How To Create a Trading Plan
Build a trading plan you'll finally stick to!
Table of Contents
We all know that a trading plan is an essential tool for trading success. (that’s why you’re here!)
But creating a robust trading plan you actually stick to is another matter!
Within a few minutes you’re going to:
- Discover what is a trading plan
- What goes in to a trading plan
- Understand the modular approach to creating a trading plan
- See examples of trading plans you can model for your own trading
- Download a trading plan template [PDF and Google doc]
- Create one you’ll actually stick to
Like many traders, you’ve probably spent the weekend constructing a plan, you’re all fired up for the market open on Monday and within days you’ve ignored it completely and are back to square one.
Let’s change that right now…
What is a Trading Plan?
If you are an active trader, the whole point of a trading plan is to give you a set of rules and a roadmap for trading the markets.
It doesn’t matter if you are a day trader, swing trader, scalper, trading stocks, forex, equities or far month orange juice futures!
Your trading plan outlines how you will act and trade under specific conditions.
A good trading plan removes as many unnecessary ‘on the fly’ decisions as possible. Leaving only the trading decisions you need to make to perform.
(I think it’s important to note you aren’t trying to create an automated system here. You are a discretionary trader making trading decisions based on charts, order flow and other pieces of data. Incidentally If you are trying to automate then here are two podcast episodes to check out later. Robert Carver and Jarrod Goodwin)
The trading plan rules aren’t meant to remove your ability to trade with discretion.
The rules of the trading plan are designed to keep you focused on the job at hand.
Let’s explore.
What Goes into a Trading Plan
This is where many traders slip up.
They add pages and pages of rules and regulations.
“Do this, don’t do that. Take this trade, not that. Wait for this candle, not that.”
It’s a sea of trading rules you cannot possibly stick to!
And once you break a rule, it’s too easy to throw the whole trading plan out of the window.
We don’t want to do that…
You want a simple trading guide with a few clear rules that will help you:
- Not go outside of your trade risk levels
- Keep you focused on the trade setups you know work
- Prevent you from sliding into destructive trading behaviours
The plan is not there to remove all the intuition and discretion from your trading. As a discretionary trader, you need to nurture that trading intuition not suppress it.
You want risk rules, trading strategies and goals.
That’s it.
Long multi-page trading plans will not be adhered to. (you know ‘cos you’ve tried it right!)
A simple plan that stays on your screen next top your trading charts during the day will help you remember what’s important.
Build a Trading Plan Using the Modular Approach
So if we’re agreed that long trading plans aren’t that useful. How do we add all the information we need into the plan?
By using a modular approach.
What does that mean?
Our trading plan should be simple, but link to other more in-depth documents.
For example:
Let’s say we want to use a specific trading strategy in our plan. And let’s use the solid opening range breakout strategy as an example.
What we don’t want to do is fill the plan up with the rules, trade filters, trade triggers, example screenshots etc for that strategy.
The trading plan needs to be simple, but we still want to go into depth and document the trading strategy in as much detail as possible.
Nuances like when to pull the trigger on a trade, targets, stop loss areas, add points, scaling rules, sizing.
If we don’t want to clutter up the plan what do we do?
The answer here is to reference the trading strategies from within the plan. But have a separate trading strategy document that goes into more detail.
This modular approach allows us to add multiple strategies into the plan, yet keep the master plan simple to read.
Another example of a key component of your trading that needs to be in your plan might be a trading routine or trading checklist you want to run through at specific times.
Trading checklists are a great way to ensure you stick to a process you know gives you the highest chance of success.
Yet you don’t want to outline every checklist in your plan.
You want to reference that checklist and have that documented elsewhere. The modular approach.
Example trading checklists:
- Before the trading day I will run through a pre-market checklist
- At the end of the trading day I note down the following things. (Check out my guide to journaling for day traders)
All very important, but again we don’t want this cluttering up the plan…
Just a reference.
(In the trading plan pro app, checklists and routines are separated into operations and mindset.
Operations are checklists to help you align with market conditions, mindset are checklists to keep your trading psychology in check.)
How to Create a Trading Plan: Your Simple Guide
#1 Trading goals: What are you trying to achieve?
- A certain amount of money?
- A certain % of winning trades?
This might sound like a silly thing to add to your trading plan, but you want your brain to know the coordinates of the destination.
Every single decision you make during the trading day should be aligned with that goal.
So note your trading goals down and save them for later (not sure what this is? Take some time to figure it out, it’s worth it)
#2 Trading Risk Rules: What are your risk rules?
- How much are you prepared to risk in a month?
- How much in a week?
- How much in a day?
- How much per trade?
You might feel like this has no place in a plan, but trust me, even if you have the most profitable trading strategy in the world it’s totally useless if you can’t stick to risk rules.
So decide what your rules are.
TIP: Imagine yourself losing that amount. How does it feel? If it seems devastating it’s too much risk. You don’t want to trigger trading tilt. Dial it down a bit.
If it stings, but is not the end of the world, that’s probably the sweet spot.
#3 Trading Strategies: The setups you will deploy during the trading day.
- Opening range breakout
- VWAP reversal
- Bull flag after a breakout
- Double bottom at ATR extremes
Each of these trading strategies has more detail elsewhere but they are referenced in your trading plan.
