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​The ​Business​ ​Plan

​Let's now ​get into the details of setting up a Forex business.

The ​first and most important thing to ​work on, is the development of a​ client-focused trading ​strategy.

As the ​core of ​the ​whole operation, the type of ​strategy you ​trade with makes a big difference to how quickly your​ business can grow.​

As the name implies, ​a client-focused ​strategy ​is centered around ​characteristics that appeal to investors and customers.

​​​Client-focus​ed ​Strategies

Client-focused strategies have the following 5 characteristics:

  1. Above-market returns
  2. Sub-20% drawdowns
  3. Low volatility growth
  4. High capacity
  5. Durable

1. ​​Above-​market ​returns

​The minimum acceptable ​return for ​any trading strategy is the industry benchmark ​of 8% per annum, which is ​based on​ ​the historical performance of the S&P500 index⁽¹⁾​.

In my experience, a good target to work towards is an average annual return of 10% - 25%.

​This level of ​performance ​is ​reasonably ​achievable, while being ​attractive ​to ​most ​people.​

Now if 10% - 25% per year seems like a low target, consider that the goal is to maintain this performance over the next 10 years in an industry where most traders don't last even 2 years.

The ​aim is not to ​generate high returns over​ ​the next ​couple of​ years, but to generate above-market returns over the next ​decade.

​2. ​Sub-20% ​drawdowns

A ​significant ​portion of ​a successful trading business ​involves ​keeping your ​clients ​satisfied.

This means that they ​should ​never ​have to ​worry about ​significant capital loss, which is generally ​achieved​ by keeping​ ​drawdowns ​smaller than 20%.

​Put simply:

Drawdowns over 20% = Stressed ​clients = ​Clients leave = Bad for business

The ​less worried your clients are about drawdowns, the more ​funds they will ​​invest with you down the line, and the more likely they ​are to recommend ​you ​to their friends.

​After 6 months ​of​ generating ​above-market ​gains ​with sub-20% ​drawdowns, don't be surprised ​if your ​clients and/or ​assets under management ​suddenly increase by 50% or more.​

When people have a good experience (i.e. peace of mind) investing with you, they'll be more than happy to raise their stakes and even be an advocate for your trading business.

​3. ​Low-volatility growth

​​​One of the things you'll come to ​learn about the investment business is that ​​that ​clients ​overwhelmingly ​​​​prefer​ incremental ​growth​ ​over​ ​sporadic growth, even if the latter ​produces an overall higher​ ​return.

This means that your trading strategy should be inclined towards 'slow and steady' ​growth rather than 'fast and ​choppy' growth.

The ​latter approach, while exciting, eventually leads to large ​drawdowns ​that threaten the survival of ​your business.

So what you want to have is a low-volatility equity ​growth​ curve that is (​relatively) stable and perhaps even "boring" to watch.

​4. ​​​High Capacity

'​Capacity' refers to the ​maximum amount of ​capital​ a strategy can handle​, beyond which ​​returns ​​start to diminish.

​This is an important consideration because ​the higher your strategy's ​capacity,​ the more clients you can take on, and the higher your income potential.​

​Generally speaking, the larger the profit target of ​a trading strategy, the ​higher its​ capacity.​

In my experience, ​the ​smallest acceptable profit target ​is 1​0 pips. Any less, and ​the maximum capacity ​will likely ​be too low for a worthwhile trading business.

​5. Durable

Not all currently profitable trading strategies will stand the test of time.

Many, in fact, stop being profitable after a number of years.

The key, is to center your strategy around a simple, robust idea that can be applied to a wide variety of market situations.

This way, ​your trading ​performance can ​be ​maintained over long periods of time, even ​when there are ​significant changes ​to the market ​phase/regime.

​It is better to have a strategy that works decently well in most situations, than a strategy that works ​extremely well ​in ​a few types of situations.

A ​client-focused ​trading strategy ​is, ironically, the opposite of what ​most people​ think trading is like.

In the perceptible short-term ​it is​ slow, routine, and seemingly ​uninspiring.

In the imperceptible long-term however, it produces consistent above-market returns that quietly compound into staggering levels of profit.

A client-focused strategy ​may not be exciting in the short-term, but it produces far ​better results in the long-term.​

Trading Strategy R&D

​The topic of strategy development is ​extensive and goes beyond the scope of this guide.

If you ​want ​the specifics,​ consider joining the Positive Expectancy​ course.

Generally speaking, ​there are ​3​ stages ​of trading strategy development.

1. Idea generation / Strategy sourcing

First, you need a core idea​ to build a strategy around.

​If you don't know where to ​begin​, you can start by ​get​ting ideas ​here:

A word of caution: Most of the strategies you'll come across on the internet are poorly designed. For now, just get a sense of the various types of strategies out there, and pick out the few that make sense to you.

