Why the plan has to be written down
Most traders have a plan. Far fewer have one written down, and the difference matters more than it sounds. A plan that lives in your head is renegotiated every time a trade gets uncomfortable. The stop moves "just this once", the daily limit becomes "one more trade to get it back", and the setup you would never take on a quiet morning looks fine after two losses.
A written plan does two jobs. Before the trade, it tells you whether you are allowed to take it. After the trade, it lets you tell a bad outcome from a bad decision. A loss on a trade that followed every rule is the cost of doing business. A loss on a trade that broke one is information about you, not about the strategy.
It does not need to be long. One page is plenty. What it needs is to be specific enough that a stranger reading it could tell whether a given trade followed it.
The template
Copy this into a note or document and fill in every line. If you cannot fill a line in, that gap is the most useful thing the exercise will show you.
Trading plan
- Markets and timeframe
- Instruments I trade (and ones I never trade):
- Chart timeframe for decisions, and for entries:
- Typical holding period:
- When I trade (sessions, days) and when I do not (events, holidays):
- Setups (one block per setup, no more than three setups)
- Name of the setup:
- Conditions that must all be true before I consider it:
- Entry rule (the exact trigger):
- Stop rule (where the idea is proven wrong):
- Target rule, and the minimum reward-to-risk I accept:
- Risk limits
- Risk per trade (% of account):
- Maximum daily loss, then I stop for the day:
- Maximum weekly loss, then I stop for the week:
- Maximum open positions, and maximum total open risk:
- Drawdown at which I halve size, and at which I stop and review:
- Position sizing method
- Formula: units = risk amount ÷ (stop distance × value per unit):
- Rounding rule (always down):
- Maximum exposure per position (% of account):
- Trade management
- When, if ever, I move the stop to breakeven:
- Trailing rule, if any:
- Partial exits, if any:
- Time stop (exit if nothing has happened by):
- What I do before earnings, news or a weekend:
- Review routine
- What I record for every trade:
- Weekly review: when, and which questions:
- Monthly review: which statistics:
- How many trades before I change a rule:
Why each part is there
Markets and timeframe. Every setup behaves differently on different instruments and timeframes. Writing down what you trade is really writing down what you do not trade, which is where most impulsive losses come from: the unfamiliar market that happened to be moving.
Setups with entry, stop and target rules. A setup you cannot describe precisely is one you cannot measure. The stop rule matters most. It should mark where your reason for entering stops being true, not a dollar amount you are comfortable losing — where to place a stop loss covers the methods. The minimum reward-to-risk sets the win rate you need: at 2 : 1 you break even winning one trade in three, before costs. The risk-reward calculator shows that figure with spread and commission included.
Risk per trade and loss limits. Risk per trade decides how long a losing streak you can survive, and every strategy has losing streaks. Risk of ruin explains how to choose the number from a table rather than a habit. Daily and weekly limits exist for a different reason: they stop one bad session turning into a bad month, because the trades you take after hitting a limit are rarely the trades your plan describes.
Position sizing method. Size is an output, never an input. Once the stop is set on its merits, the size follows from the risk amount and the stop distance. Position sizing explained walks through the formula for shares, lots and contracts. If you trade a prop-firm evaluation, the room left under the daily and overall drawdown limits can be smaller than your normal risk figure; the prop firm position size calculator sizes from whichever limit binds first.
Trade management. Most rule-breaking happens after entry, not before. Deciding in advance when the stop moves, and in which direction, removes the temptation to widen it. A time stop frees capital from trades that are going nowhere.
Review routine. Without a review, a plan cannot improve and you cannot tell whether you are following it. The rule about how many trades must pass before you change anything protects you from rewriting the plan after every losing week, which makes its results impossible to judge.
Worked example: a swing trader’s plan
Hypothetical: US$50,000 account, US stocks, trades held days to weeks
- Markets: liquid US-listed stocks and ETFs only. No options, no positions opened in the two sessions before a company’s earnings. Decisions made on the daily chart after the close.
- Setup: pullback in an uptrend. Price above a rising 50-day moving average; a pullback to a prior breakout level. Entry on a daily close back above the previous day’s high. Stop below the pullback’s swing low. Target at least 2 : 1.
