Writing a trading plan

You can write a one-page trading plan with markets, rules, risk limits, routine and review, and explain why each part is decided in advance.

Your checklist

Pilots go through checklists before every flight, however experienced they are. Not because they forget how to fly, but because pressure, routine and fatigue make people skip steps.

Trading has the same problem. Under the pressure of an open position, people change their stops, double their size or trade just to get back a loss. A trading plan is a written set of decisions made in advance, when you are calm, so that you do not have to make them under stress.

Five parts on one page

A useful plan fits on one page:

What and when. The markets, instruments and timeframes you trade, and the hours you trade them. Everything else is off-limits.
Rules. Setup, entry trigger, exit rules and management, written as precisely as in the previous lessons.
Risk limits. Risk per trade, maximum open risk, a daily loss limit and a monthly loss limit, with what happens when one is hit.
Routine. What you check before the session, such as the economic calendar, and what you record after it.
Review. When you review results, which numbers you look at, and what evidence would make you change a rule.

Keep it short enough to read before every session. A plan nobody reads is decoration.

Limits per trade, day, month

The risk limits are the part most often left vague. A fictional example:

Per trade: risk 1% of the account, stop placed when the order is entered.
Per day: after a loss of 3%, trading stops for the day. No new trades to win it back.
Per month: after a loss of 8%, a pause of at least a week and a review of whether the rules or their execution failed.

These numbers are not a recommendation. They show the principle: every limit is concrete, and each one says what happens when it is reached. The daily limit protects you from revenge trading. The monthly limit protects the account from a rule set that may have stopped working.

Common mistakes

Writing the plan and never reading it again. Read it before every session.
Changing rules during a losing streak. Change them in the scheduled review, based on enough trades.
Judging the plan by single trades. A broken rule that won is still a broken rule.
Leaving limits without consequences. "I will be careful" is not a limit. "I stop for the day" is.

The takeaway

A trading plan writes down in advance what you trade, how, how much you risk and when you stop. It turns decisions under pressure into decisions made calmly.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the part of the plan that defines when to stop trading for the day.

Tap the chart.

Daily and monthly loss limits belong to the risk limits, decided before any trade.
2Why are loss limits set in advance rather than during a bad day?

Decisions made calmly in advance protect you from decisions made in the heat of a losing streak.
3What belongs in the review section of a plan?

A regular review, based on a journal, keeps the plan honest.
4You break your plan and the trade wins. What is the careful reading?

Judging decisions by single outcomes rewards luck. Record it and judge the rule over many trades.

of 4 correct.

Sources

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