trading plan
A written set of rules for what you trade, when you enter, where you exit, how big you go and when you stay out.
A trading plan is a written set of rules for what to trade, when to enter and exit, how to set position size, and when to stay out. It makes decisions more specific before emotions or a fast market can interfere.
A plan can state which instruments are in scope, what conditions must be present, where an exit is triggered, how much of the account is at risk, and how costs are considered. It should also include limits for pausing or reviewing activity.
A plan is a process guide, not a guarantee of profit or a forecast. It needs review against complete records, and changing rules after every result can make it impossible to judge what the plan actually did.
Example
Marc writes a fictional rule for the $10,000 Pebble practice account: risk at most 1% of the account on one trade, use a stop, and include estimated costs.
Working: 1% × $10,000 = $100 maximum planned loss to the stop. For a Harbor 20 Index Fund position with a $5 distance from entry to stop, the size limit before costs is $100 ÷ $5 = 20 units. Estimated costs and gaps can raise the actual loss, so the written rule also says to use a smaller size when needed and to skip unclear setups.
Common mistakes
- Writing broad intentions without measurable entry, exit, and risk rules.
- Leaving costs and gap risk out of the plan.
- Changing the rules mid-trade to avoid accepting a planned loss.
- Most people who trade lose money.
Learn it in the course
- A one-page trading plan · Write five things on one page before you trade: what you trade, when you enter, where you exit, how big you go and when you do not trade at all.