Building a trading plan

A trading plan is the document that turns everything you have learned into a set of rules you can follow the same way every time. It covers what you want, what you will trade, how much you are willing to risk, when you act, and how you review the outcome. Written down and followed consistently, it replaces guesswork with a process you can measure and improve.

What a trading plan is

A trading plan is a short written document, not a vague intention. It states in advance the decisions you would otherwise make in the heat of the moment, so that when the market moves you follow a rule rather than react to it. The value lies less in having a clever plan than in following a plain one the same way each time.

The parts of a plan

• Goals: what you want from trading and how much time and money you can realistically commit to it.
• Markets and pairs: the specific instruments you will focus on, instead of trading anything that happens to move.
• Risk per trade: the small share of your account you are willing to put at risk on a single position, set in advance. As an illustration, a trader might cap this at one percent of the account.
• Maximum exposure: a limit on the total risk carried across all open positions at once, so several trades cannot quietly add up to more than you intended.
• Entry and exit criteria: the conditions that must be met before you open a position, and the points at which you will close it for a loss or a profit.
• Review routine: a regular habit of recording your trades and studying the results to see which rules are helping.

Following it beats improvising

A plan kept only in your head bends under pressure, and every trade becomes a fresh decision coloured by hope or fear. A written plan gives you a fixed reference to check against and a record you can study later. The review routine then turns your own results into feedback, showing which rules are working and which need adjusting.