Short answer
A trading plan is a written set of decision rules for one trading process. It should state what you trade, the setup and trigger, how you enter and exit, how position size is calculated, the maximum combined risk, when trading stops, what you record, and when the plan may be changed. If two careful readers can reach different decisions from the same chart, the rule needs more detail.
Open the free trading plan templateTrading plan vs trading strategy
Strategy
A testable hypothesis about when to enter, where the idea is invalid, and how to exit. Its evidence is the distribution of results after costs, not a screenshot or a persuasive story.
Plan
The operating system around that strategy: eligible markets and times, data source, orders, risk limits, correlated exposure, news policy, records, review criteria, and change control.
A plan cannot rescue an untested strategy, and a strategy cannot control execution by itself. Build the strategy first, then surround it with limits that keep one error or one losing sequence from becoming an uncontrolled account event.
Decide these constraints before writing entry rules
| Decision | Write down | Why it matters |
|---|---|---|
| Objective | Research, practice, income attempt, or portfolio hedge | The horizon and acceptable risk differ |
| Capital | Amount allocated and money that must remain unavailable to risk | Defines the real loss constraint |
| Instrument | Exact symbol, venue, contract, and quote currency | Pricing, tick value, leverage, and hours differ |
| Data | Provider, timezone, session template, and adjustment method | The same rule can produce different candles |
| Schedule | Days and sessions when you can observe and execute | A plan must fit real availability |
| Costs | Spread, commission, financing, borrow, and slippage assumptions | Gross expectancy can disappear after friction |
How to create a trading plan step by step
- 01
Define scope
Choose one instrument or a small named universe, one data source, timeframe, timezone, session, and holding period. “I trade forex” is not specific enough.
- 02
Write the setup
Describe only information available before entry: market state, level or pattern, volatility filter, and the conditions that make the setup eligible.
- 03
Define the trigger and order
State the completed-candle or price event, order type, permitted entry window, maximum slippage, and what cancels an unfilled order.
- 04
Place invalidation before the target
The stop belongs where the trade thesis is wrong under the tested rule. Then define a target, trailing rule, time exit, or combination.
- 05
Calculate position size
Convert the maximum account risk into units using the entry-to-invalidation distance and the instrument's monetary point value. Include fees and gaps.
- 06
Control combined risk
Cap total open risk and correlated exposure. Three positions driven by the same USD or equity-index move are not three independent bets.
- 07
List no-trade conditions
Examples include scheduled events, abnormal spread, missing data, platform faults, a reached session limit, or a setup arriving outside the approved hours.
- 08
Define records and reviews
Specify journal fields, plan-adherence scoring, the minimum review sample, who can change a rule, and when a new version begins.
Write a risk budget, not a motivational rule
Rules such as “risk 1% on every trade” are incomplete. The same percentage can be too large for a high-frequency or highly correlated system and unnecessarily small for a different, well-capitalized process. Start with the maximum tolerable account loss, then test whether the strategy's loss distribution fits inside it with a buffer for estimation error.
Basic position-size relationship
units = maximum monetary risk ÷ monetary loss per unit at the stop
For forex, futures, CFDs, options, and inverse crypto contracts, monetary loss per unit depends on contract specifications. A price distance alone is not enough.
Per trade
Maximum planned loss after fees, plus a gap or slippage policy.
Open portfolio
Maximum aggregate risk, concentration, and correlated exposure.
Session
Realized and unrealized loss limit, reset time, and required action.
Strategy
Drawdown review threshold, evidence audit, and retirement criteria.
Use the trading calculator to translate a stop distance into a position size, and read the maximum drawdown guide before setting account-level review limits.
Worked one-page trading plan example
This example demonstrates precision; it is not a recommended strategy and makes no performance claim. Every threshold would need testing on the named data and execution venue.
EUR/USD 1-hour pullback plan · research version 1.0
- Scope
- EUR/USD spot CFD; broker bid/ask feed; 1-hour candles; Europe/Rome timezone.
- Session
- New entries only 08:00–16:00 London time; no new Friday entries after 14:00.
- Context
- EMA 20 above EMA 50; both higher than 10 completed bars earlier; ADX(14) at least 20.
- Setup
- Price touches the band between EMA 20 and EMA 50 without a candle closing below EMA 50.
- Trigger
- First completed bullish candle closing above the prior candle high within three bars of the touch.
- Entry
- Buy-stop one minimum increment above the trigger high; cancel after two completed bars.
- Invalidation
- Below the pullback swing low plus the tested spread buffer; never widened.
- Exit
- Initial target 2R; time exit after 12 completed bars; close if a tested opposite condition occurs.
- Risk
- Monetary risk determined by the validated model; total EUR/USD-related open risk capped in advance.
