How to Write a Trading Plan, Step by Step

A trading plan is the set of rules you decide while you're calm so you don't have to decide them when the market moves and you're nervous. This guide covers the seven parts of a complete plan, how to write each rule so it can be checked and how to review it without turning it into a document nobody reads.

What a trading plan is and why you need one

A trading plan answers four questions in writing: what do I trade, when do I trade, how much do I risk and when do I stop. Everything else is detail. Its job isn't to predict the market but to cut down the number of decisions you make under pressure. Every written rule is a decision that no longer depends on your mood.

A plan is also what makes it possible to measure your discipline. Without written rules, every trade "looked good at the time". With them, each trade either complies or doesn't, and that difference can be counted.

The seven parts of a complete trading plan

A good plan fits on one page. These are the sections it shouldn't be missing:

Purpose: why you trade and which process goals you set.
Scope: which markets, which instruments, which days and which hours.
Risk: how much you risk per trade and how you size positions.
When to stop: loss limits, trade-count limits and streak limits.
Entries: which setups you may trade and with what exact criteria.
Exits: where the stop goes, where the target goes and when a manual close is allowed.
Mindset: your routine and the states in which you don't trade.

1. Purpose and process goals

Start with the why: supplementing income, passing a prop firm evaluation, growing your own account over the long term? Your purpose shapes everything else, from risk to trading hours.

Then set process goals, not outcome goals. "Make $2,000 a month" isn't up to you; "log 100% of my trades" or "never trade outside my hours" is. Outcome goals push you to force trades when the month is going badly; process goals keep you doing the right thing.

2. Scope: markets, instruments and hours

Define where and when you're allowed to trade. The more specific, the better:

Markets and instruments: for example, only US index futures, or only three major currency pairs.
Days: Monday to Friday, or excluding Fridays if your data says you lose on that day.
Hours: for example, 9:30 to 12:00 New York time, the first part of the session.
Exclusions: high-impact news, holidays or the first minutes after the open.

Trading outside your hours is one of the most common rule breaks and one of the easiest to measure, because every trade's time is recorded.

3. Risk per trade and position sizing

The most important rule in the plan. The most common approach is risking a fixed percentage of the account on each trade, usually between 0.25% and 1%.

Size = (capital × risk %) ÷ (stop distance × value per point)

With a $25,000 account and 0.5% risk, you risk $125 per trade. If your stop is 10 points away and each point is worth $5 per contract, the risk per contract is $50, so you can trade 2 contracts ($100 of risk), never 3 ($150).

Also write down what you do when the numbers don't fit: if the stop you need is so wide that even the minimum size exceeds your risk, the trade doesn't happen. That's exactly the kind of rule that prevents big losses. The losing streak table helps you pick a percentage you can sustain through a bad run.

4. When to stop: daily and weekly limits

Limits protect the account from your worst days, which are rarely bad-luck days and usually days of poor emotional control. The most useful ones:

Max daily loss: for example, 2R or 1% of the account. Hit it and the day is over.
Max number of trades: for example, 3 per day. It curbs overtrading.
Stop after consecutive losses: for example, after 2 losses in a row. It cuts revenge trading at the root.
Stop after hitting the target: optional, but useful if you tend to give back profits.
Max weekly loss: for example, 5R. It forces you to stop and review before a bad week becomes a bad month.

If you trade a prop firm account, your personal limits should be stricter than the firm's. The guide to prop firm rules explains how to work out that buffer.

5. Entries: your setups, written as playbooks

Every setup you're allowed to trade should have its own sheet, a playbook, with:

The context in which it's valid (trend, range, open, after news…).
The exact entry trigger.
Where the stop goes and why.
A checklist of three to five conditions you can answer with yes or no.
A screenshot of a textbook example.

The plan's rule is simple: if it's not a playbook setup, you don't trade it. That way every trade is linked to a setup and you can measure which one has an edge and which just wastes your time.

6. Exits: stop, target and manual closes

Most of the difference between traders with the same entry lies in the exit. Decide in advance:

Stop: always placed on entry and never moved further from price.
Target: fixed (for example 2R), at a technical level or with a trailing stop.
Breakeven: if you move the stop to entry, under what exact condition.
Partials: if you take part of the position off, when and how much.
Manual close: in which specific cases it's allowed (for example, end of your hours or unexpected news).

Record how each trade ends: target, stop, breakeven or manual. After a hundred trades you'll know whether your manual closes save you money or cost you, one of the most revealing questions a trading journal can answer.

7. Mindset: routine and states in which you don't trade

The most forgotten part and the one that saves the most money. Include:

A preparation routine: check the news calendar, mark levels, reread your plan and rules.
States in which you don't trade: tired, angry, rushed, after an argument, ill or urgently needing money.
A closing routine: log your trades, answer your daily rules and write down one lesson.

The trading psychology guide goes deeper into the most expensive emotional patterns and the rules that stop them.

Example of a complete trading plan

Purpose: pass a $50,000 evaluation without rushing. Process goal: follow the plan on 90% of trades.
Scope: index futures. Monday to Thursday, 9:30 to 11:30 New York time. No trading from 10 minutes before to 10 minutes after high-impact news.
Risk: $200 per trade (0.4%). If the technical stop doesn't fit with one contract, there's no trade.
When to stop: max 3 trades per day; stop after 2 losses in a row or after losing $400 on the day; max weekly loss of $1,000.
Entries: two playbooks only: pullback to the moving average after the open, and opening range breakout with a retest.
Exits: stop on entry, target at 2R, breakeven only after +1R. Manual close only at the end of the session window.
Mindset: no trading on less than 6 hours of sleep. A 10-minute routine before the open and a 5-minute one at the close.

How to write rules you can actually check

A rule you can't answer with yes or no isn't a rule, it's a wish. Compare:

Vague rule	Measurable rule
Risk small	Max risk of $200 per trade
Don't overtrade	Max 3 trades per day
Control your emotions	Stop after 2 losses in a row
Only take good setups	Only trades linked to a playbook with its checklist complete
Be patient	Don't enter before the confirmation candle closes
Avoid the news	No trading from 10 minutes before to 10 minutes after high-impact news

Numeric rules (risk, number of trades, hours, daily loss) can be checked automatically against your data. The rest are answered by hand each day. In NactionX, the plan checks every trade against the automatic rules and asks you to answer your personal rules with yes, no or not applicable, never counting an unanswered rule as followed.

When and how to review your plan

A plan you change every week isn't a plan. But one you never review goes stale. A good balance is reviewing it every 30 days or every 100 trades, whichever comes first, with three questions:

Which rules did I break most, and why? Maybe the rule is unrealistic, or maybe it's the one I need most.
How much of my result came from trades inside the plan and how much from outside it?
Is there a setup, time slot or market with enough sample size and negative expectancy that I should drop?

When you change a rule, note the date. That way you can compare results before and after the change without mixing two versions of the plan.

Common trading plan mistakes

Copying someone else's plan. Your hours, your account and your risk tolerance are yours.
Writing too many rules. Ten rules you follow beat thirty you ignore.
Forgetting stop limits. Most accounts aren't lost on one trade but on one bad day with no brakes.
Not measuring compliance. If you don't know what share of your trades respect the plan, you don't know whether you have a system problem or a discipline problem.
Changing the plan after every loss. Wait for a sample.