A proper Trading Plan is essential to your success as a trader.
Anyone thinking of starting a business wouldn’t begin without a plan, if they do, they probably won’t like the end results. Day trading is no different than any other business.
As they say, “If you fail to plan, then you’ve already planned to fail.”
You’re about to learn the same process I’ve used for the past 20 years. It’s also what I currently teach our students.
After completing this post, you should be confident in your ability to write a rock solid trading plan. To speed up the process, I provided a link to our Trading Plan template at the end.
Let’s get into it…
What is a Trading Plan?
A Trading Plan defines a trader’s goals, expectations, routines, risk management, and trading strategies. A successful plan will include the logic underlying the strategies and processes a trader deploys.
Elite traders already know they have won the game before placing a single trade for two reasons.
First, they have a well defined edge that’s repeatable.
The primary goal of your trade plan is to precisely define your processes and strategies, with the end of goal of creating a repeatable process.
Second, elite traders fully understand there is a random distribution between wins and losses for any given set of variables that define an edge, resulting in flawless execution.
First, you need to focus on developing your process. You will work on developing the mindset of winning trader and the ability to think in probabilities (versus P&L) when you begin backtesting and simulated trading.
A simple google search and you will find endless styles and formats for trade plans.
For me, my plan acts as the CEO of my business. defining the big picture items such as rules, processes, routines, analytics, theories and goals.
A lot of traders include their trading strategies in their trade plan, but I prefer defining them in a separate Playbook. I do this for several reasons…
First, I’ve been trading for over two decades, in that time I’ve developed and traded a lot of different strategies.
I’ve always found it beneficial to have all my strategies broken down individually. This becomes extremely valuable as you get more into strategy development.
A lot of the strategies I’ve built were a result of combining the different tools, theories and processes from other strategies I’d previously traded in my career.
Second, I think a Trade Plan that focuses solely on the macro level picture will help you in your review.
When I began my career I was surrounded by elite traders every day. My mentor and the owner’s of the firm kept me in line and made sure I was following their processes. If I was trading poorly, they held me accountable.
If you haven’t already chosen someone as an accountability partner, it should be the first thing you do after reading this post.
Your trade plan will be shared with your Accountability Partner in order to review your progress.
Your playbook will be used in strategy development and shared with your peers for trade review.
Obviously your accountability partner can play both roles if they have a trading background.
However, it’s more important your accountability partner is someone your close to that is committed to helping you achieve goals.
A good accountability partner will call you out and question you when you’re not following your rules, and due to your respect for the individual it should sting a little.
For the remainder of this post we’re going to focus solely on your trade plan.
Once you’ve completed your plan, I have you covered on your playbook as well. (link to Playbook Guide at the end)
Why You Need a Trading Plan
Good trading should be effortless. The preparation is where the hard work comes.
Imagine two runners, on one hand someone completely out of shape trying to run 1 mile in 10 minutes versus a world-class runner. The process looks effortless for the world-class runner, and it is. They put all of the hard work into their preparation, resulting in a process that is effortless.
Your Trade Plan and Playbook are part of your preparation.
The objectivity and clarity that a solid plan provides is essential in a market that requires split second decision making to capitalize on opportunities.
It will empower you to trade objectively, with confidence and less emotional involvement.
Let’s take a look at some categories you will want to include in your plan.
Trading Plan Outline
This outline is a strong base to get you started. You can use this plan for all markets, including Stocks, Forex, Futures, Options, and/or Crypto.
Remember, there’s no formal rules so get creative!
1. Premarket Routine
Developing routines in our lives helps us to stay on track and reach goals.
By analyzing our current routines and making adjustments, we’re able to form new habits. A skill that is rewarded in this business.
Here’s a great video on the importance of simple routines, especially when starting your day.
Try it, what do you have to lose?
Outline the tasks you will perform prior to trading each day.