- Exclusions
- No entry during a named high-impact event window, abnormal spread, missing candle, or breached session limit.
- Record
- Chart before entry, rule states, quote, fill, costs, MAE, MFE, result in R, adherence, and notes.
- Review
- Freeze version for the predefined sample; evaluate expectancy, costs, drawdown, and adherence before changing it.
Pre-trade checklist
No order is permitted until every required item passes.
- Correct instrument, feed, timeframe, session, and plan version.
- All context and setup conditions are observable and true.
- A completed trigger occurred; nothing is being anticipated.
- Entry, cancellation, invalidation, and exit prices are recorded.
- Spread, commission, slippage, and gap risk were considered.
- Position size was calculated from monetary loss at invalidation.
- Total open and correlated risk remain inside the written limit.
- No news, data, platform, or account-level exclusion is active.
- The screenshot and decision record exist before the order.
- The trade will be journaled whether it wins, loses, or never fills.
Test the plan without rewriting history
Freeze each version
Give the plan a version and effective date. A rule change creates a new version; do not merge its results with the old one as if they came from one unchanged process.
Separate execution from research
Live hours are for following the active plan. Research hours are for reviewing samples, forming hypotheses, and deciding whether a separately tested version should replace it.
Track net expectancy in R, average win and loss, costs, maximum drawdown, drawdown duration, losing streaks, exposure, MAE, MFE, and rule adherence. Then validate with unseen data and incoming simulated trades. The backtesting and forward-testing guide explains the separation in detail.
Trading plan FAQ
What is a trading plan?
A trading plan is a written decision system for one strategy. It defines eligible markets and sessions, setup conditions, entry and exit rules, position sizing, exposure and drawdown limits, exclusions, recordkeeping, and the process for reviewing or changing the rules.
How do I create a trading plan step by step?
Define the objective and constraints, choose one market and strategy, convert the setup into observable entry and exit rules, set trade and account risk limits, list exclusions, design a pre-trade checklist, specify journal fields, test the plan, and schedule reviews. Freeze the version while it is being tested.
What should be included in a trading plan?
At minimum: market and instrument, data source, timeframe, session, setup, trigger, entry order, invalidation, target or exit, maximum holding time, position-size formula, total exposure limit, daily and strategy stop rules, news policy, journal fields, and review schedule.
Is a trading plan the same as a trading strategy?
No. A strategy describes how a setup is expected to create positive expectancy. A trading plan is broader: it also controls when the strategy may be used, how positions are sized, how total risk is limited, what is recorded, and when changes are allowed.
How long should a trading plan be?
It should be long enough to make the next action unambiguous and short enough to use before every trade. A one-page execution sheet plus supporting research and version notes is often more practical than one long document.
How often should I update a trading plan?
Review it on a schedule defined in advance, such as after a fixed number of eligible trades or at a monthly research review. Do not rewrite rules during a live session or after one loss. Make changes as a new version and test them separately.
What risk percentage should a trading plan use?
There is no universal percentage. Size must fit the strategy's tested loss distribution, account constraints, correlated exposure, leverage, execution risk, and the trader's maximum tolerable drawdown. A copied percentage is not a substitute for that analysis.
Does a trading plan guarantee profitability?
No. A plan makes decisions consistent and auditable; it cannot create an edge or remove market uncertainty. The underlying rules still need realistic backtesting, out-of-sample validation, forward testing, and ongoing monitoring after costs.
Sources and editorial note
Davide Rogai reviewed these primary educational and regulatory sources when checking the guide. They support the risk warnings and market mechanics; they do not endorse Strategy Archive or any example rule shown on this page.
- Risk Management and Your Trade Plan
CME Group Education · defining risk tolerance, loss limits, leverage, and trade risk before execution
- Stop, Stop-Limit, and Trailing Stop Orders
SEC Office of Investor Education and Advocacy · order triggers, market execution, price uncertainty, and trailing-stop behavior
- Eight Things You Should Know Before Trading Forex
U.S. Commodity Futures Trading Commission · dealer pricing, leverage, fees, registration checks, and OTC forex risk
- The Probability of Backtest Overfitting
Bailey, Borwein, López de Prado & Zhu · the risk of selecting apparently superior rules after testing many alternatives
Important: The worked plan is an educational specification example, not a recommendation or evidence that the illustrated setup is profitable. Replace every threshold with rules tested on your own market, data, costs, and execution process.
Build the first version now
Start with the template, fill every field that affects a decision, and mark anything that still depends on judgment. Those ambiguous fields become the first research tasks—not permission to improvise during a live trade.
Educational content only, not personalized financial advice. A written plan reduces ambiguity; it does not remove market risk, guarantee fills, or guarantee profit. Review the CFTC risk advisory before trading leveraged OTC forex.