Trading plan, how to write it, why to write it, and how to use it?*

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What a business plan is for a person trying to jump into any kind of business endeavor, that is what a trading plan is to us. The financial markets traders.

Using a trading plan, from the beginning of your trading journey, in the long run, is giving you an advantage over other traders who are not using it, Not having it. Or simply not knowing what a trading plan is.

I’ve come across some statements that you increase odds in your favor by 70:30 when you have a clear and solid trading plan.

I started writing my own trading plan a couple of years ago. And it was perfect (in my opinion, of course). And the first copy of it is always by my side. Now, you may be wondering why I say the first copy, right?

In my trading journey which has lasted for some time now, the trading plan is the perfect tool that shows me how I as a trader/risk taker have evolved in time.

I have a couple of versions of the initial trading plan written. And I constantly check them for an upgrade opportunity. I will try to explain to you what is a trading plan, and why you should have one (if you don’t).

What is a trading plan?

The definition of a trading plan is ‘’A trading plan refers to a systematic approach used to identify and trade securities based on several variables, such as investment objectives, risks, and time. A trading plan lays out procedures and conditions under which to search for asset classes. … and execute trades.’’

The sole purpose of the trading plan should be to thoroughly explain to yourself what are you doing? How will you do it?

How do you write a trading plan? What should be in it?

I usually advise my students, when making a trading plan, to divide it into 6/7/8 questions or sections. Every section should consist of an explanation of the topic you are writing about.

For example, section 1 Which Markets I am trading?
  • I would go with an explanation of which markets you are going to trade here. Mention the pairs you will be trading.
Section 2 for example, which strategy and style I will be using in trading the markets from section 1?
  • Here, you need to explain every single step. Even the tiniest one. How will you trade, when your setup is good, when the trading setup/strategy is in the neutral condition, and when not to act on it?
  • Every single piece needs to be thoroughly explained. It is not enough to just write ‘’I am trading Moving Average crossovers’’ and think you have done this section and move to the next one. Which moving averages will be used, on which timeframe your analysis of the pair will be done, will you be adding something more, just to go along with the Moving Averages? A lot of questions need answers here, thorough ones.

Then, I would be moving to section 3, which will be used for detailed guidance on how I am going to enter, manage and exit my trades. You can write this how do you like it, it’s more important to stick to it later on.

What I found is the most important point/section of the trading plan (of course, my personal opinion), is what are my motivation for trading and what goals I wish to achieve. And this is what I wrote in the plan in this section:

‘’My sole motivation is to stop working for others (this was written back in 2018 when I was still working for others, the new plan doesn’t have this point anymore), and commit myself to fully trading the markets.
My personal trading goal is to make enough money to be able to spend more time with my family, friends. Buy books as much as I want, learn a new language. And don’t work the full 40 hours work week.’’

Now, you see I didn’t write the number here. I never look at trading as a number-based business. For example, I never say to myself that I am aiming for a 5000 euro or dollar return this month. If you do that, this can become burdensome at some moment.

Don’t get me wrong, have a financial goal in mind, but don’t let your entire trading journey be focused on money. Instead, focus on trading only the best setups.

I hope you get the point by now, this guide can be upgraded, removed from the plan, or something new added beside them to fill the experience you are gaining in the process.

How long it should be?

Well, there is no unique answer to this question. You can act on your own belief here. To be honest, my first trading plan had around 15 sentences in total.

My last trading plan has around 600 words. And both of them were good. Both provided solid guidelines on how to act in different situations.

Length is not the important part here; explanation of the plan is. Focus on explaining what you’ll be doing and when and don’t worry about a number of words.

There you go guys; I gave you an insight into how you should start with your trading plan. It’s a good start to have.

You can upgrade it, downgrade it, as you wish. You can do as you wish to but please, write down your trading plan. It is a must-have tool for all traders. Once you go with this flow of writing down things like trading plans, this will subconsciously become a part of your routine and you will start seeing progress. Even if you are not sure that you made one.

Trust me!

Good luck with your trading plan and trading overall.




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