Not Having a Business Plan
If anyone saw an incredible business opportunity with almost no competitors and a great demand for a certain product, what is he or she likely to do? Probably do a lot planning before entering into that market, as most businesspersons do, or rather, as every successful business did.
During this process, the individual will probably discover things that could have gotten him or her in trouble if she or he had ignored them. And this is exactly what a plan does, prepares you for the troubles you might encounter during your adventure.
I wonder then what happens when it comes to trading. Why is it that traders commit themselves to something barely known? You probably guessed it; they want the money right now! Most traders think “Why should I plan something when I could be getting rich by the minute? Let’s do the planning some time later.” They come to the market with such unrealistic expectations, and think that success is achievable in a matter of weeks.
So, what exactly does a business plan do for me? It prepares you, for any contingency that should arise, and the most probable thing is that you will encounter a few surprises.
Take for instance, what would happen if your system suffers the biggest drawdown ever (drawdown is a chain of consecutive losing trades)? Would you quit trading? Or even change your system? Review your system and determine if the market conditions have changed so that you will have to adapt to the market? It should answer this and other questions that are essential parts of handling the business.
Trading the Forex market, as any other market, should be treated as a business, not a hobby. It will have pitfalls, and you should be prepared for them.
The most important thing about a business plan is that the decisions, observations and limits are set on it, and they were made with your feet on the ground. You will know that by relying on it, you will make the right decision. If you encounter difficult times in trading, your common sense will try to lie to you, will try to make you believe things are alright, and without a business plan it could be the end of your trading career.