Building a trading plan

A trading plan is not a market outlook, a list of favourite indicators, or a paragraph about wanting to 'trade the trend and manage risk well'. Those are opinions and intentions, and intentions do not survive contact with a live account. A real trading plan is a document specific enough that, given the same chart and the same account state, a different trader following it would take the same trade, at the same size, with the same exit. If two competent people reading your plan could reasonably disagree about whether a given setup qualifies, the plan is not finished.

This level of specificity feels excessive to many new traders, who worry that rigid rules will make them miss good opportunities that do not fit a strict template. The opposite is usually true. Vague plans do not protect you from bad trades; they simply give your emotional state a wide space to operate in, because almost any chart can be rationalised as fitting a loosely defined setup. A specific plan filters out marginal trades before they are taken, which is precisely where discipline is most needed and least naturally available.

A trading plan should be a living document that is revised on a fixed schedule — for example, monthly — based on accumulated journal data, not revised in the middle of a losing streak out of frustration. The distinction between planned revision and panic revision is one of the most important disciplines in this entire lesson.

Every workable plan needs, at minimum: a market and timeframe (which instruments you trade and on what chart interval); a setup definition (the specific, observable conditions that must be present before you consider a trade); entry criteria (the exact trigger that converts a valid setup into an order); a stop-loss rule (where it goes and under what conditions, if any, it can be moved); a target or exit rule (fixed target, trailing rule, or a specific technical condition that ends the trade); a position-sizing rule (usually a fixed percentage of account equity risked per trade); and a set of session and drawdown limits (maximum trades per day, maximum daily loss, and what happens when either is hit).

Each of these needs to be written in language precise enough to be checked against, after the fact, by looking at a chart. 'Enter when the trend looks strong' is not checkable. 'Enter on a break and close above the prior swing high on the 15-minute chart, provided the 50-period moving average on the 1-hour chart is sloping upward' is checkable — you can look at any historical chart and say definitively whether the condition was met.

A frequently omitted but critical component is the instrument and session filter: many strategies that work well on one instrument during its most liquid session perform far worse outside those conditions. If your plan does not specify which sessions you trade and which you deliberately avoid, you will eventually take a valid-looking setup during a low-liquidity period where spreads widen and normal price behaviour breaks down.

The best way to check whether your entry rule is specific enough is to try to apply it to twenty past charts without looking at what happened next, and see whether you get consistent answers about whether a trade would have been taken. If your rule leaves room for 'it depends on how it looks', it needs another clause. Common additional clauses include a minimum distance from a moving average, a required candle close rather than an intrabar touch, or a minimum volume or momentum reading.

Exit rules deserve just as much precision as entries, and are more often left loose. A target defined as 'take profit around a resistance level' is not a rule; a target defined as 'take profit at the most recent swing high, or move to breakeven and trail by the most recent completed swing low, whichever the strategy specifies' is a rule. Decide in advance, in writing, whether you will ever take partial profits, and under what specific condition, rather than deciding in the moment based on how anxious the open profit makes you feel.

Position sizing should be calculated from three fixed numbers: your account equity, your fixed risk percentage per trade (commonly between 0.25% and 1% for prop-style evaluations), and the distance in price between your entry and your stop loss. From these three numbers, the position size is arithmetic, not judgement. If your risk percentage or your stop distance changes trade to trade based on conviction, you have reintroduced the exact emotional variable the plan exists to remove.

Account-level rules sit above individual trade rules and exist to protect the whole account from a bad day or bad week compounding into a disaster. These typically include a maximum daily loss (often tied directly to a funded programme's own daily drawdown rule, set slightly tighter as a buffer), a maximum number of trades per day, and a rule for what happens after a specified number of consecutive losses — usually stopping entirely for the remainder of the session.

A plan that only covers normal market conditions will fail exactly when it matters most, during abnormal ones. Decide in advance how you will handle high-impact news events: many plans specify no new entries within a fixed window before and after scheduled releases, and a rule for whether open positions are closed or left running with adjusted stops. Decide how you will handle a platform outage or an unusually wide spread — pausing rather than trading through unclear conditions is almost always correct.

Contingency planning also covers your own state: if you have had a poor night's sleep, missed your normal preparation routine, or are trading from an unfamiliar location, your plan should specify a reduced size or a no-trade day rather than leaving that judgement to be made in the moment, when your assessment of your own state is least reliable.

Once a plan is written, it should be tested before being risked on a live or funded account. The platform's /backtesting tool lets you run a defined rule set against historical data to see how it would have performed, which is covered in detail in a later lesson, and paper trading (also covered separately) lets you rehearse execution without financial risk. A plan that has not been tested in either form is, at best, an untested hypothesis, and treating an untested hypothesis as a reliable process is one of the most common reasons evaluation accounts fail in the first week.

The plan document itself should be short enough to read in under two minutes before a session — a long document that nobody actually reviews before trading provides no more protection than no document at all. Many experienced traders keep a one-page summary of the full plan visible during trading hours specifically so the rules remain top of mind during the moments they are most likely to be forgotten.