How to Become a Trader - Van Tharp's Video

Van Tharp is one of my favorite authors of trading books. I have read some of his books and inspired by his theory of business plan for stock trading (or investing). If you have read my post on the business plan template for stock trading or my trading system test, I adopt most of my trading systems and plans from his ideas. I do not really follow all his points, but it was all started from his thoughts and idea. 

Anyway, if you are not convinced about the importance of business plan before you start trading, you may want to watch this short video. Enjoy.

Plan Your Retirement

In my full business plan for stock trading, you need to start with MISSION of your trading activities. You can have any mission you like, from getting passive income or just to get new challenges. It is totally up to you. However, a more sensible mission for every trader to invest and trade in stocks is to have extra income for retirement.

So, how do you plan your retirement? Start with this online calculator. It is easy to use!

Trading System is ESSENTIAL

"Stock trading is a Business. It is a game or a play. Treat it as a business, and chances are you will perform better."

The written business plan or trading system is important really. Ask questions to yourself before you throw your money to market.



In my stock trading, I have mapped out my of trading plan (or you can call it business plan). To be disiplined to stick to your system is what matter the most. You can have a system that is in theory gives you positive return (you can backtest a system using stock trading software), but without disciplined execution, the system is nothing.

The picture above is another fabulous example of a trading plan. The source if the picture was taken from here. In the example, you have to keep asking yourself if the stocks you are buying fit your criteria. If it does not, do not trade. Period. There will be next time.

So, do you have a written trading plan? If you do not have yet, start writing it. It does not matter how you structure the plan, just start write it down and update it accordingly when you find new ideas to be included in your trading plan. AND the most important thing is to stick to your system!

Business Plan Template for Your Stock Trading

Before you jump directly to stock market and start buying stocks, you need to have a proper business plan. Stock investing/trading is just like any other business, you can't expect yourself to right away buy stocks and earn profit. Plan properly!

"If you fail to plan, you plan to fail."

This business plan template is what I used after adapting to so many books I read. I save this trading plan in my Evernote, so when there is time to spare while waiting for a bus or waiting for food, I would read this business plan just to refresh about what are the rules I set up when I started this business.

So, if you do not have a WRITTEN Business Plan, then this is a good time to get a paper and start jotting down. The following outline is a simple example and of course you can always tweak it. This list works for me and hopefully will also work for you.

1. MISSION
• What is you trading missing statement?
• What is your real motivation behind your trading?
• Is it for your children education? or for passive income for you retirement?
2. GOALS and OBJECTIVES
• What are your trading goals and objectives?
3. RULES
• What are your trading rules you need to stick on. This may be difficult to define, but with more experience, you will get it. Read more books about real, successful traders.
4. STRATEGY (METHOD)
• What are trading tools do you use?
• What are trading software do you used?
• How you screen stocks in stock market?
• How do you use fundamental analysis to pick stocks?
• How do you enter/exit market?
• What Technical analysis (indicators) do you use?
5. POSITION SIZING (MONEY)
• How many lot you SHOULD buy per trade?
• This is important aspect of trading
6. PSYCHOLOGY (MIND)
• What are your physiological environment in trading?
• What are emotional challenges do you have?
7. TRADING ROUTINES
• What are you daily/weekly/monthly routines?
• Do you keep trading journal?
8. MISTAKES
• What are your mistakes?
• How does it affect your overall trading?
• Do you record down every mistake?
• How to prevent it from happening again?

Ok, I am very sure you want to see an example, so here you go. Please note that this is just an example. This is not (fully) my trading plan, I adapted this example to better illustrate the business plan template.

1. MISSION
• To trade well and right!
• To be able to have different source of income
• To act as passive income for my retirement!
2. GOALS and OBJECTIVES
• To improve my EDGE
• To make ZERO mistakes
• To improve my automation of trading journal 
3. RULES
• I am not a value investor
• I do not apply Dollar Cost Averaging
• I must follow my system, not following means a mistake
• I do not hold stocks more that 3 months
• ... (the list goes on)
4. STRATEGY (METHOD)
• I use Yahoo Finance to get a stock quote
• I use Amibroker/Metatrader/NexusChart for my technical analysis
• I use Microsoft Excel for my trading performance monitoring
• ... (list down all you stock trading software)
• Stock screener is done by ... (my Online Stock Screener)
• The screening is based fundamental analysis (earnings, ROE, P/E, etc)
• My watchlist consist of (stock A, stock B, etc)
• My entry strategy is based on (Support resistance, Fibo, EMA, etc)
• My exit strategy is based on (Support resistance, Fibo, EMA, etc)
• My cut loss is at 8%
5. POSITION SIZING (MONEY)
• Every time I buy stocks, maximum I can buy is xxx shares.
• Many different way to calculate (learn Position Sizing here)
6. PSYCHOLOGY (MIND)
• I buy stocks with random expectation 
• Everything happens in stock market is RANDOM
• I believe in "Five Fundamental Truth" about trading
• ... etc
7. TRADING ROUTINES
• Download EOD everyday
• Update my trading journal (start creating Stock Tracking Spreadsheet)
• Read financial reports
• Read news
8. MISTAKES
• Write down all my mistakes (not following the above business plan)

Try to come up with your own business plan based on this simple business plan template and share it with me!