Why most plans fail before the first trade
A trading plan is usually written after a good week, when confidence is high and memory is generous. It describes the ideal trade in ideal conditions and quietly assumes the trader will be calm, rational and awake. The plan then meets a real market on a real morning and falls apart.
The fix is not a better plan. It is a plan written for the worst version of you — the one who is tired, hurried and tempted. If the plan works for that version, it works for all of them.
The three parts of a complete plan
- Entry. What exactly triggers a trade? Name the condition, the instrument and the size. “Buy when it looks good” is not a trigger.
- Exit. Both the profit target and the stop. A plan with only a profit target is a plan to lose money slowly.
- Review. What will you record, when, and how will you use it? A journal that is never read is a diary, not a tool.
The journal is where the edge lives
Every trade should record five things: the setup, the entry price, the exit price, the reason for the exit, and how you felt. The first four produce statistics. The fifth produces the insight. After fifty trades you will see a pattern: you make money on certain setups and lose it on others, and the losses are almost always emotional.
The journal turns a string of results into a body of evidence. Without it you are repeating the same mistakes with fresh enthusiasm.
A plan you can actually follow
- Write the plan on paper, by hand, before the market opens.
- Keep it to one page. If it does not fit, it is not a plan; it is a wish list.
- Define the maximum number of trades per day. Most traders trade too much.
- Define the daily loss limit at which you stop for the day. Then stop.
- Review the journal once a week, not once a month. Small corrections compound.
The point of the plan
The plan is not there to predict the market. The market will do what it does. The plan is there to make your own behaviour predictable. A trader who behaves predictably can be improved. A trader who improvises cannot.
“Plan your trade and trade your plan.” — classic trading axiom
By tradeX Research. References: Mark Douglas, “Trading in the Zone”; Van Tharp, “Trade Your Way to Financial Freedom”.