Writing a Trading Plan

In short

A trading plan is a written, specific set of rules for entries, exits, and sizing, decided in advance so a live trade is executed against a plan rather than improvised under pressure.

Decide the rules while you're calm, not while a trade is already moving. That's the entire idea behind a trading plan.

A trading plan moves decisions out of the heat of the moment

A trading plan is a written set of rules for how you enter, exit, and size trades — decided in advance, while you're calm, instead of improvised while a trade is live. Its whole job is to move decisions out of the emotional pressure of an open position and into a calmer moment beforehand.

A worked example of a simple, complete plan

Component	Example rule
What stocks qualify	Only stocks the trader has researched and understands the business of
Entry criteria	Only enter on a specific, predefined chart or fundamental setup — not "it looks like it's moving"
Position size	No single position larger than 5% of total account value
Stop-loss	Set at the time of entry, based on ATR (Average True Range — an indicator that measures how much a stock typically moves over a given period, used to set a stop wide enough to avoid normal price noise) or a clear chart level — never decided after the fact
Profit target	Set at the time of entry, with a defined risk/reward ratio
Maximum daily loss	Stop trading for the day once losses hit a predetermined dollar amount
Review schedule	Weekly review of every trade against the plan

No single rule here is clever. The value is in having all of them decided ahead of time, so a live trade gets executed against a plan instead of negotiated with in real time.

A vague plan ("trade good setups, manage risk carefully") doesn't actually constrain anything — it still leaves every real decision to be made live, under pressure. A useful plan is specific and checkable: an exact size limit, a defined entry trigger, a stop-loss method that doesn't need a judgment call in the moment. And a plan isn't permanent — revise it deliberately during a calm review, not mid-trade because a rule doesn't feel good right now.

Key takeaway: a plan doesn't prevent losses — trades that follow it perfectly can still lose. What it prevents is reactive decisions that abandon your own judgment for whatever feels urgent in the moment.

A plan is only as good as your record of whether you actually followed it — that's what a trading journal is for.

This lesson is educational content about trading discipline and planning, not personalized investment or trading advice.