A trading plan is a written set of rules that defines your trading strategy. It removes emotion from decisions and keeps you consistent. Here is how to create one.
Why You Need a Trading Plan
- Removes emotional decision-making
- Keeps you consistent and disciplined
- Helps you learn from mistakes
- Defines your edge in the market
- Sets clear expectations
Key principle: Plan your trade and trade your plan. Successful traders follow rules, not emotions.
Elements of a Trading Plan
1. Trading Goals
Define what you want to achieve:
- Realistic monthly or yearly return target
- How much time you can dedicate to trading
- Whether you want income or growth
2. Markets and Instruments
Specify what you will trade:
- Stocks, options, futures, forex?
- Which specific symbols or watchlist criteria
- Market hours you will trade
3. Entry Rules
Define exactly when you will enter a trade:
- What setups you are looking for
- What indicators or patterns must be present
- What confirmation is needed
4. Exit Rules
Define when you will exit:
- Profit target - where you take gains
- Stop loss - where you cut losses
- Time-based exits - max hold time
5. Position Sizing
How much to risk on each trade:
- Percentage of account per trade (1-2% is common)
- Maximum number of open positions
- How to scale in or out
6. Risk Management
Rules to protect your capital:
- Maximum daily loss limit
- Maximum weekly/monthly loss limit
- When to stop trading after losses
Writing Your Plan
Your plan should answer these questions for every trade:
- Why am I entering this trade?
- Where will I exit if I am wrong?
- Where will I exit if I am right?
- How much am I risking?
- What is my risk-reward ratio?
Example Trading Plan Elements
- Strategy: Trade pullbacks to the 20 EMA in uptrending stocks
- Entry: Buy when price touches 20 EMA with bullish candle
- Stop: Below recent swing low
- Target: 2:1 reward-to-risk ratio
- Size: Risk 1% of account per trade
- Max trades: 3 open positions at a time
Following Your Plan
- Read your plan before each trading session
- Do not deviate based on feelings
- Record whether you followed your rules
- Review and refine monthly
Common Mistakes
- Making the plan too complicated
- Not writing it down
- Ignoring the plan when emotional
- Never reviewing or updating it
- Having no plan at all
Track Your Plan Adherence
Pro Trader Dashboard helps you track whether you followed your trading rules.
Summary
A trading plan defines your strategy, entry/exit rules, position sizing, and risk management. Write it down, follow it consistently, and review it regularly. The plan keeps you disciplined and removes emotion from trading. Start simple and refine over time based on your results.
Learn more: trading psychology and why to track trades.