- Risk: 1% per trade (US$500). Stop for the day after two losing trades or a 2% loss (US$1,000), whichever comes first. Stop for the week after four losing trades or a 4% loss (US$2,000), whichever comes first. No more than four open positions, so total open risk is capped at 4%. Halve risk to 0.5% at a 10% drawdown from the equity peak; stop and review at 15%.
- Sizing: shares = US$500 ÷ stop distance, rounded down. No single position larger than 25% of the account.
- Management: stop moved to breakeven once price reaches 1R in profit; never moved further away. Exit after ten sessions if neither stop nor target has been hit.
- Review: every trade logged with setup, R-multiple and whether each rule was followed. Weekly review on Saturday. No rule changes until 30 more trades have been taken under the current version.
Now one trade under that plan. The setup triggers with a close at $84.50. The swing low is just above $81, so the stop goes at $80.90.
stop distance = $84.50 − $80.90 = $3.60
shares = $500 ÷ $3.60 = 138.9, rounded down to 138
Risk at 138 shares is 138 × $3.60 = $496.80. Exposure is 138 × $84.50 = $11,661, about 23% of the account, which is inside the 25% cap. The 2 : 1 target is $84.50 + (2 × $3.60) = $91.70. At that ratio the plan needs to win more than one trade in three to be profitable before costs.
What the loss limits mean in practice: five full losses in a row at 1% each, each sized from the shrinking balance, leave the account about 4.9% down (1 − 0.995). Under this plan they cannot all land in one week: after the fourth loss (about 3.9% down) the weekly limit ends trading until Monday. Likewise, two stop-outs on the same day end that day, however good the third chart looks. Both limits count losing trades as well as money, because losses sized from a shrinking balance get slightly smaller and two of them ($500 + $495 = $995) fall just short of 2%.
None of those numbers is a recommendation. A trader with a longer holding period and wider stops might risk less per trade; one in a prop-firm evaluation will be bound by the firm’s limits first. The point is that every number is written down before it is needed.
The ten-point pre-trade checklist
The plan is the rulebook. The checklist is what you run before each order to confirm the trade is in it. Every answer must be yes; one no means no trade.
- Is this instrument on my list, and am I inside my trading hours?
- Does the chart meet every condition of a named setup in my plan, not most of them?
- Is the stop placed where the idea is proven wrong, and was it set before I looked at the position size?
- Does the target give at least my minimum reward-to-risk after costs?
- Is the size calculated from my risk per trade and this stop distance, and rounded down?
- Am I still inside my daily and weekly loss limits?
- Will this trade keep me within my maximum open positions and total open risk, counting positions that move together as one?
- Is there an earnings release, major economic figure or weekend gap before my expected exit that my plan says to avoid?
- Do I know exactly what I will do at the stop, at 1R in profit, at the target and at the time stop?
- Am I taking this because the plan says so, and not to win back a loss, out of boredom or because I am tired?
The last question is the one traders skip. It is also the one a journal answers best over time. RiskDesk’s journal lets you record how you felt going into each day (Tired, Balanced or On Edge), and after a few weeks it becomes clear whether your worst days share a cause. RiskDesk also lets you set your own trading rules, including a maximum daily loss, a maximum number of open positions, limits on correlated exposure and regime filters, and warns you before a trade breaks one. That turns items 6 and 7 of the checklist into something the app checks with you rather than something you have to remember.
What a plan cannot do
- It cannot create an edge. A plan makes a strategy consistent, which makes it measurable. If the setup has no edge, following it perfectly loses money reliably. The review routine is how you find out.
- It cannot guarantee your stop price. A gap or a fast market can fill a stop well beyond its level, so the real loss on a trade can exceed the planned 1R. Loss limits count what you actually lost, not what you planned to.
- It needs enough trades to judge. Ten trades tell you almost nothing about a strategy that wins four in ten. Changing rules after every short losing run means you never learn whether any version worked.
- It is only as good as your compliance. The plan does not enforce itself. The checklist, a journal that records whether each rule was followed and a hard stop on the day after the limit are what make it real.