spread trading, fading and momentum trading.

Day trading means buying and selling securities rapidly — often in less than a day — in an attempt to profit off of short-term price movements.

If you're researching how to day trade, chances are you're intrigued by the prospect of turning quick profits in the stock market. Make no mistake: you're facing long odds and steep risks.

But even if you're just dabbling in the market with a few extra dollars, it's important to understand the basics so you don't get in over your head.

» Need to back up a bit? Learn to read stock charts

How to start day trading

When it comes to day trading, it’s best to go in with eyes wide open: while the potential for profits might be possible, the risks are real. As you enter the realm of day trading, here are some additional tips to consider:

Establish your strategy before you start. Losing money scares people into making bad decisions, and you have to lose money sometimes when you day trade. Having an exit plan for each of your investment holdings is important because it helps you avoid making an emotional decision when you need to make a rational decision.

Be patient. Look for trading opportunities that meet your strategic criteria. If the situation doesn’t meet it, don’t trade. You don’t have to trade if nothing looks attractive.

Read, read, read. Continually watch what’s happening in the markets. Big news — even unrelated to your investments — could change the whole tenor of the market, moving your positions without any company-specific news.

» Wondering where to day trade? Review NerdWallet’s picks of the best brokers for day trading .

If you’re not quite ready to be a prime-time player, you can always try paper trading with a stock market simulator first. Paper trading involves fake stock trades, which let you see how the market works before risking real money. Paper trading accounts are available at many brokerages. You can also get a feel for the broker’s platform and functionality with this approach, in addition to seeing how theoretically profitable you'd be.

» Check out the best brokers for paper trading

Day trading strategies

You'll need to determine the best trading strategy for you. You may wish to specialize in a specific strategy or mix and match from among some of the following typical strategies.

How you execute these strategies is up to you. Some traders might angle for a penny per share, like spread traders, while others need to see a larger profit before closing a position, like swing traders . Some traders might be willing to hold overnight, while others won’t and prefer to maintain a neutral position in case bad news hits before they can react.

To know when to trade, day traders closely watch a stock’s order flow, the list of potential orders lining up to buy and sell a stock. Before buying, they’ll look for a stock to fall to “support,” a stock price at which other buyers step in to buy, and the stock is more likely to rise. To sell, they’ll look for when the stock hits “resistance,” a price where more traders start selling and the price is more likely to fall. To make judgments like this, you’ll want a broker that lets you see order flow.

Whichever strategy you pick, it's important to find one (or more) that work and that you have the confidence to use. It can take a while to find a strategy that works for you, and even then the market may change, forcing you to change your approach.

How to day trade stocks

Stocks are among the most popular securities for day traders — the market is big and active, and commissions are relatively low or nonexistent. You can also day trade bonds , options , futures , commodities and currencies.

Typically, the best day trading stocks have the following characteristics:

Good volume. Day traders like stocks because they’re liquid, meaning they trade often and in high volume. Liquidity allows a trader to buy and sell without affecting the price much. Currency markets are also highly liquid.

Some volatility — but not too much. Volatility means the security's price changes frequently. This kind of movement is necessary for a day trader to make any profit. Someone has to be willing to pay a different price after you take a position.

Familiarity. You’ll want to understand how the security trades and what triggers moves. Will an earnings report hurt the company or help it? Is a stock stuck in a trading range, bouncing consistently between two prices? Knowing a stock can help you trade it. (Here’s how to research a stock .)

Newsworthiness. Media coverage gets people interested in buying or selling a security. That helps create volatility and liquidity. Many day traders follow the news to find ideas on which they can act.

Day traders who focus on stocks often rely on “ technical analysis ,” or analyzing the movements of stocks on a chart, rather than “fundamental analysis,” which involves examining company factors such as its products, industry and management. While some day traders might exchange dozens of different securities in a day, others stick to just a few — and get to know those well. This knowledge helps you gauge when to buy and sell, how a stock has traded in the past and how it might trade in the future.

» Read more: 5 steps to start trading stocks online

The best times to day trade

Day traders need liquidity and volatility, and the stock market offers those most frequently in the hours after it opens, from 9:30 a.m. to about noon ET, and then in the last hour of trading before the close at 4 p.m. ET.

As to the best time to trade for profitability, theories abound, but what can’t be disputed is the concentration of trades that bookend the regular market session. An analysis from the Jefferies Group showed that in 2018, 25% of average daily trading volume took place in the last 30 minutes of regular trading hours, excluding the closing auction, while 5.5% took place in the first 30 minutes.

A day trader might make 100 to a few hundred trades in a day, depending on the strategy and how frequently attractive opportunities appear. With so many trades, it’s important that day traders keep costs low — our online broker comparison tool can help narrow the options.