-Read trading plan
-Review a personal journal entry twice a week and reflect
-Read prior day’s trade journal
-Review prior day’s trades
-Check economic numbers
Visualization and Mantras are great tools to include in your morning routines.
-Visualize yourself taking a trade and going through all the steps outlined in your Playbook
-I accept that I have no idea what the outcome of any individual trade will be
-I accept that today could be a negative day
-I accept the loss of my next trade financially
-I accept I will get stopped out on trades that reverse and rip in the direction of the setup
3. Hard Rules
You want to get very specific with some macro rules for your trading business. They should be reviewed with your accountability partner on a monthly basis at minimum. I recommend meeting weekly or daily if you’re a new trader or not yet profitable.
-3 losing trades switch to SIM remainder of session
-Take a random trade, switch to SIM remainder of session
-Two max loss days back to back, SIM for remainder of week
-No trading outside RTH
4. Risk Management
You don’t need to over complicate your risk management. Below is what I recommend to my students.
-1% max per trade
-3% max per day
-5% max per week
-15% max per month
-Adjust trade size on Monday mornings
IMPORTANT! You should never trade real money until you have proven your ability to be profitable on a simulated account!
I promise, if you can’t make money on a simulated account, you won’t do it on a live account.
Don’t start trading a live account until you’ve proven you have acquired the necessary skills to make money on SIM.
5. Aftermarket Routine
All traders make mistakes. The question is whether or not you will analyze those mistakes to learn from them?
When the trade day ends, you still have work to do.
You should do some journaling and reflection on your execution for the day.
Keeping a trade journal of all your trades as well as grading every trade is essential for growth. Make sure to take screenshots of your trades as well so you can go back and review them.
Here’s a few more examples:
-Complete Scorecard for ever trade taken that day
-Complete journal entry discussing market conditions for the day and reviewing your execution
-Input trades into spreadsheet or whatever you’re using for analytics
Trading can be emotionally challenging at times. There’s not many professions where you go to work and perform your best yet at the end of the day you leave with less money than you started.
Keeping mentally fit is imperative in this business. It’s important you incorporate some stress relieving activities, such as meditating or working out, into your aftermarket routine.
6. Weekend Routine
On Sunday evenings I have a routine to prepare myself for the upcoming week.
-Read trade journal entries from the past week
-Review trades from the past week
-Goals for upcoming week
-Meet with Accountability Partner
7. Monthly Routine
On a monthly basis you should perform a thorough analysis on your trading business.
Examine your processes and trading analytics, looking where you can improve.
-Review trade analytics and make adjustments to strategies
-Check risk management and sizing
-Write main goals for upcoming month
The markets are always changing and presenting new opportunities as well as challenges. Even after 20 years, I still find myself learning new things.
Reflecting on why you started trading in the first place is important. Don’t ever lose sight of your goals.
Keep track of your goals and achievements in your trade plan as you progress as a trader. You will find it encouraging as you start to see your progress.
-Zero random trades for a week
-Average trade score of X for the month
-First chop comma ($1,000 net day)
While I think all these categories should be included in your own plan, remember to get creative and include anything you feel could potentially improve your trading.
Maybe include some pictures to motivate you.
Free Trade Plan Template (Download)
I created a template in Google Sheets with the categories and examples covered in this post to get you started on your trade plan.
If you would like the template and some other cool trading tools, become a JT Insider. It’s free.
I also recommend you check out this guide “How to Become A Day Trader – (Here’s how I did it…)”. I share with you how I overcame my trading failures by developing an Objective Edge.
Whenever a student comes to me struggling, I ask them for their trade plan. The struggles typically lead back to a rule or set of rules they have outlined in their Trade Plan that they’re consistently breaking.
It’s an essential tool when reviewing your trading with your accountability partner. Remember to select someone close to you must be completely transparent with them or you’re only cheating yourself.
Don’t make trading more difficult than it already is. Write a solid plan and work on having the discipline to follow it.
Anything not mentioned you like to include in your plan? Leave a comment below!