How detailed your trading plan should depend on your trading style and goals. Nonetheless, try to avoid extremes. If your trading plan is too superficial, you won’t be able to properly implement your key trading rules and strategies during a trading session. If, on the contrary, your plan is too confusing and in-depth, you’ll have a hard time sticking to it. With that said, you should find the golden mean and build a trading plan that would fit your personality.
A trading plan aims to keep a trader calm and relaxed during trading. A professional trader performs market analysis before they start trading. This is a very important rule that novice traders often ignore, which is why they never make money.
Your trading plan must be dynamic. Be sure to adjust your trading plan as you’re gaining more experience and expanding your skillset. A changing market situation is another reason to re-evaluate your plan. Remember that a rigid, static trading plan is inconsistent with profitable trading.
As soon as you have your trading plan handy, you’ll see the difference. Not only will your trading results improve, but you’ll also be less affected by emotions. Your trading will become more organized and structured. Plus, you won’t jump at any entry opportunity but will choose your trades wisely. A trading plan will become your loyal companion. It will protect you from hasty decisions when the market behaves unexpectedly. We hope that we’ve managed to convince you that creating a trading plan is worth your time and effort. Now let’s take a look at the structure of a typical trading plan.
Table of Contents
Trading plan Structure
- Why am I trading?
- What’s my approach to trading?
- What are my trading goals?
- monthly goals;
- yearly goals;
- long-term goals.
- What markets will I be trading?
- What timeframes will I be trading?
- What setups will I be trading?
- Entry rules
- Stop-loss placement rules
- Take profit/trailing stop placement rules
- Risk management rules
- Preparation for trading
- Post-trading analysis
- What tools will I be using in my trading?
- Notes on my trading performance
- Continuous education
- Valuable tips from a trading expert
- My golden rules
Example of a trading plan
Here is a rough sketch of a standard trading plan. You can use it as guidance to develop your plan that reflects your trading characteristics.
1. Why am I trading?
I realize that trading is a demanding and challenging occupation. I am ready to accept this challenge. I promise that I’ll never stop learning and keep reinventing my trading style. I will use every opportunity to boost my knowledge. I’ll be consistent and persistent. I’ll master new trading tools and techniques. I know I’ll have to overcome multiple difficulties to become a successful trader. Trading will become the cornerstone of my financial independence.
2. What’s my approach to trading?
I start with analyzing the market situation on a daily and weekly chart. It allows me to identify a market trend and its direction. After I’ve detected a trend on high timeframes, I look for profitable entry points on daily charts.
3. What are my trading goals?
My goal is to make money consistently and develop my trading business step by step. I aim to have at least 50% of profitable trades.
- Monthly goals: I aim to trade consistently and never miss “planned trades.” I aim to follow my trading plan to the letter.
- Yearly goals: I aim to gradually increase my lots if my trading results look good. I’ll continue to improve my trading skills and enhance my training. I’ll try to learn something new about my profession and markets every day. I’ll continue to minimize my losses and increase my profits. My goal is to grow my equity.
- Long-term goals: I aim to make a good living from trading. I aim to create two accounts, one for my current needs and the other for long-term investments.
4. What markets will I be trading?
For now, I’ll focus on trading stocks. As I’m gaining more experience, I’ll be adding new trading instruments to my portfolio.
5. What timeframes will I be trading?
I’ll start with daily charts.
6. What setups will I be trading?
I’ll look for these two trend setups:
- Consolidation/breakout at 20MА,
- Pullback to a minor support level or 20 MА.
7. Entry rules
After receiving a trading signal, I’ll place limit orders at the ask price. If I failed to open a position of the desired size, I’ll try to increase my lot size at a better price.
8. Stop Loss placement rules
I’ll determine the size of my stop-loss order before entering the market. My stop loss will be consistent with my entry point.
9. Take profit/trailing stop placement rules
When a price approaches a support/resistance level, I’ll take half of my profits at 2:1 reward/risk ratio. Once I receive a confirmation that the current trend is over, I’ll take the other half.
10. Risk management rules
I’ll risk 1% of my trading capital per trade. At any moment, my total risk won’t exceed 4%.
11. Preparation routine
- I open my trading platform.
- I add my trading instruments to the charts.
- I analyze the market and check an economic calendar to see what major news and events may affect a price.
- I write down trading ideas for today.
- I examine entry opportunities.
- I set up sound alerts near my entry points.
12. Post-trading analysis
- I enter my trading results (with screenshots of trades) in my trading journal.
- I examine my open trades and sketch a plan of action for tomorrow.
- I write a comment on each closed trade to find out whether I achieved my goals for today.
- I note down trading ideas for tomorrow.
- I close my trading platform.
13. What tools will I use?
- Personal computer;
- Trading platform;
- Economic news and economic calendar, stocks screeners;
- Trading journal and tables.
14. Notes on my trading performance
I’ll browse through notes and screenshots for each closed trade over the last 5-8 days. I’ll do that when my mind has calmed down and I’m emotionally stable. In my trading journal, I’ll write down some ideas on improving my trading performance. Twice a week, I’ll check my log to track which trading methods boost my trading results and which ones are useless. Based on that information, I’ll adjust my trading plan.
15. Continuous education
Every month, I’ll read one new book on trading. I’ll choose a few trading masterminds, whose views I share, and attend seminars and conferences they’re participating in.
16. Valuable Tips From a Trading Expert
I’ll follow the five fundamental truths of trading outlined by Mark Douglas, author of “The Disciplined Trader: Developing Winning Attitudes.”
- Anything can happen.
- You don’t need to know what is going to happen next to make money.
- There is a random distribution among wins and losses for any given set of variables that define an edge.
- An edge is nothing more than an indication of a higher probability of one thing happening over another.
- Every moment in the market is unique.
17. My golden rules
- I’ll take a disciplined, reasonable approach to every trade.
- I’ll build my trading plan.
- I’ll work hard to improve my performance and enhance my skills.
- I’ll learn to control my emotions to make balanced, educated decisions.
- To open a trade, I’ll be using entry signals from my trading system and not random tips.
- I won’t allow the results of my last trade to affect my future trades.
- I’ll keep a detailed trading journal.
- I’ll follow my capital management rules.
- I won’t increase the size of a losing trade.
- I’ll only trade within a trend.
- I’ll be patient. Every day offers new trading opportunities.
- Everything I do will bring me closer to success.
The trading plan is a dynamic document that needs to be adjusted as your trading experience is growing. Lack of a trading plan is a direct way to part with your hard-earned capital in a nick of time. Trading without a plan is like playing roulette: you never know the outcome. To avoid costly mistakes and build a strong business, you need a time-tested system of rules and principles to rely on.