Dr. Tharp covered most of this in the video you just viewed. But here’s a complete list of what are your business plan should cover:
A thorough self-assessment of your strengths and weakness based on real trading logs that you collect (if you haven’t done so already).
A thorough assessment of the big picture and the fundamentals that might be behind any trend.
A complete understanding of your beliefs about the market.
Procedures for getting empowering beliefs and mental states behind you.
A documentation of your research procedure for developing new systems and determining how to analyze their effectiveness.
Your procedures for developing and maintaining discipline.
Your budget and cash flow systems.
Other necessary systems such as marketing, back office record keeping, etc.
Your worst-case contingency plan.
System 1—which is compatible with the big picture.
System 2—which is also compatible with the big picture.
System 3—which might come into play should the big picture change.
If you have all of those things, you have a chance of doing well. Your business plan is a powerful tool that will improve your trading and focus your life.
How to Handle Hot Tips:
What happens when someone gives you a tip or an idea about the market? Do you get excited about it and want to act, or do you become skeptical and suddenly distrust the person giving you the tip?
The only correct response to any “hot tip” is to integrate it into your trading game plan to see if it fits. If it does, you can evaluate it further, using your plan’s criteria. If it doesn’t, you can simply discard it. You should never just run out and buy some closed-end Thai mutual fund simply because “Van recommended it.” You should always first consider whether the tips you receive harmonize with your plan.
Van discusses mental rehearsal as one of the ten tasks of trading. The point of mental rehearsal is to determine what could go wrong with your trading plan and determine how to deal with it in your mind. That way, when it does occur in the heat of the moment, you are ready to deal with any distractions that might come up. Think of the tips you receive as a possible distractions. How do you react?
This tip is a test in several ways. First and foremost, it is a test of whether or not you even have a game plan.
Do you have a plan that helps you deal with hearing about a “new, sure-fire, can’t-lose” investment? If not, it’s time you developed one. Do whatever it takes to come up with a thorough business plan to cover your trading or investing. Van ranks it among his top requirements for traders.
Every outcome is preceded by a process. You will not make money trading unless you follow a predetermined plan and continually stick to that plan. That’s why you should pat yourself on the back every day if you can honestly say that you totally followed your rules throughout the day. Every “Market Wizard” arrives at that stature by taking one trade at a time. The primary difference between that person and the average trader is that the Market Wizard probably continued to follow his plan every single day.—Van Tharp