Why Traders Need a Development Plan

09/04/2012 1:25 pm EST


Michael Toma

Author, The Risk of Trading: Mastering the Most Important Element of Financial Speculati

Risk-management expert Michael Toma explains what he means by a development plan and why traders need it as well as a trading plan.

Most traders have heard that you need to have a trading plan, but what about a development plan and what is that?  Our guest today is Mike Toma to talk about how you do a development plan, and what that means to you.  So Mike, first of all, we should just define what a development plan is.

Well, actually let’s go a step earlier and define what a trading plan is—or the differential between the two.  A trading plan really looks at what I am supposed to do as a trader; my execution, where are my stops, the risk-management aspects, rules, filters, all that.  What do I do, and how do I execute during the day? 

The development plan really is sort of a sister plan for that, which a lot of traders I don’t see really have executed too much on the development plan.  It really is simple to use.  What is the difference in what I was supposed to be doing versus what I actually did? 

So if I am not executing my trading plan effectively, what are those deficiencies? I should identify them, and place them in a development plan.  Really, a development plan is sort of to memorialize the things that I as a trader really need to work on. 

Alright, so things that I need to improve on should go into the development plan, and then does this also include things I am going to do to try and fix it? 

Oh, absolutely.  It is actually sort of making a commitment to yourself that I am going to fix this, and you should have timelines.  I even suggest have a risk professional—a fellow trader, or even a spouse could work—just to be very transparent in what you are trying to accomplish, and being honest with yourself.

Saying you know that these are the areas I need development in, I need help in, I am going to work on them. I am making a commitment to do that, and I am having a third party basically make sure I am in place.  This is how we not just develop as traders, but we are really developing a successful business as a trader. 

Right, because businesses and companies have development plans or goals, sales goals, and so there is no reason why we should be any different as traders.

No, I mean Apple, Amazon, and these other companies, they all have action plans, development plans. They look to see what is working and what is not working, and they work on them.  That is how good companies become great companies.

Well, that’s how good traders become the top traders where they can make a profession at this great business and really do it for the long term. 

Mike, thanks for being here.

Thanks, Tim.
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