2. ​Back-testing

​Once you've ​​​​​​​​identified the strategies you're interested in, the next step is to test their effectiveness over historical market prices. This ​can be done either manually or with computer algorithms.​

​When you find a strategy ​​with promising back-test results, try tweaking the strategy parameters (​entry rules, stop loss, profit target) and back-​test it again to see if ​it continues to produce ​acceptable results.

If it does, then the next step is to run a forward-test.

​3. ​Forward-testing

In ​this final stage​, you ​execute the strategy over live market prices on a small live account.

This ​process ​gives you a better ​indication ​of the ​real-time ​effectiveness of the strategy. ​Any mistakes made during ​the back-testing stage will be revealed here.

​If the strategy continues to perform during forward-testing, ​the final ​step is to fund the trading account with a moderate amount of ​capital and keep ​adding more funds over time.

Strategy diversification

​After ​all this, your job is still not done. ​In order to reduce your reliance on a single ​strategy, you'll want to ​start the process again with a new strategy to add to your trading "arsenal".

Over time, you want to be trading with multiple strategies, so your capital is diversified and you always have alternatives should any one of them stop working.

​Business Asset Setup & Operation

​Now let's get down to ​the ​'business' ​side of things.

At the ​very least, you'll want to maintain ​a:

  1. ​Mailing ​list of ​potential investors and customers (clients), and
  2. A website or blog

These are the ​assets ​with which you​'ll​ build ​a trading business.​

Why Build An Audience

​​​​Before ​a client ​decides to invest ​​or work with you, ​he/she ​wants to know the type of person you are, and what you stand for.

Take this guide for example. You're reading this probably because you've read some of the other stuff I've published, and are interested to know more about what I have to say.

​You want to develop ​a ​similar kind of relationship​​ with ​your audience. Let them get to know ​you ​better, ​so they can decide if you're someone they can see themselves​ ​associating ​with.​

As long as you can demonstrate that you (A) are a decent human being and (B) have some level of expertise, most people will be happy to consider working with you.

​Choose A Communication Medium

​You'll first have to decide on the mode of ​communication you are most comfortable with:

  • ​Video
  • Audio
  • Text

I am personally quite bad at video and audio, so I stick to the medium with which I can best express myself: writing. This is why most 95% of the content I publish (including this guide) is in text.

If you're ​comfortable ​on video, ​set up a ​YouTube account and ​start ​making videos. If ​you're​ ​good ​at ​verbal expression, start a podcast.

The ​medium you use isn't really ​important. What's ​important is that you speak in your own voice, and have something to say that brings value to your audience.

​What To Talk/Write About​

​Trading is ​a dense topic. There are many aspects ​about it ​that you can ​explore.

Talk about the things that you are curious about. Talk about what you find puzzling, or the ​ideas you'​re ​interested in.

Chances are, the parts of trading that fascinate you are the same parts that fascinate your audience.

Don't feel like you have to be a "winning trader" before people ​will be interested​ to hear what you have to say.

Would you follow the journey of a learning trader who publishes his trading results and shares the lessons he picks up? Why can't you be that guy?

​By simply taking the effort to ​stand up and say something, you put yourself ​ahead of the 99.9% of ​traders ​who ​publish nothing.

​Here are some tips with the process:

  • ​Write/Speak clearly. Don't ramble. Have a point and make it.
  • ​Say ​something useful or interesting. Don't just ​blindly ​repeat the platitudes. ​Take the time to really ​think about ​things. Have ​your own opinion.
  • ​Be upfront ​about your shortcomings. Don't try to be someone you're not. People ​appreciate​ authenticity.
  • Don't just talk about ideas - they are a dime a dozen. Talk about the things you're doing (actions), and share the process + results.

​When To Start Building​ An Audience

This is ​important: ​you want to ​start building an ​audience before you​ have ​a working trading strategy.

If you wait until ​then, you'll have wasted a valuable opportunity to share the journey with ​your audience.

Don't get bogged down by trying to do everything perfectly. Your first few publications are going to suck, guaranteed. You're going to be embarrassed about your first ten videos/audio clips/articles. That's normal. Get started anyway. People don't want perfection, the want authenticity.

​Choose ​A ​Newsletter Application​

​W​hen it comes to ​newsletter ​applications, there are many ​to choose from.

​You can spend ​days agonizing over which one to use, but for now I suggest going with ​this free option: ​Tiny Letter.

Since your ​trading business is still ​new, it's best to keep things simple, and costs to a minimum.

Later on, when you have a few hundred subscribers, you can spend more time thinking about moving to a more fancy (paid) option.

Continue to the next ​page

​Forex Trading as a Business: The Business ​Plan

About the Author

​My name is Chris Lee and​ ​I've been a retail Forex ​trader​ ​since 2005​. I've gone through many successes and failures, including ​managing a 7-figure ​investor account (which was ​great), ​and ​losing​ a ​6-figure personal account (which was not great).

You can check out my ​latest performance results ​here​.