Build a trading plan
Create a checklist you can repeat under pressure.
01
A plan is a set of conditions
An observation describes the chart: price has stalled near a zone. A prediction says what you think happens next. A plan states the evidence you require, the action you would consider and what cancels the idea. Write the plan before seeing the outcome. “It will bounce” cannot be checked as consistently as “study a close above the zone followed by a retest that holds”. Neither wording makes the idea profitable.
02
Write seven fields
Record the instrument and exchange, timeframe, market context, trigger, invalidation, position-size calculation and exit rules. Add a no-trade condition, such as price moving beyond the planned entry before confirmation. If a field is missing, leave the paper exercise untraded. An attractive target should come from a reasoned scenario, not a number chosen to make the reward-to-risk ratio look good.
03
Worked example: exposure is not risk
Hypothetical spot exercise in GBP: practice account £2,000; chosen price-loss budget £10; assumed entry £100; assumed stop execution £95. The £5 per-unit distance permits 2 units, with £200 notional exposure. An illustrative target of £110 produces £20 gross profit if filled, or +2R before costs. This is a calculation, not a current opportunity or a recommended risk level. If the actual exit is £94 and total fees are £1, the loss is £13, or −1.3R.
04
Choose the reason to do nothing
Examples include no confirmation, inconsistent market data, an entry that has already moved away, or position size that cannot be implemented within the exercise assumptions. Record which condition prevented the trade. A no-trade decision belongs in the journal because it helps distinguish deliberate restraint from an unrecorded missed opportunity.
05
Review the plan without rewriting history
Save a before screenshot with its timestamp and annotate the result afterwards. Keep the original stop and target visible even if you later revise the method. An honest review asks whether the condition occurred and whether the action matched the plan. One win or loss cannot establish that the rules have an edge. Start with a simulator; it does not recreate every live execution or emotional risk.
Practice exercise
Use worksheet A to write a hypothetical plan with all seven fields and one no-trade condition. Calculate units, notional exposure and price loss separately. Recalculate the example above with an assumed stop at £90 while keeping the £10 price-loss budget.
Download practice workbook (.txt)Knowledge check
With a £100 assumed entry, £90 assumed stop and £10 price-loss budget, what are the units and notional exposure?
1 unit and £100 notional exposure: £10 ÷ (£100 − £90) = 1. The £10 is a planned price loss, not a guaranteed loss ceiling. Wider stops require smaller positions for the same simplified budget.
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Educational information, not personalised financial advice. Examples do not establish future performance. Trading can result in substantial losses.