Example of a trading plan

Example of a trading plan

Trade plan example
Photo by @criene

 

Trading plans can come in all shapes and sizes. Some are more detailed than others and some will include several strategies but in this lesson, we’ll give you an example of a trading plan.

We don’t recommend copying this but instead use it as a template for your plan. 

How to format a trading plan

How you format a trading plan is down to you however we would always recommend that you have it written down somewhere.

When something is written down, you become more accountable to it. If it is there in black and white in a document, you can see whether you followed it or not.

Depending on how well you know your strategy will also determine how you format it. If you’re just starting out in trading then we would recommend that you have two different versions.

  1. An in-depth version that goes over as many eventualities as possible.
  2. A shortened version that you can have close to you while you’re trading. This ensures you follow the key rules you’ve set out.

How to use a trading plan

Using a trading plan is about following the rules that you have given yourself. You can do this by creating checklists to ensure everything is ticked before you execute the trade or by simply knowing your strategy back to front.

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Example trade plan

Pre-analysis rules

Objectives

  • To grow my trading account by 4% per month.
  • To withdraw twice a year in order to treat my family with my earnings.
  • After two years of profitable trading, I will go to part-time in my job to focus more on trading.

Trading style

  • Swing trading

Time

  • I work a full-time job so will only be able to spend 30-60 minutes per day looking at the markets.

When do I analyse the markets?

  • Weekday evenings – Analysis will be conducted in the evenings after work. I won’t be able to do this every night but will on average look at the markets 3-4 times per week.

When in the day do I take trades?

  • Market orders – I leave orders in the market when I do my analysis. Therefore I place my trades during weekday evenings. The trade is executed once the price is hit (assuming it does get hit).
  • I don’t take trades while I’m at work. I don’t manage my trades while I’m at work.

Timezone

  • All timezones are traded – I live in London but will be analysing the markets after the London session. As I’m swing trading, it doesn’t matter when my order gets triggered.

Holding trades

  • I hold trades on average 3-4 days. The maximum I will hold will be for two weeks.
  • I can hold positions overnight and over the weekend. Holding positions over the weekend will depend on the profit and loss of that trade.

Markets

  • Forex
  • Gold
  • Bitcoin

Psychology

When not to trade

  • After a bad day at work
  • When I’m tired
  • When I’ve had an alcoholic drink
Photo by @rohane

 

Risk management

I manage my risk by always using a stop loss for every trade, therefore I can see how much I have at risk at any one time.

Stop loss and take profit order placement

  • Stop-loss – This is placed where should the price trade there, the original trade analysis becomes invalid. Therefore there is no need to still be in the trade.
    • This is placed based on technical analysis.
    • Once decided, then the size of the trade can be determined (never pre-determine the size of the trade before you know how far from the entry it will be).
  • Take profit – This order is not always placed.

Risk management criteria

  • Risk to reward ratio minimum: 1:1
  • Maximum risk per trade: 1%
    • Can risk smaller amounts in order to take more positions and still be within total exposure
  • Maximum total risk exposure: 2%

Drawdowns

Trading should be stopped is losses exceed:

  • Daily: 2%
  • Weekly: 6%
  • Monthly: 10%

Mistakes to avoid

  • Don’t add to losing positions.
  • Don’t increase your size to make back what you lost.
  • Don’t increase your size if you’re on a good run.
  • Don’t move your stop loss away from its original position.
  • Don’t take a trade because you lost the last one.
Photo by @andreyyalansky19

 

Analysis

  • I’m predominantly a technical trader but I do keep an eye on the fundamentals.

Fundamental analysis

  • I watch the news for any geopolitical news that might impact my trades.
    • I don’t have a deep understanding of the economics of the markets I trade, therefore it is just to ensure that I don’t take positions where there is high risk attached. Examples might include a general election, natural disaster or a war.
  • I check the economic calendar to see if there is any high impact news that might affect the market I want to trade.
  • I will hold positions into high impact news.
  • I won’t leave new orders in the market when high impact news is due the next day.

Technical analysis

My analysis is mainly done using technical analysis. I have several strategies that I can use. They consist of a trade set up, trade execution, and risk management.

  • Trade set up – This is where direction and entry and exit levels are determined.
  • Trade execution – This is the level I place my order. I only place orders in the market therefore do not have a trigger for entry.
  • Risk management – This is where I determine my stop loss and take profit. These levels are determined by the price, I will then ensure that I risk the appropriate amount once I have decided the levels where my exits orders should be placed.

