Trading Plan: 11 Steps to Create Yours, With a Filled-In Template

A trading plan is a written set of rules that says what you trade, when you enter and exit, how much you risk, and how you check your results, decided before any money is at stake. To create one, work through eleven steps: choose your approach, assess your skills, define your setups, set your risk limits, pick a market, pick a timeframe, keep a journal, understand your strategy, plan for emotions, write entry and exit rules, and prepare for bad periods. The point is not to predict the market but to make every decision once, calmly, instead of during the trade.

Why you need a trading plan

Without written rules, each trade becomes a new decision made under pressure, and the size of a position or the place of a stop tends to follow the last result rather than the method. A plan fixes three things in advance:

• Consistency: the same setup is traded the same way, so the results can be measured.
• Risk control: the loss on each trade and on a bad month is capped before it happens.
• Feedback: when results disappoint, you can tell a bad rule from a rule you did not follow.

Treating trading as a business means the same thing: a business has a plan, a budget for losses, records and a regular review. It also means accepting that losses are common: in a study of everyone who began day trading Brazilian equity futures between 2013 and 2015 and kept at it for at least 300 days, 97% lost money and only 0.4% earned more than a bank teller, US$54 a day (Chague, De-Losso and Giovannetti, 2020). That study covers one market and one group, not every trader.

11 steps to create your trading plan

1. Choose your analytical approach

Decide whether your decisions rest on charts, on fundamentals or on both. The differences, and what research found on each, are in technical analysis vs fundamental analysis.

2. Assess your knowledge and skills

Write down what you already know and what you do not: reading a chart, using order types, sizing a position, the tax treatment of your trades in your country. Plan to learn the missing parts before trading them with real money.

3. Define your trade setups

A setup is a precise condition that must be true before you enter, for example a moving average cross or a breakout above a 20-day high. Write it so that two people reading it would take the same trades. Examples of exact rules, with their tested results, are in swing trading strategies for beginners.

4. Set your risk limits

Set the most you accept to lose per trade, often 1% or 2% of the account, and per day, week or month. From the risk per trade and the stop, the number of shares follows; the method is in our position sizing guide. Only trade money you can afford to lose (see why the saying scared money don't make money is only half right).

5. Focus on one market

Each market has its own hours, costs and behavior. Starting with one, a stock index ETF, a currency pair or one cryptocurrency, lets you learn it well before adding others.

6. Choose your timeframe

The timeframe follows from the time you have. Day trading needs you at the screen during market hours; swing trading on daily bars can be run after the close. Choose the one you can keep up for months, not just a week.

7. Keep a trading journal and review it

Log every trade: the date, the setup, the entry, the stop, the exit, the result, and whether you followed the plan. Review the journal on a fixed schedule; how to measure the results is covered in track trading performance.

8. Understand your strategy

Know what a normal losing streak and a normal drawdown look like for your rule before they happen, by testing it on past data. In our test of three swing trading rules on the S&P 500 ETF, the trend rule lost 6 of 11 trades and the pullback rule won 38 of 49; know your own rule's numbers. Without that, a normal bad month looks like a broken strategy. The method is in our backtesting guide.

9. Plan for your emotions

Fear after a loss and greed after a win both push you to break the plan. Write down what you will do in each case, for example no new trade on the day of a large loss. More on this in trading psychology and fear and greed.

10. Write your entry and exit rules

For each setup, write where you enter, where the stop goes and when you take profit or exit. Place the stop order when you enter, not later.

11. Plan for bad periods

Decide in advance what happens after a set drawdown or a run of losses: smaller positions, a pause, a review of the rules. Also plan for outside events: a power cut, a broker outage, a market closed by surprise.

A trading plan template, filled in

The table below is a hypothetical plan built on the 20/50 moving average cross shown at the top of the page. It is an example of form, not a recommendation: on five years of S&P 500 ETF data, tested without the stop, this rule closed 11 trades and ranked below the median of random entries held as long, within chance. Catching that is precisely the job of the review line.

Trading goals: setting realistic ones

A goal such as "make 5% a month" is outside your control and can push you to force trades in a quiet month. Process goals are easier to keep because they depend only on you:

• Follow the plan on every trade for the next three months.
• Log every trade the same day.
• Never risk more than the set share of the account.
• Take only the setups written in the plan, and accept days without trades.

A return target can come later, once your journal shows what your strategy has actually delivered.

Trading rules to write into your plan

• Trade one plan at a time and one strategy until you know it.
• Base the rules on tested facts, not on a feeling about the market.
• Always have a stop and an exit before the entry.
• Avoid overtrading: no trade without a setup.
• Trade with the larger trend of the timeframe above yours.
• Change the plan only at review time, not during a trade, and change it when the review shows it is not working.
• Keep learning and keep the plan updated with what you learn.

Discipline is what turns these lines into results; see patience and discipline. More concepts are in trading concepts.