Trading Plan
A written set of rules defining what you trade, how you size it, and when you exit.
Also called: plan · trading rules · system
Written by Javier Sánchez Ros
In plain language
A trading plan converts decisions into rules made in advance, when you are calm and have no money on the line.
A usable plan is specific: which setups qualify, what risk per trade, where the stop goes, what invalidates the idea, and what daily or weekly loss ends the session.
Its real function is not prediction. It is removing improvisation from the moments when improvisation is most expensive.
Worked through
The six lines a plan has to answer before the market opens
- What I trade
- named instruments only
- What a setup is
- conditions, written down
- Risk per trade
- a fixed percentage
- When I stop for the day
- a loss limit, in advance
A trading plan is not a forecast and it contains no opinions about where anything is going. It is a set of conditions decided while nothing is at stake, so that the version of you watching a position move is executing rather than deciding.
Its real function is detection. A plan that says "1% risk, two losses and I am done for the day" makes a third trade visible as a departure the moment it is taken. Without it, the third trade is just a trade, the fifth is just a trade, and there is no point at which anything identifiable goes wrong.
That is why almost every account-ending day is a plan being abandoned rather than a plan being wrong. The rules were not defeated by the market; they were quietly suspended, one reasonable-seeming exception at a time.
The test of a plan is whether it could be handed to someone else to follow. If it needs you present to interpret it, it is a set of intentions.
Why it matters
Nearly every catastrophic trading loss is a departure from a plan rather than a failure of one. The plan is what makes the departure visible.
Common mistakes
- Writing a plan so vague that no action could ever violate it.
- Changing the plan while a position is open.
- Having entry rules but no rules for sizing or for stopping after a bad run.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
The set of rules that decides how much you can lose, before you think about what you can win.
A record of every trade, including the reasoning behind it and the result.
The fixed share of your account you are willing to lose on any single trade.
Taking more positions than your strategy actually justifies.
Trading to recover a loss rather than because a valid opportunity appeared.