Day trading risk management

The above ground rules can help you avoid some of the biggest catastrophes in day trading, but it’s important to manage smaller risks, as well. Risk management is all about limiting your potential downside, or the amount of money you could lose on any one trade or position. When considering your risk, think about the following issues:

Position sizing. If the trade goes wrong, how much will you lose?

Percentage of your portfolio. Closely related to position sizing, how much will your overall portfolio suffer if a position goes bad?

Losses. What level of losses are you willing to endure before you sell?

Selling. After making a profitable trade, at what point do you sell?

Even with a good strategy and the right securities, trades will not always go your way. It’s important to have a plan for when to close a position, whether it's purely mechanical — for example, sell after it goes up or down X% — or based on how the stock or market is trading that day.

Proper risk management prevents small losses from turning into large ones and preserves capital for future trades. But that means traders have to be willing to realize a loss, which is hard for many traders to accept, even though it’s essential to long-term survival.

Bottom line: Is day trading right for you?

Day trading is just one way to approach the stock market — and it’s hardly worthwhile for most investors.

Conversely, investors who buy and hold low-cost index funds that track a broad market index like the S&P 500 could see higher returns over a long period. Historically, the S&P 500 has an annualized total return of about 10%, not accounting for inflation.

If you're going to day trade, It's paramount to set aside a certain amount of money you can afford to lose. Don’t trade more than that amount or use the mortgage or rent money.

Here are some resources that will help you weigh less-intense and simpler approaches to growing your money:

NerdWallet’s guide on how to invest money .

Learn how to buy stocks .

Our round-up of the best brokers for stock trading .

If you execute four or more day trades — that is, trades in which you buy and sell a security the same day — within a five-business-day period, and those trades represent more than 6% of your total trades in that period, you'll be designated as a pattern day trader.

That means you'll have to maintain a minimum equity level of $25,000 in your margin account any time you day trade. That $25,000 can consist of cash, securities or both. You also may have your buying power restricted.

The Securities and Exchange Commission (SEC) says that day traders "typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status. [0] Securities and Exchange Commission . Day Trading: Your Dollars at Risk . Accessed Jan 3, 2024. View all sources "

That doesn't mean day trading is inherently a bad thing — if you have leftover "play money" after paying your bills and meeting your savings goals, and you want to try your hand at day trading with the knowledge that you might lose that money, that's fine.

But the SEC explicitly says that day traders "should never use money they will need for daily living expenses, retirement, take out a second mortgage, or use their student loan money for day trading."

That means you'll have to maintain a minimum equity level of $25,000 in your

margin account

any time you day trade. That $25,000 can consist of cash, securities or both. You also may have your buying power restricted.

Securities and Exchange Commission (SEC)

says that day traders "typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status.

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Trading Plan Template for 2024 [Free PDF | Sheets Download]

• 7 mins read ●
• Published: 11 May 2022
• Last Updated: 1 April 2024

Needless to say, having a plan before you start trading is essential to your success as a trader. Every experienced trader will tell you that when you enter the markets, you risk your money and, more importantly, your ego and confidence in yourself.

• A well-thought-out trading plan is crucial for forex trading success, safeguarding both finances and self-confidence.
• While many traders are naturally skilled, creating a clear trading plan can still be challenging.
• Using a trading plan template can streamline your strategy and increase chances of consistent profits.

This article will help you with everything you need to know about developing a trading plan . We’ll also include a trading plan PDF, a trading plan Excel template , and a Word document that you can download and use in your trading journey.

• What is a Trading Plan Template

Trading Plan Template FREE Downloads

• How to Build Your Own Trading Plan Template?

1. Set Your Goals – Financially and Emotionally

2. get familiar with trading jargon and analysis methods, 3. develop a trading strategy, 4. set a risk reward ratio, 5. always learn and grow, 6. make an organized trading track record.

• BOONUS: Trading Plan Infographic

What is a Trading Plan Template?

As the name implies, a trading plan is a set of rules and guidelines that a trader follows to execute a trade. Besides that, a trading plan might include suggestions for a healthy trading daily routine and tasks, hence a trading checklist , that will help you manage your account and control your emotions.

For example, with a trading plan, you can define your:

• trading goals
• strengths and weaknesses
• risk management strategy
• trading strategy
• entry rules
• daily routine
• and much more

“Plan your trade and then trade your plan.”

In this section, we have created trading plan templates that you can use for free in the format of your preference. 

• Trading Plan Template PDF
• Trading Plan Template Google Sheets
• Trading Plan Template Word

How to Build Your Trading Plan Template in 6 Easy Steps

So, now that you understand what a forex trading plan is, you need to create a specific plan that matches your style and personality. Personally, while working as a trader in a proprietary trading firm , I remember every trader had a different method, routine, tasks, and rules.

For example, some traders like adding sticky notes on their desktops while others prefer a clean table. Some traders enter hundreds of trades in one trading day while others enter one or two trades in a day. So, it’s up to you to define your own plan and trading strategies .

