The first thing that every trader should do after learning about a profitable trading strategy it’s a trading plan. There’s this quote that says: “a goal without a plan is just a wish”. Couldn’t agree more with that.
A goal without a plan is just a wish.
Antoine de Saint-Exupéry
Now: every trader has a different style and probably trades with different strategies, so what works for me may not sound correct to you. But there are few things that – in my opinion – every trading plan should include. Let’s start from the beginning tho.
What is a trading plan?
A trading plan is a comprehensive decision-making tool, it’s like a blueprint of what you need to do in order to correctly execute your trades and become a process based trader. A series of rules and indications to follow.
I’ve seen many detailed trading plans – pages long; I like mine to be short and concise. I want it to fit in one single sheet and be easy to remember. I’m a day trader and I need to make decisions in a matter of seconds many times. So I want to be sure that I can perfectly recall by memory my trading plan and follow it accordingly.
Why do you need it?
Being a discretionary trader is extremely hard. I’ve listened in a podcast that a former US Marine turned into a day-trader and described the unpleasant feeling of trading stronger than being on the battlefield (you can listen to the episode at this link). Now, I’ve no idea if this is true but I can guarantee that without a plan you’re gonna get lost.
The trading plan is needed to make logical trading decisions and avoid emotional choices. You literally need something to blame if things go wrong, and that better be the trading plan than yourself. If you follow a plan and results are not coming in, then you can stop to re-analyse your strategy: refine, correct, tweak and start again. But if you don’t follow your plan and results are negative then it’s all your fault. Nobody else to blame. Not the markets or the broker or the spread… It’s all you: because you didn’t follow your own instructions.
What should it include?
Basically anything related to the actual trade (ENTRY rules, TRADE management, EXIT rules) + all your RISK management rules. A quick description of all the four items:
1) ENTRY: analysing the market, spotting the pattern (or values – if you trade with indicators) that trigger the conditions for you to participate and put your money at risk. What type or order to execute (market, limit or stop), where your SL will go, what’s your TP, etc.
2) TRADE mgmt: includes all the actions you’ll make after your order gets filled. For example if you decide to move SL at break even after the price goes in your direction or trail up to the next swing, etc. Some traders completely skip this part and simply wait for TP or SL. Honestly every trader sees the market in a different way and I respect everyone’s style.
3) EXIT: simply deciding your exit strategy. Scaling out or full TP? Maybe you like to leave a runner because price is going in a strong trend or maybe you prefer to close the trade and compound for the next one.
4) RISK: this should include how much you intend to risk per trade and what you will do if taking a series of losses (maybe on the same day). Some like to decrease risk, others prefer to stop trading, etc.
Following below I’ll add my own trading plan and try to explain it.
Before going through that though, I need to clarify few things:
- My trading plan keeps evolving as you can see from the top right corner date. Together with my experience: the more I trade the more I understand price action so from time to time I tweak my plan with new rules or less restriction in order to allow me to improve performance. I usually change something 4-5 times per year. But I don’t have a schedule, just when I feel like it.
- What works for me will not work for you. Even if I share my trading plan with my best trading buddy I’m 99% sure that we won’t take the same trades or manage them in the same way. I have a few peers I trade with and we see price action pretty much the same way, but still everyone is different and that reflects in our trading styles. So don’t ever copy mine or anyone’s: it’s useless.
- I trade M1 on EURUSD and this plan is working for my own strategy. This trading plan suits me because I know already what I’m doing right and where I can fail the most. So in this plan I mainly include what benefits me, it can’t be a reference for other traders.
HTF analysis.
I’ll look for the following characteristics in what for me it’s high time frame: daily D1, H12, H4 and H1.
Current MS: market structure – bullish or bearish.
If we’re into the P/D: premium or discount side of the range.
If we’re inside an OB/BR: order block or breaker.
If there’s any RAID: stop run.
If we’re close or have just filled any FVG: fair value gap (ICT concept, if you wish to know more watch this video).
LTF analysis.
Same things as above but I add:
OF which is abbreviation for order flow, I consider M5 and M15 to understand current direction.
VI: volume imbalance, simple gaps into price which I’ve noticed that once filled tend to offer reaction.
Execution.
- My trading consists in only one setup: raid+bms+rto. I won’t explain now in detail, maybe in another blog post but it’s all I do. With different interpretations but overall it’s always the same thing. I mainly “limit in” for entries, sometimes I “market in” if the price is too fast and I really want to participate in that move.
- I need a minimum of M5 raid and shift for counter trades with at least H1 level as sponsorship. Instead when in line with order flow, M1 raid+bms is enough for me to get in. But it has to be in a crystal clear directional trend.
Rules.
These are extra rules I include in my plan but as you may have read above I already got rules for execution. So…
- Don’t go against HTF raids: I need to wait for them to unfold before considering trade against.
Avoid entering if the setup is close to a HTF area of liquidity behind and/or FVG. Same goe ok s for BMS against my direction. It’s a no go for me, it’s like when you’ve 2 valid setups in opposite directions. I won’t take any. - Always wait for pullback (after displacement) and rto (return to origin). I’m not allowed to chase price. If price is gone and I missed because I was distracted or whatever then I’ll stay flat, no reason to chase; there is always another trade. No clear bias (small tight range) or red news: stay out. Don’t participate. Just wait for clarity.
- Only take trades within same direction of order flow (that for me is defined by M5 and M15 structures). When M5 and M15 are opposite I’m allowed to play ranges: premium to discount and vice-versa.
Risk & Trade management.
- I set myself a limit of 3 trades per day. I know for certain that the less I trade in a week the better I perform. I tend to over trade (it’s pretty common between day-traders) and if I can keep my weekly trades around 10 or in a single digit then my results are positive. That said, this is one of the easiest rules to break. If some day I’m really in the zone and I see 4 easy wins why wouldn’t I play all of them? But I like to limit my bullets, knowing I have limited chances helps me to pick the best ones, when I feel that probability of winning is higher.
- Take Profit or Stop Loss until the FTA: Dante’s way to define the first trouble area, the next level where the chart may reverse on your trade. After this area is reached and hopefully surpassed then I’m allowed to move SL or take partials depending on the trade idea and final target. If & when I trail SL it should go to key swings/ob, not simply at break even for the sake of not taking a loss.
This rule is one of the hardest to keep in check for myself, a classic thing that’s easier to say than done. - Last rule I introduced just a few days ago. I’m on a personal level that sometimes I see a trade and it’s possibly not permitted by my trading plan, but I got so strong conviction that’s going to work that I feel bad not taking it: so I’m allowed to play but with half risk than usual (considering I risk 1% x trade it means I can risk 0.5% on these type of trades).
I’m aware that some explanation of my trading plan may not sound super simple to understand. It’s probably because I’m really familiar with those concepts and I tend to summarise a lot to keep short and easy to recall. But If you want to know more about my trading style you can subscribe to this blog’s newsletter for future posts or join my free Telegram channel where I post my daily analysis and trades. Hope it helps. See you around.
