Trading plan
Family VII · Market & styles
Not to be confused with trading day, trading journal, trading psychology.
A trading plan is a written document that sets out, in advance, the markets a trader will trade, the conditions for entering and exiting positions, the size of each position, and the maximum loss the account may sustain. It converts discretionary intentions into explicit rules that can be checked before and after each trade. Because it is written down, it also provides a fixed benchmark against which actual behaviour can be reviewed.
What a plan typically contains
Contents vary by trader and strategy, but most plans address the same categories:
- Markets and instruments — which assets, sessions and timeframes are in scope.
- Entry criteria — the specific, observable conditions that trigger a trade.
- Exit criteria — profit targets, stop-loss placement and time-based exits.
- Position sizing — how much capital is committed per trade, often expressed as a fixed fraction of equity.
- Risk limits — maximum loss per trade, per day and per drawdown period.
- Review routine — when results are recorded and the plan is reassessed.
Regulators in some jurisdictions require firms to have written policies governing client order handling, but the personal trading plan described here is a trader's own document and is not itself a regulatory filing.
Worked example: risk limit applied to position size
A plan states that no single trade may risk more than 1% of account equity, and that the stop-loss is placed 2% below the entry price.
The is-key row shows the maximum notional exposure the plan permits for this trade. If the stop distance were widened to 4%, the permitted position size would fall to 12,500, because the same 500 loss limit is spread over a larger adverse move.
Why the plan is written before trading
Decisions made while a position is open are exposed to loss aversion, recent gains and losses, and time pressure. A plan fixes the rules at a point when those influences are absent. It also makes performance measurable: a trader can separate outcomes caused by following the plan from outcomes caused by departing from it. Plans are revised on a schedule, not during a trade, so that changes reflect evidence rather than the current position.
Often confused with
- trading day
- A trading day is a calendar day on which a given market or exchange is open for regular business, excluding weekends and published holidays, and it defines the session during which orders can normally be executed.
- trading journal
- A trading journal is a structured record in which a trader logs the details of individual trades, including entry and exit prices, size, rationale, and outcome, for later review and analysis.
- trading psychology
- Trading psychology is the study of how emotions, cognitive biases, and discipline affect a trader's decisions and results, distinct from the mechanics of order placement or market analysis.