How to Write a Trading Plan You Will Follow

Most trading plans get abandoned inside a month, and the reason is consistent. They are written as statements of intent. A plan has to be built out of decisions.

“Trade with the trend. Manage risk carefully. Don’t be emotional.” Nobody can break that plan, because it never asked for anything specific in the first place. 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 the test. It never says which timeframe defines the uptrend, how deep a pullback has to be, or what actually triggers the entry, which leaves three separate decisions for you to improvise in the moment.

“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. Uncomfortably specific. That is the point.

The seven sections

1. Scope

What you trade. What you leave alone. Instrument, market, timeframe, holding period. The section exists to rule things out, and a plan permitting everything constrains nothing at all.

US-listed equities above $10 and above 500,000 average daily volume. Daily chart. Holding period 3 to 20 sessions, with options, crypto and pre-market all out of scope.

2. Setups

One or two of them, described precisely. Keep a catalogue and you will find something to trade every single day. That is the problem wearing the solution’s clothes.

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

3. Risk

The numbers, fixed before the market opens:

• 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 where you halve size, and the level where you stop

Turn the per-trade figure into share counts with the position size calculator before the open.

4. Execution

The mechanics, so that nothing has to be improvised:

• Order types: limit by default, market only when you need out urgently
• Stop placed as a live order at entry, so the broker holds it
• Whether you scale in or enter full size
• Where profit’s 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 stay separate on purpose. A profitable month containing three rule violations is worse than a losing month containing none, because the violations are the thing that eventually produces a loss too big for the account to absorb.

6. Stop conditions

The section almost everyone leaves out. It is also the one that saves accounts.

I stop trading for the day after 2 losing trades or −2R, whichever arrives first. I halve position size at a 10% drawdown. I stop entirely and review at 20%. I don’t trade the day after fewer than five hours of sleep, or on days when I want to make money back.

7. Review schedule for the plan itself

When you are allowed to change it. Monthly, or every 50 trades, and always working from journal data, which outlasts your memory of whatever happened most recently. Change it between trades. Let a losing day pass first.

The one-page version

A full plan can feel like too much at the start, so begin 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’s my entry, and what triggers it?
3. Where’s the stop, and what does it prove wrong?
4. What’s the target, and what’s the reward-to-risk? (Below 1.5:1: pass.)
5. What size, at 1% risk?
6. What’s 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 wreck accounts, and none of the seven demands any skill you do not already have. There is nothing clever about the questions themselves. They break 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 you nothing and the habit forms anyway.