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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 clie