What a trading plan is for
A trading plan decides in advance the things that are hardest to decide in the moment: how big to trade, when to get out and when to stop. Its job is to make your behaviour consistent enough to measure.
That is the link to your journal. A journal records what you did; the plan says what you meant to do. Every entry's "followed plan: yes or no" field is only meaningful if the plan is written down and specific. If you have not started a journal yet, read how to keep a trading journal alongside this.
A good plan fits on one page, uses numbers wherever a number is possible, and changes only at scheduled reviews, never mid-session.
The template (copy this)
Copy these headings into a document and fill in every line. Leave nothing as "use judgement"; if a rule needs judgement, write down what you will look at to make it.
- Purpose and time available. Why you trade, and how many hours a week you can give it.
- Account and capital. Account size, and money you will not add to it.
- Markets and instruments. What you trade (for example US stocks over a price and volume threshold, or options on a short list of underlyings) and what you do not.
- Trading hours. When you are allowed to enter and when you must be flat, if ever.
- Setups. Three to six named setups, each with entry trigger, stop placement and target or exit rule.
- Risk per trade. A fixed percentage of the account.
- Position sizing formula. How size is calculated from the stop.
- Minimum reward to risk. The smallest target, in R, you will accept.
- Maximum open risk. Total risk across all open positions.
- Loss limits. Daily and weekly limits, in R, and what happens when you hit one.
- Pre-market routine. What you check before the open.
- Journaling rule. What you log and when.
- Review schedule. Weekly, monthly and quarterly, and what each covers.
- Rule changes. When and how the plan itself may be changed.
A filled-in example
Here is the template completed for a hypothetical part-time swing trader. The numbers illustrate the format; they are not recommendations, and the right values for you depend on your own situation and risk tolerance.
| Section | Example rule |
|---|---|
| Purpose and time | Learn a repeatable process; 5 hours a week, evenings and lunch breaks. |
| Account | $25,000. No deposits to cover losses. |
| Markets | US stocks above $10 with average daily volume above 1 million shares. No options until 100 stock trades are journaled. |
| Hours | Entries only after the first 30 minutes of the session. |
| Setups | 1. Pullback to rising 20-day average. 2. Breakout from a 4-week range on the close. Nothing else. |
| Risk per trade | 1% of account = $250. |
| Sizing | (account × 1%) ÷ |entry − stop|, rounded down. |
| Minimum reward to risk | 2:1, so break-even win rate is 1 ÷ (1 + 2) ≈ 33%. |
| Maximum open risk | 3% of account = $750 across all positions. |
| Daily loss limit | −3R (−$750): no new entries for the rest of the day. |
| Weekly loss limit | −6R (−$1,500): no new entries until the weekly review. |
| Routine | Before the open: check the earnings calendar for held positions, mark levels on the watchlist. |
| Journal | Plan fields before entry, results the same evening. |
| Review | Weekly per-setup review on Saturday; plan review each quarter. |
| Rule changes | Only at the quarterly review, based on journal data. |
The risk rules, worked through
The risk section is where vague plans fail, so here is the arithmetic for the example account.
Position size. A pullback setup triggers at $80.00 with a stop at $77.50, so the risk per share is $2.50. Size = ($25,000 × 1%) ÷ $2.50 = $250 ÷ $2.50 = 100 shares. The position size calculator gives the same answer and rounds down for you.
Target. The plan's minimum is 2:1, so the target must be at least $80.00 + 2 × $2.50 = $85.00. If the chart shows resistance at $83, the trade does not qualify, however good it looks. You can check any setup with the risk reward calculator.
Open risk. With 1% per trade and a 3% cap, you can hold at most three full-risk positions at once. A fourth idea has to wait, or one stop has to move to break-even first.
Loss limits. Three full losses in one day is −$750, the daily limit. Writing limits in R rather than dollars means they scale automatically if the account grows or shrinks.
Measuring results. Once trades accumulate, each one becomes an R-multiple: (exit − entry) ÷ (entry − stop). A trade exited at $85.00 is +2.0R; one stopped at $77.50 is −1.0R. The R-multiple calculator handles shorts too.
Writing setups you can actually test
A setup description is testable when two people reading it would take the same trades. Each setup in your plan should answer four questions:
- Context: what must be true before you look for an entry (for example price above a rising 20-day average).
- Trigger: the exact event that gets you in (a close above the prior day's high).
- Stop: where you are wrong (below the pullback low).
- Exit: a fixed target in R, a trailing rule, or a time limit.
"Buy strong stocks on dips" fails all four. "Long when price closes above the prior day's high after touching a rising 20-day average, stop below the pullback low, target 2R" passes. The second version also gives your journal a clean label, so the weekly review can tell you how that setup is doing.
Keeping the plan and the journal connected
The plan only matters if you can see whether you followed it. Three habits keep the two connected:
- Use the plan's setup names, word for word, as the setup field in your journal. The journal field checklist shows the rest.
- Mark every trade "followed plan: yes or no" and compare results for each group in your weekly review.
- Track the loss limits in the journal: if you hit the daily limit, log it, along with whether you stopped.
Per-setup numbers are tedious to compute by hand. A journal app that imports fills from your broker can do it for you; TradeGreen connects read-only to 20+ brokers and computes win rate, profit factor, R and expectancy per setup. A spreadsheet works too, using the formulas on the trading journal spreadsheet page.
When and how to change the plan
Change the plan on a schedule, not after a bad day. Losses feel like evidence that a rule is wrong, but a handful of trades is mostly noise. A sensible rule is to change the plan only at a scheduled review, and only when the journal shows a pattern over a meaningful sample.
When you do change it, change one thing, date the change, and keep the old version. That way the next review can compare results before and after.
Finally, keep the plan in proportion. It cannot make a strategy profitable, and following it perfectly does not guarantee any result. What it does is make your trading consistent enough that your journal can tell you something true about it. Tax treatment of trading gains depends on your country, so ask an accountant about anything tax related rather than building it into your rules from guesswork.