A trade is not one decision; it is a loop. A market view produces an idea, sizing sets the risk, an entry rule times it, an exit rule closes it, and a review feeds the next idea. Skip any step and the loop still runs, but on incomplete information.
Understanding the loop as a whole is what connects the separate lessons of a trading course into one system.
The complete trading decision loop has five steps: market view (why this idea), sizing (how much risk), entry (when to act), exit (when to close), and review (what to feed the next idea). Each step feeds the next, and the review feeds back into the view. Missing a step does not stop the loop; it just runs it on missing information.
The Five Steps of the Loop
The loop starts with a market view: the reason an idea is worth considering. Sizing turns it into a risk decision. The entry rule times the action, the exit rule closes it, and the review converts the result into information for the next idea.
Each step feeds the next, and the review closes back into the view. That return path is what makes it a loop instead of a line.
| Step | Question it answers | Feeds into |
|---|---|---|
| Market view | Why this idea? | Sizing |
| Sizing | How much risk? | Entry |
| Entry | When to act? | Exit |
| Exit | When to close? | Review |
| Review | What did it teach? | The next view |
What a Missing Step Does
Skipping a step does not stop the loop; it runs the rest of it on missing information. No sizing means size drifts. No review means the same mistake repeats unseen.
Each step covers a gap the others do not, which is why a complete loop needs all five rather than a strong version of one.
| Trade | Stop distance | With sizing: $1,000 ÷ stop distance | Without sizing: a flat 1,000 shares |
|---|---|---|---|
| Trade 1 | $2 | 500 shares → $1,000 risk (1R) | 1,000 shares → $2,000 risk (2R) |
| Trade 2 | $4 | 250 shares → $1,000 risk (1R) | 1,000 shares → $4,000 risk (4R) |
| Trade 3 | $5 | 200 shares → $1,000 risk (1R) | 1,000 shares → $5,000 risk (5R) |
| Trade 4 | $3 | ≈333 shares → ≈$1,000 risk (1R) | 1,000 shares → $3,000 risk (3R) |
| Trade 5 | $2 | 500 shares → $1,000 risk (1R) | 1,000 shares → $2,000 risk (2R) |
1R is set at $1,000. 'With sizing' solves shares as 1R ÷ stop distance for each trade; 'without sizing' assumes a habitual flat 1,000 shares regardless of how the stop distance changes. All figures are illustrative.
The five trades genuinely have different stop distances. Skip the sizing step and buy a habitual 1,000 shares each time, and the risk drifts with the stop distance, from 2R up to 5R. Add the sizing step back — solve shares as 1R divided by the stop distance every time — and total risk across the five trades holds steady at $5,000. Skip it, and total risk climbs to $16,000, $11,000 more. That is what 'size drifts' means in dollars.
The Review Feeds Back Into the View
The review is the step that turns the loop into something that improves. It asks whether the executed trade matched the plan and what the result implies for the next idea.
Without it, the loop runs but never learns. With it, each pass around can adjust the next decision.
Understanding the separate pieces — view, sizing, entry, exit, review — is useful. Seeing how they feed one another is what makes it a complete trading system rather than a collection of lessons.
How to Build Yours
Write each step into the plan: the view and its invalidation, the 1R and sizing formula, the specific entry and exit rules, and the review schedule.
Then walk a trade through the loop end to end, in simulation, before considering real money. The loop is not complete until the review exists and the results feed the next idea.
Frequently Asked Questions
Is the loop the same as a trading plan?
The plan is the written form of the loop's steps. The loop is the process those steps form when they run and feed back.
What is the most commonly skipped step?
The review, which is the step that lets the loop improve instead of just repeat.
How do I know my loop is complete?
Walk a simulated trade through all five steps and check that the review actually changes the next decision. A loop that never feeds back is incomplete.
