Ask a struggling trader for their plan and you usually get one of two answers. Either there is nothing written down, or there is a fourteen page document with a section on market philosophy that has never been opened during a live session. Both fail for the same reason. A plan is a decision made in advance, and it only works if the version you carry into the session is short enough to be consulted at the moment the decision arrives.
The eight lines that belong on the page
A usable plan answers eight questions in writing. What do I trade, when do I trade it, what does the setup look like, what triggers the entry, what proves me wrong, how much do I risk, how do I get out, and what stops me trading for the day. Everything else is commentary.
The test of each line is whether a second person could apply it without asking you a question. If the answer needs interpretation, the line is not a rule, it is a preference, and preferences bend under pressure.
| Line | Unusable version | Usable version |
|---|---|---|
| Instruments | Major FX and some indices | EURUSD, GBPUSD, XAUUSD. Nothing else, ever |
| Hours | London and New York | 08:00 to 11:30 and 14:00 to 16:30 local. Flat outside those windows |
| Setup | Trade with the trend at good levels | Daily trend up, price returns to a level that previously rejected twice, on H1 |
| Trigger | Confirmation candle | M5 close back above the level after a wick through it |
| Invalidation | If it goes against me | Stop beyond the wick low, minimum distance defined per instrument |
| Size | Reasonable risk | Fixed percentage of account per trade, calculated from stop distance before entry |
| Exit | Take profits when it looks done | First target at a defined multiple of risk, remainder trailed behind structure |
| Stop trading | When I am tired | Two losses in a session, or the daily loss cap, whichever comes first |
The size rule does most of the work
Of the eight lines, position sizing has the largest effect on outcomes and receives the least attention. The rule has to convert a stop distance into a lot size, in that order. Traders who pick the size first and then place the stop where it fits are setting risk by habit rather than by structure, and the same nominal size on a twelve pip stop and an eighty pip stop are two completely different bets.
Write the sizing rule as an instruction, not as a principle: risk a fixed percentage of the current balance per trade, compute lots from the stop distance, round down. Then decide what happens when several positions are open at once, because three correlated trades at that same percentage each is one trade at three times the size. The arithmetic behind all of this sits in the guide to risk management rules, and the target side is covered in risk to reward ratios.
The one line most plans are missing is the stop-trading condition. Without it, a bad morning becomes a bad week, because the decision to keep going is made by the person least qualified to make it at that moment. Write the number before the session, not during it.
What does not belong on the page
Profit targets in currency do not belong there. A daily or monthly income goal converts a process into a quota, and the predictable response to being behind quota is to trade more, which is the mechanism behind most overtrading. Market opinions do not belong there either. If the plan says the dollar is strong this quarter, it will still say that in six weeks when it is not.
Nor does a list of indicators without a decision attached. Three oscillators on the chart with no rule about what they do to your entry is decoration. Either an indicator has a threshold that changes the answer or it comes off the chart.
Where the rules come from
Rules written from feel tend to be written from the last twenty trades, which is a sample too small to mean anything. Pull them from a tested source instead. Historical testing tells you the character of a setup, how long its losing runs get and how sensitive it is to a change in a threshold, and that information is what makes a stop-trading rule realistic rather than arbitrary. The method and the traps are set out in backtesting basics.
Then the plan and the record have to point at each other. Your journal should log, for every trade, which plan rule it came from and whether it followed the rule. After a month you can separate two questions that look identical from the inside: is the plan wrong, or am I not following it? Those need different fixes, and traders who do not track compliance rewrite working plans over and over.
Reviewing without rewriting
Set a review date and do not touch the page in between. Monthly works for most people. At review, look at the compliance rate first. If you followed the plan on fewer than most of your trades, the plan is not the problem yet, because you have not run the experiment. If compliance was high and the result was poor, then change one line, note the date and the reason at the bottom of the page, and run another month.
One line at a time is deliberate. Change three rules at once and you learn nothing about which one mattered. The plan is the only control variable a discretionary trader has, and trading is high risk with or without one, so the value is in reducing the number of decisions made while money is moving.
"Write the rule that ends your day before you write the rule that starts a trade. The first one is the one you will need when it matters."
— Alex Onta, Executive Director, SINGUARD
Key Takeaways
- Keep the plan to one page and write each line so a second person could apply it without asking a question.
- Derive lot size from stop distance rather than picking a size and placing the stop where it fits.
- The stop-trading condition is the line most plans lack and the one that limits the damage of a bad session.
- Track rule compliance in the journal, review on a fixed date, and change one line at a time.
Frequently Asked Questions
How long should a trading plan be?
One page, and it should be readable in under a minute. A long document is a research note, and nobody consults a research note at the moment a trade appears. The test is whether you can look at the page mid-session and answer immediately whether the trade in front of you qualifies. If you have to interpret your own writing, the rule is not written tightly enough.
What is the difference between a trading plan and a trading strategy?
The strategy is the edge itself, the pattern or condition you believe recurs. The plan is the operating manual around it: which instruments and hours it applies to, how much you risk on each occurrence, when you are not permitted to trade it, and what ends the session. Two traders can run the same strategy with different plans and get very different outcomes, because most of the variance comes from sizing and from discipline rather than from entries.
How often should a trading plan change?
On a fixed review date, and only then. Monthly is common. Changing rules in the middle of a losing run is how a plan becomes a record of your emotional state instead of a constraint on it. When you do change something, write the date, the change and the reason at the bottom of the page so that you can see later whether the amendment helped or whether it was made under pressure.