Your First Written Trading Plan

Cadet · Cadet Field Skills · About 25–35 minutes

Safety rule: A trading plan must define when not to trade before it defines a possible profit.

Your mission today

By the end you can write a one-page demo trading plan with entry, loss limit, exit and no-trade rules.

Before you start

Finish F03.1. Bring a notebook, a calculator and a demo EURUSD chart. The example below is imaginary; it is not a recommended trading strategy.

1. A trading plan is a pre-flight checklist

An airline does not decide its operating limits after take-off. A trader should not decide them after an order starts losing. A trading plan is a short written set of conditions governing an imagined trade. It describes which product you study, what evidence you require, what makes the idea wrong, and how much money you could lose. It also describes when you must do nothing. A plan is not a forecast. It is an agreement with yourself about the process you will follow. Start with a single demo instrument, such as EURUSD. Write its name and the contract type, not just the familiar symbol. Add the session or time window when you will practise. You are learning to make repeatable decisions, not to fill every hour with orders.

2. Write the potential loss before a target

Imagine your fictional rule asks you to observe a completed M15 candle close above a previously marked level of 1.08500. You would consider a buy only if the next executable Ask were no higher than 1.08520. A stop would be at Bid 1.08420. If a buy filled at Ask 1.08520 and the stop filled at Bid 1.08420, the difference would be 10 pips. At our assumed $1 per pip, the price loss would be −$10, before fees or worse fills. A later executable Bid at 1.08620 might yield +10 pips, or +$10, in an alternative imaginary path. Neither path is certain. The plan must reject the ticket if the account's cash-risk limit is only $8. A visually attractive chart cannot vote a risk limit away.

3. Define an entry in words someone else can test

'Buy when it looks strong' is not a rule. It leaves every difficult decision to your mood. A better teaching example states that a specified completed candle must close beyond a level marked before the move. M15 means a chart with 15-minute bars. For this example, wait for that bar to close and record its timestamp. Then verify the actual Ask and calculate risk. A wick above a level followed by a close below does not satisfy a close-based rule. You can practise reading such conditions in replay without ever buying. This is not a validated earnings method; it is an example of precise wording. The exercise is to write a condition another learner would recognise at the same time, even if the next candle drops.

4. Your exit rule needs two different jobs

The protective exit answers: 'Where does this idea stop making sense?' The profit exit answers: 'Under what circumstances would I stop holding a favourable position?' A protective stop cannot be chosen solely to manufacture a larger position size. Imagine a long entry at 1.08520 and invalidation at 1.08420. The 10-pip planned downside is clear. You might write a separate target condition, such as closing at an executable Bid of 1.08670, a hypothetical 15-pip improvement. But a 1.5-to-1 planned reward-to-risk ratio says nothing about the odds of reaching that target. Reward-to-risk compares planned price gain with planned price loss. Both sides require valid execution prices and cost assumptions. Put any trailing or partial-exit rules in writing before replay, rather than adding them after a result disappoints you.

5. The no-trade page may be the most useful page

Write explicit reasons to SKIP: the symbol contract is unknown, the stop is too far for permitted volume, the spread exceeds your limit, the required candle has not closed, a scheduled event falls inside a restricted window, or you are too distracted to follow the plan. There is a difference between WAIT and SKIP. WAIT means a future completed observation may make the candidate eligible. SKIP means the present candidate is disqualified under its original terms. If your plan says the Ask must be below 1.08520, an Ask of 1.08560 means do not chase. A subsequent winning candle does not make the earlier skip a mistake. The plan is a consistency tool, not an instruction to trade frequently.

6. Put the plan into a usable one-page format

Create six clearly labelled boxes: Instrument and hours; Market context; Entry and first knowable time; Structural failure level; Maximum cash loss and volume calculation; Exit, skip and emergency rules. Add a final line for which demo account and contract specification you used. Leave room to record the strategy version and date. An emergency rule might tell you how to check whether an order exists after a connection drops. It must refer to the actual provider's verified procedure. Test your page on five imaginary charts. If you cannot confidently mark TRADE, WAIT or SKIP from your own rules, revise the wording before any further test. Never change the rules in the middle of a sample and then call all the outcomes one strategy. The notebook must preserve the original version.

Common mistake

Many beginners write only a desired entry and target. That leaves no definition of failure or invalid conditions. Fix the plan by making stop, cash risk and skip rules mandatory fields.

Plain-English glossary

• Trading plan: a dated set of rules for a defined trading process.
• M15: one completed bar represents 15 minutes.
• Invalidation: the observable condition that makes the original idea fail.
• Reward-to-risk: proposed reward divided by planned price loss.
• Skip: a candidate rejected under the written conditions.

Try it yourself

Create your own one-page demo plan with the six boxes, plus a date and version. Apply it to five hidden-future EURUSD situations, recording TRADE, WAIT or SKIP and the cash-loss arithmetic. Keep one losing case and one missed winning-looking case.

What you can now do

• Explain the lesson's key concept with an original example.
• Calculate the adverse result before discussing a possible gain.
• Record an independent TRADE, WAIT or SKIP decision with evidence.

Next lesson

F03.3 · Your First Journal Entry. Record what you actually did, not what hindsight says.