How to Write a Trading Plan You Will Follow

Most trading plans are abandoned within a month, and the reason is consistent: they are written as statements of intent rather than as decisions.

“Trade with the trend. Manage risk carefully. Do not be emotional.” You cannot break that plan, because it never told you to do anything specific. A usable plan has the opposite property. At any moment you can say whether you followed it.

The test for every line you write

Could two different people read this rule and act identically?

“Enter on a pullback in an uptrend” fails. Which timeframe defines the uptrend? How deep a pullback? Entered on what trigger?

“Enter when a stock making higher highs and higher lows on the daily chart retraces to its rising 20 EMA and closes back above it, with the 50 EMA also rising” passes. It is uncomfortably specific, and that is the point.

The seven sections

1. Scope

What you trade and what you do not. Instrument, market, timeframe, holding period. This section exists to rule things out. A plan that permits everything constrains nothing.

US-listed equities above $10 and above 500,000 average daily volume. Daily chart. Holding period 3 to 20 sessions. No options, no crypto, no pre-market.

2. Setups

One or two, described precisely. A catalogue guarantees you will find something to trade every day, which is the problem rather than the solution.

For each: the context required, the trigger, and what disqualifies it.

3. Risk

The numbers, fixed in advance:

• Risk per trade as a percentage of equity
• Maximum total open risk across all positions
• Maximum positions in one sector
• Daily loss limit, and what happens when you hit it
• Drawdown level at which you halve size, and the level at which you stop

Work the per-trade figure into share counts with the position size calculator rather than estimating.

4. Execution

The mechanics, so nothing is improvised:

• Order types: limit by default, market only when exiting urgently
• Stop placed as a live order at entry, never mentally
• Whether you scale in or enter full size
• Where profit is taken, and whether partially
• Whether stops trail, and by what rule

5. Review

• Every trade logged in R, with the setup name and a one-line note
• Weekly: did I follow the plan? Separately from: did I make money?
• Monthly: expectancy by setup, and whether losses are clustering near −1R

Those two weekly questions are deliberately separate. A profitable month with three rule violations is a worse month than a losing one with none, because the violations are what will eventually produce a loss you cannot absorb.

6. Stop conditions

The section almost everyone omits, and the one that saves accounts.

I stop trading for the day after 2 losing trades or −2R, whichever comes first. I halve position size at a 10% drawdown. I stop entirely and review at 20%. I do not trade the day after fewer than five hours of sleep, or on days I feel a need to make money back.

7. Review schedule for the plan itself

When you are allowed to change it: monthly, or every 50 trades, using journal data rather than the memory of recent outcomes. Never mid-trade, and never after a loss.

The one-page version

If a full plan feels like too much, start with a pre-trade checklist. It captures most of the value:

1. Does this match a setup in my plan? (If no: stop.)
2. What is my entry, and what triggers it?
3. Where is the stop, and what does it prove wrong?
4. What is the target, and what is the reward-to-risk? (Below 1.5:1: pass.)
5. What size, at 1% risk?
6. What is my current open risk across all positions? (At the cap: pass.)
7. Is there an earnings release before my expected exit?

Seven questions, under a minute. Traders who answer all seven before every entry make materially fewer of the mistakes that destroy accounts. The questions are not clever; answering them breaks the reflex between seeing a chart and clicking buy.

Practise running the checklist end to end in the stock market simulator, where a violation costs nothing but the habit still forms.