A trading plan is a pre-trade record that defines the intended market exposure, evidence, entry condition, invalidation, exit logic, position size, risk limit, data provenance, and execution constraints before the outcome is known.
How it works
A useful plan connects the thesis to observable conditions and translates those conditions into rules that can be checked before and after execution. Required fields should be resolved rather than left as vague intentions.
Versioning matters: if the plan changes after new evidence arrives, the revised version should be recorded instead of silently overwriting what was known before the trade.
Why it matters
The plan creates a baseline for position sizing, order checks, and post-trade attribution. Without it, later review cannot reliably distinguish a bad rule from a rule that was never followed.
Completing a plan does not make a trade attractive or profitable. It makes the decision process explicit enough to audit and reject when required information is missing.
A simple market example
A plan specifies the instrument, market context, exact entry trigger, 96 invalidation, target or trailing rule, 50-unit size, 200 maximum planned risk, and the timestamped dataset used for the decision.
Common mistakes
Writing a long market narrative without explicit entry, invalidation, size, and risk fields.
Rewriting the original plan after the trade outcome is known.
Frequently asked questions
Is a trading plan the same as a strategy?
No. A strategy defines repeatable rules across opportunities; a trading plan applies the relevant rules and evidence to a specific intended trade.
When should the plan be written?
Before execution, with material changes versioned as new information arrives.
Can a plan block a trade?
Yes. Missing risk, data, or execution fields are valid reasons not to proceed.
Educational content only. Definitions describe common market usage and may vary by jurisdiction, instrument, or institution.