A trading plan is a written document that sets out how a trader operates: which markets, at what times, with which systems, how much risk, and how the results are reviewed. To write one, decide each of those points in advance, in concrete numbers, so that decisions during the session only apply the plan.
The plan is not the same as a trading system. A trading system is the rule set for one setup: universe, trigger, stop, exits and size. The plan is the operating document around it: it names the systems used and sets the limits, the schedule and the routine that apply to all of them.
How it works
A plan moves decisions from the moment of the trade, when prices are moving and emotions are high, to a quiet hour when they can be thought through. Its value comes from three properties: it is written, it uses numbers rather than intentions, and it changes only at scheduled reviews, never in the middle of a trade. How emotions distort decisions at the screen is covered in trading psychology.
Goals belong in process terms. "Follow the entry and stop rules on every trade" can be controlled; "make 30% this year" cannot, and a return target tends to push size up after losses.
A template
| Section | What to decide | Example |
|---|---|---|
| Goals | Process goals for the quarter | Journal every trade; zero stop-loss violations |
| Markets and instruments | What is traded and what is not | US stocks and ETFs; price above $10; no options |
| Schedule | When to scan, place orders and review | Scan after the close; orders before the open; review Saturday |
| Systems | The named systems allowed, nothing else | Base breakout; pullback to the 20-day average |
| Risk per trade | A fixed share of equity | 1% |
| Loss limits | Maximum loss per day and per week | 2% a day, 4% a week, then no new trades |
| Open risk and position cap | Total risk if every stop is hit; largest position | 5% open risk; 20% of equity per position |
| Pre-trade checklist | Questions answered before each order | Setup valid? Stop set? Size calculated? Earnings date checked? |
| Trade management | When stops move, when to exit early | Stops only move toward profit; exit before earnings |
| Records and review | What is logged and when it is read | Journal daily; weekly review; monthly statistics |
| Drawdown rules | What happens after losses | −8% from peak: half risk; −12%: pause and review |
| Changing the plan | When the plan may be edited | Only at the monthly review, in writing |
The stop for each trade comes from the system; see where to place a stop-loss. The size then follows from the stop and the risk per trade.
Worked example (illustrative numbers)
Take a $30,000 account with the limits in the template. Risk per trade is 1%, $300. The day stops after a $600 loss and the week after $1,200. Open risk is capped at $1,500, so at most five positions can carry full risk at once. No position may exceed $6,000, 20% of equity.
A breakout entry at $60.00 with a stop at $57.00 risks $3.00 per share: $300 ÷ $3.00 = 100 shares, worth $6,000, exactly at the cap. A second setup at $24.00 with a stop at $23.50 risks $0.50 per share, which would allow 600 shares worth $14,400. The cap limits it to 250 shares, and the risk on that trade is then $125, not $300. The position size calculator runs both checks.
If equity falls 8% from its peak, $2,400 on a $30,000 peak, risk per trade drops to 0.5% until the review. At −12%, $3,600, trading pauses until a written review finds the cause.
Common mistakes
- Writing a plan without numbers. "Keep losses small" cannot be checked; "1% per trade, 2% per day" can.
- Confusing the plan with a single setup. Entry rules alone say nothing about daily limits, schedule or review.
- Editing the plan mid-session to justify a trade already in mind.
- No drawdown rule. Without one, the decision about what to do after losses is made at the worst moment.
- Return targets as goals, which encourage larger size after a losing period.
- Never checking compliance. A plan works only when the journal records whether it was followed; see how to keep a trading journal.
Two Academy lessons show full plans for specific styles: a written trade plan for price action and position sizing and a trading plan for short options.
In Clear Tape
In the free trade journal, a trade can be saved as a plan before entry, with the planned entry, stop, targets, system, setup and thesis, and the fill entered later. Account balance entries let the journal show each trade's risk as a % of the account, so breaches of the risk-per-trade limit are visible. Each weekly review records whether the rules were followed. On the trading systems page, the rules of each system are written out with entry, stop and target. See the trade journal page for details.
A fill-in version of these sections is the free trading plan template: the questions, a sheet that turns the risk limits into dollars and share counts, and a pre-trade checklist, as an Excel workbook with no sign-up. Written rule sets to name in the systems section are on the strategy pages.
For educational purposes only. Not investment advice.