If you are looking for inspiration I’ve done a deep dove into a variety of trading strategies.
Example of a Forex Trading Plan
Here’s a sample of a forex trading plan template from trading plan pro. It’s a good example of a plan you can model or use for your own trading. Of course you could substitute forex for indices, crypto etc as you prefer.
Trading Plan Template
Here’s how that plan is constructed.
This format applies the modular approach discussed earlier. This is the same plan as above, but you could use Word or Google docs instead. (see below for a template)
Trading Plan Description
🚀 To capture momentum moves outside of ranges
(This gives us clarity on the type of trader we are trying to be)
Trading Risk
Our risk is clearly defined and broken down into trade, day and weekly risk
✅ Daily Risk = $500
✅ Weekly Risk = $2,000
✅ Trade Risk = $150
Trading Rules
4 key trading rules we will stick to.
⚠️ Walk away after a loss of $300
⚠️ Do not trade in the first 5 minutes
⚠️ No more than 3 losing trades in a row
⚠️ A max of 50% drawdown from days P&L high
Trading Market
Defining the market or markets we will focus on. (to stop us from getting shiny object syndrome!)
🇺🇸 EURUSD
🇬🇧 GBPUSD
🇯🇵 USDJPY
Trading Strategies
We’ve chosen the strategies we’ll deploy when the trade setups trigger.
(note the eye icon above to explore that specific strategy documentation)
📶 Channel Break & Retest
🇬🇧 Bull & Bear Flag
🪤 Trapped Traders
🐻 Afternoon Breakout
Trading Routines and Checklists
These are checklists we want to ensure we complete at key times during the trading day. Just like a pilot completes pre-flight and pre-landing checklists to ensure nothing goes wrong, as traders we want to mirror that professionalism.
🧠 3 Minute Re-Focus
🔥 Prepare for the trading day
✍🏻 Pre-Trade Checklist
✅ Trade Idea Generation
Trading Area to Focus On
Finally, in this trading plan example, we have two key areas to focus on. Not 15, but 2!
🚀TO STICK TO MY RISK RULES FOR TEN DAYS ✅
👉🏻TO FOCUS ON TAKING A+ TRADES ONLY
Less is more here.
Trading Plan Template Download Google Doc and PDF
Building a Trading Plan: The 4 biggest mistakes
Most committed day traders and swing traders know they need a plan. But time after time they make these same mistakes.
Make sure it’s not you!
- Making the trading plan too complicated
- Not sticking to the plan for a period of time before adjusting
- Breaking the rules of the plan
- Working with the trading plan for a bit and then ignoring it
Pledge now to build a simple trading plan.
Add all the key components of a trading plan and stick to it religiously for 10 days.
Just 10 days!
You can do that, right?
Then log the results. How did it go?
Constructing A Robust Trading Plan [VIDEO]
- Learn the key elements of a good trading plan
- Get a step-by-step process to build your own plan
- Understand the common trading plan mistakes to avoid
- See example trading plans you can model
How To Improve Your Trading Plan
Once you’ve stuck to one simple trading plan for a while, you’re in a great position to make small adjustments as needed.
If it didn’t work as you expected now is not the time to throw everything away.
Start by asking yourself these questions.
- What did I like about the trading plan and what did I not?
- Did I stick to the trading plan? If not, why not (be honest!)
- What were my trading results like?
- What do I need to change about my trading plan?
Most traders make the mistake of adding reams of rules.
These are usually in response to something that happened in the last trading session or last week.
I think this is a mistake. Don’t make new rules based on a small sample size.
Trading Strategies
I mentioned earlier about the modular approach to a trading plan.
This is where you bolt on your trading strategies into your trading plan…
A great trading strategy example is the opening range breakout. (Check out this opening range breakout webinar explaining the full strategy in detail)
The beauty of the modular approach is you can go as detailed as you like with the strategy
- Triggers
- Filters
- Stops
- Targets
- Trade grading
- Sizing
You can adjust and tweak the trading strategy to suit market conditions without overhauling your trading plan.
Handy…
FAQ
What’s the difference between a trading plan vs trading strategy?
How do I build a trading plan?
Start from the basics.
Get your risk rules together, your method and your strategies.
Even something as simple as: I will buy a new high in the DAX, DOW, ES and FTSE after 5pm.
It’s not pretty, but it’s a start!
Why can’t I stick to my trading plan?
Discipline combined with a plan you trust and believe in.
You need both to give yourself the best chance of success. This was a great podcast episode > Do something tough for 10 days
Do professional traders use trading plans?
Of course they do!
Look at any fund managers website and they very clearly define the strategy and approach.
Successful retail traders do the same too.
No one winning in this game is shooting from the hip…
Conclusion
- Clearly define your trading goals
- Create any checklists you need to build good trading habits
- Identify your trading risk rules
- Define the trading strategies in your playbook
You can create your trading plan in Word, google docs or enjoy creating beautiful modular trading plans in our trading plan pro tool.
Dozens of trading plan templates, trading strategy ideas, routines and checklists for you to model.
Now go create that perfect trading plan.
One you’ll finally stick to!
Good luck,
Mark Holstead