Nonetheless, based on my knowledge and experience, there are some must-have steps you need to consider to develop a successful trading plan .

You can download our trading plan template below and check the steps on how to develop your trading plan later in this article.

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First and foremost, you must define your goals. In other words, you will need to know what you plan to achieve from your trading experience.

To help yourself, ask these questions :

• Is it an additional income only? Your main income?
• Do you plan to get rich from trading?
• What is the trading capital you are willing to risk and what is your profit target?
• How many hours a day do you plan to spend on trading?

In that aspect, you’d be surprised to know that many people who become professional successful traders do not necessarily do it to make money.

Instead, some traders do it for fun, a hobby, or a competitive game. So consider these factors as well. If this is the case for you, then you need to know it before you start trading. Maybe it can give you an advantage over other participants in the forex market .

Before you make your first trade in the forex market, you first must understand the trading jargon and the different analysis methods.

If needed, take a quick trading course to learn how the forex or the stock market works, read articles, books, financial sites, etc. Additionally, you better explore the two methods to analyze financial assets – technical analysis and fundamental analysis . 

Then, find the best way for you to analyze the markets and read Forex charts. It’s up to you to decide whether you want to use line, bar, or candlestick charts and, more importantly, what technical indicators you want to use.

Additionally, you can learn how to read popular chart patterns and use them to find trading opportunities. Once again, you have to try before you know it.

No one is born a great Trader, one gets great by learning

There are no two traders that are precisely the same. Therefore, you must find your trading strategy and trading style. This is a result of trial and error. It might take weeks or months until you get to the point where you have established a successful trading strategy, and there’s no way to escape this step.

When you make your first step in the trading world, you’ll get familiar with the different trading strategies – position trading, swing trading, day trading, and scalping trading. Moreover, you can try different strategies such as the naked trading strategy or the 5-3-1 forex trading strategy .

Keep in mind that there are many trading strategies to choose from, but you’ll have to find your unique trading style and strategy within time. For that matter, you need to use a trading plan at the beginning of your journey to find the right strategy that matches your personality.

Trading risk management is a predefined strategy to minimize losses and maximize profits. There are lots of tools and risk management rules a trader can use to protect themselves from losses and effectively manage their trading account.

Having said that, there’s one tool used by many traders, which is the most basic and the most effective of all – That is the risk-reward ratio .

In simple terms, a risk-reward ratio is a method to calculate the potential profit of a trade/day/week/month to a potential loss. In other words, it is a method to define your trade risk, that is how much risk you are willing in a trader, or in a day (the method is particularly for day trading).

For example, if you decide to use a risk-reward of 2:1, you are essentially willing to risk $1 for each trade to earn $2.

Trading is not like most professions. The markets always change, the technology evolves, and even the dynamic of the markets is constantly changing. Trust me, financial markets are not the same as they used to be fifteen years ago, and most likely, they will change again in the future.

I mean, the cryptocurrency market is one good example of the unpredictable nature of the trading world and financial markets.

This way or the other, you must read trading books and articles, watch trading movies , and listen to trading podcasts – everything you can do to increase your knowledge. Yes, knowledge is power, but in trading, knowledge is essential.

“An investment in knowledge always pays the best interest.” Ben Franklin

In the final step, make sure you analyze your trading past performance and keep track of your winning and losing trades. Yes, it’s an annoying task, especially when you have a losing day.

Writing down your losing trades is a punch to your ego, but it will help you improve your performance and trading decisions in the future. By doing so, you can learn your worst-performing days of the week, hours, financial instruments, etc. 

Luckily, in most retail investor accounts, you can enter your trading platform and extract your daily/weekly/monthly performance. So, in the words of Forrest Gump: “One less thing to worry about”.

BONUS: Trading Plan Action Plan Infographic

Here is an infographic with 6 action steps for your trading plan.

You can also check our blog post about using a trading journal template [free Google Sheets and Excel spreadsheets included]

Over to You

In a nutshell, every trader must have a well-defined solid trading plan . Developing an organized trading system is the first step in becoming a professional and successful forex trader and will increase your chances of success over the short and long term.

For now, you can use our free Forex trading plan template to start with. Then, add notes, tasks, or any other inspirational quotes you think will help you to trade better.

Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.

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Disclaimer: The information on the HowToTrade.com website and inside our Trading Academy platform is intended for educational purposes and is not to be construed as investment advice. Trading the financial markets carries a high level of risk and may not be suitable for all investors. Before trading, you should carefully consider your investment objectives, experience, and risk appetite. Only trade with money you are prepared to lose. Like any investment, there is a possibility that you could sustain losses of some or all of your investment whilst trading. You should seek independent advice before trading if you have any doubts. Past performance in the markets is not a reliable indicator of future performance.

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