What is a trading plan and what should it include?

Why write it down

With a position open and the price moving, it’s hard to think clearly. A written plan moves the important decisions to a calm moment. During the session you’re no longer deciding what to do: you’re just executing what you already decided. It also lets you measure: without fixed rules, you can’t tell whether the problem is the strategy or your discipline.

A written plan also protects you on your worst days: when you’re tired, frustrated or euphoric, the rules stay the same. And if one day you want to trade more capital, your own or someone else’s, the plan and the track record you build by following it are the best evidence that you know what you’re doing.

What it should include

• Goal and schedule: what you want from trading, how much time you put in and when you trade.
• Markets and timeframe: which assets and which charts you use.
• Setups: the exact conditions that must be met before you enter.
• Exits: where your stop loss goes and how you take profits.
• Risk: how much you risk per trade and your daily and weekly limits.
• Behavior: what you do after several losses in a row or after a big win.
• Routine and review: preparation before the session and a periodic review with your trading journal.

An example of risk rules

Hypothetical example: with a $5,000 account, you decide to risk 1% per trade, which is $50. If your stop is $1.25 from your entry, you buy 50 ÷ 1.25 = 40 shares. Your daily loss limit is 2%, or $100: after two full losses, you’re done for the day, no exceptions.

On top of that comes a pre-trade checklist: three or four questions you answer before every entry (Is this my setup? Is the stop defined? Does the risk/reward ratio meet my minimum? Am I within my daily limit?). A single “no” cancels the trade.

The mistakes that make it useless

• Vague rules: “enter when it looks strong” can’t be followed or measured.
• Changing it after every loss: a single trade tells you nothing; evaluate with a large enough sample.
• Writing it and never rereading it: a plan you don’t check before the session doesn’t exist.
• Copying someone else’s: your plan has to fit your time, your capital and your tolerance for drawdown.

It doesn’t have to be perfect from day one, either: start with basic rules and adjust them as you gain experience.

How to review it

A plan improves with data, not impressions. A simple routine:

1. Log every trade in your journal: setup, entry, stop, exit, result in R (multiples of your initial risk) and whether you followed the rules.
2. Check adherence every week: what percentage of your trades followed the full plan.
3. Tag your errors (late entry, moved stop, off-plan trade) to see which ones repeat and how much they cost you.
4. Make changes calmly, for example once a month, and change only one rule at a time so you can measure its effect.

If adherence is low, the problem isn’t the strategy: you have to follow the rules before you can judge them.