Trading Plan

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A trade plan answers the questions you will face before and after buying: Why this trade? What must happen before entering? Where do you leave if the idea fails? How many shares can you take? Where will you take profit, and what will you do if neither exit happens?

Write those answers before placing the entry order. Once money is at risk, it becomes easier to chase a price, postpone a loss or change the target because of how the trade feels. A plan gives you decisions to follow and something concrete to review afterward.

A broader trading plan also sets the kinds of trades you take, your trading hours, loss limits and review routine. The Trading Rules lesson develops those repeatable boundaries. Here, you will build the plan for one trade within those boundaries.

Build The Trading-Day Plan First

Start with when and what you intend to trade. Write the hours you can monitor positions, the setups you understand, your maximum planned risk per trade and the conditions that stop new entries for the day. This keeps each individual trade inside the same boundaries instead of inventing a new allowance whenever a stock looks attractive.

Before the session, review the stocks you are considering, mark relevant support and resistance, and check known company events. Decide which opportunities you will wait for. A watchlist is a list of candidates, not a requirement to trade them. If none meets your conditions, the day's plan can result in no trades.

Then write an individual plan for each opportunity you might act on. After the session, record the fills and whether you followed the plan. Use that review to identify changes for a future session, rather than changing your limits during a losing morning.

Start With The Reason For The Trade

Describe the opportunity in terms you can observe on the chart. “I think it will go up” leaves you with no way to decide whether the opportunity still exists.

For this example, a stock has risen, pulled back and found buyers near $4.80 more than once. That area is support: a place where earlier declines stopped. Previous advances stalled near $5.40, an area of resistance. The trader is considering buying a pullback that holds support, rather than buying simply because the stock is moving.

Write the reason: “I am looking for another pullback to hold above $4.80, followed by a recovery toward $5.00.” This says what the trader wants to see. It does not establish that the next pullback will hold or that resistance will be reached.

Decide Exactly What Allows An Entry

An entry condition tells you when the idea is ready to trade. It differs from choosing a price you would like to pay.

Suppose the new pullback reaches $4.90 and starts recovering. The trader's condition is that support remains intact and price trades back to $5.00 after the pullback. Their maximum entry price is $5.00. Before that recovery, they wait. If support breaks before the entry fills, they cancel the unfilled order as well as the idea.

The trader plans to submit a buy limit at $5.00 once the condition occurs. A buy limit restricts the purchase price to $5.00 or lower, but it may not fill. If price runs to $5.20 without a fill, the trader cancels the unfilled entry and passes rather than raising the order to chase it. If the order has partly filled, they cancel only the unfilled remainder and manage the shares already held.

Check the spread and available order size before submitting. The spread is the gap between the best bid and ask; a wide gap can make entering and leaving more costly. A price on the chart does not mean your entire order can trade there. Also check that the entry is permitted by your trading hours, trade-count rule and daily loss rule.

Choose Where The Idea Fails Before Choosing Size

Ask what would contradict the reason for buying. That is the trade's invalidation. In this example, the reason depends on support holding, so the trader plans to leave if price reaches $4.80. They choose a regular sell stop at that price.

Choosing the exit first matters because it gives the size calculation a distance to use. Moving the exit closer just to buy more shares changes the trade's reasoning. Moving it farther away after entry gives a losing trade more room than you originally accepted.

A stop is an instruction, not a guaranteed sale at its trigger price. Confirm the broker's trigger, quantity and session settings. If the exit fills below $4.80, the actual loss will exceed the calculation based on $4.80.

Turn The Exit Distance Into A Share Quantity

The trader has chosen a $50.00 budget for price risk on this trade. At a $5.00 entry and $4.80 planned exit, each share has $0.20 of planned price risk:

$5.00 − $4.80 = $0.20 per share.

Divide the budget by that distance: $50.00 ÷ $0.20 = 250 shares. If all 250 exit at $4.80, the price loss is $50.00 before costs. Buying them at $5.00 creates a $1,250.00 position, so the trader also checks available capital and whether that quantity is practical to trade. Costs and a worse exit can increase the loss; the $50.00 is this trader's chosen example budget.

This is why quantity comes after the entry and exit decisions. At a chased entry of $5.20 with the same stop, 250 shares would have $100.00 of planned price risk. The original 250-share calculation no longer fits.

Plan The Winning Exit And The Time Limit

The trader chooses $5.40 as the intended profit exit because earlier advances stalled there. The target has a chart reason; it was not placed farther away merely to make the potential reward look larger.

At that exit, 250 shares would gain $100.00 before costs. The potential gain is twice the $50.00 planned price loss. That comparison describes the prices, not the chance of reaching the target.

This plan uses a sell limit at $5.40 for the filled shares, makes no additions and keeps the original stop. A sell limit can fill at $5.40 or higher, but touching the target on the chart does not guarantee the whole order fills. It also closes any remaining shares before the regular-session close rather than holding overnight. If the trader wanted partial exits instead, the plan would need the quantity and price for each sale and an exit for the remaining shares.

Put The Complete Plan In One Place

The completed note should be usable while trading. It can be a journal entry or a short checklist beside the chart.

After entry, check the actual filled quantity and the exit orders. A partial entry needs exits for the shares actually held, not automatically the full 250. Confirm how the broker links or cancels the target and stop so an unwanted sell order is not left behind after an exit.

Review The Decisions As Well As The Result

After the trade, compare the plan with what happened. Did you wait for the entry condition? What price and quantity filled? Were the exits active? Did you follow the time limit, or change the stop to avoid taking a loss?

A losing trade can follow the plan. A winning trade can involve chasing or taking more risk than intended. Record both the result and the decisions so the next review can improve the plan rather than reward whichever action happened to make money that day.