Indicators

  • Dow theory
  • Support and resistance
  • MACD (trend strategy)
  • Slow stochastic (range strategy)

Trend strategy

Trade set up – Direction 

  • Determined on a daily time frame.
  • Daily time frame is trending as per dow theory. If trending higher, it’s creating higher highs and higher lows. If trending lower, it’s creating lower lows and lower highs.
  • MACD must be crossed in the direction I want to trade on the daily time frame
  • Once this is determined, I will only trade in this direction.

Trade execution – Entry levels

  • Determined on a 30-minute time frame.
  • Identify key support and resistance levels.
  • Only buy at support levels and only sell at resistance levels.

Risk management – Stop loss and take profit orders

  • Stop loss – Stop loss is placed below the latest swing on the 30-minute time frame. Normally around 50-100 pips from the entry level.
  • In trade management – I’ll trail the stop behind the price. Once new swings are created, I will move the stop below the last stop loss.
  • Take profit – Take profit levels are not placed. I will trail the stop loss. 
    • Key levels are identified and can be used to take profit along the way.
Trend strategy
Screenshot from TradingView

Range strategy

Trade set up – Direction

  • This is when the market is not trending.
  • Confirmation of the range is when support and resistance have been tested twice.
  • This should be confirmed by the slow stochastic.
    • When the price is at support, the slow stochastic should be oversold
    • When the price is at resistance, the slow stochastic should be overbought
  • I can trade in either direction (long or short), no matter the underlying trend.

Trade execution – Entry levels

  • Simply place buy order just above the support level or sell order just below the resistance level.

Risk management

  • Stop loss – The stop loss is placed below or above the range, depending on the direction of the trade. If the price breaks out of the range, then the range trade is invalid.
  • Take profit – The target is placed at the other side of the range. If you’re buying at support, then your target will be just below resistance and vice versa if you’re selling at resistance.

 

Screenshot from TradingView

 

Trade journal

The final step of your trade plan should how you record your trades. Most brokers and trading platforms will offer a reporting system but we recommend that you create your own.

The broker/trading platform will give you your entry and exit details, including price, time, and market. They won’t however let you know where your stop loss started, where your take profit was or what the risk-reward ratio of the trade was. Nor what percentage you had at risk.

Therefore it’s important that you create a trade journal that records all this information so that you can go back and analyse your results.

Here are a few things we believe you should record for each trade:

  • Date and time of the trade
    • Open and close
  • Open price
  • Close price
  • Initial stop loss 
  • Initial take profit
  • Risk to reward ratio
  • Percentage at risk
  • Where you moved your stop loss to
  • Market you traded
  • Profit and loss
  • Trading style and strategy

Trade plan checklist

  1. Ensure correct:
    1. Markets traded
    2. Time analysed
    3. Mindset
  2. Trade set up
    1. Direction confirmed
    2. Key buy and sell levels identified
    3. No high impact news due the next day
  3. Risk management planned
    1. Stop loss and take profit levels determined
    2. Correct sizing to ensure no more than
      1. 1% per trade
      2. 2% total exposure
  4. Record trade details in your trade journal

Trade plan execution

The above trade plan gives you an idea about how you can start to create your own strategy. You may well need to add more detail depending on how you trade.

For example, if you use a breakout strategy, you might want to confirm what you classify as a breakout.

“Breakout = Impulsive candlestick closing with 50% of the body over the price level.”

Each person’s trade plan will be different and you may want to confirm a few more things. For instance, you might want to go into specifics about how you use each indicator.

Do you use candlestick patterns? If so, which ones to you hold more importance to your strategy?

How to use this trading plan example

When using the above plan to help create your own, do ensure that that is what you’re doing and not simply copying this one.

By all means, use this and test it but then add sections in where you feel like you need more confirmation or remove certain sections if you don’t feel it’s relevant.

This is a framework to help you create your own trade plan.

Trade plan summary

You should now have a good idea about how to structure your trade plan and the key points to include. As highlighted above, you should not just copy this exactly. This should be used as a framework for you to create your own.

You can add as much detail as you want and we would normally say that more detail is required for beginners so that they know exactly what they should be doing in each scenario.

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