Writing a Trade Plan

Many trading mistakes happen once money is on the line: moving the exit, adding to a loser, grabbing a small win out of nerves. A trade plan moves those decisions to a calmer moment, before anything is at stake. A plan doesn’t make the outcome certain. It makes the loss intentional, the evidence checkable and the review honest. Notice the difference between a prediction — “SPY goes to $581 today” — and a conditional plan: “if the zone holds, a rotation becomes more likely; if it breaks, the idea is wrong and the trade ends.” The second covers both outcomes before either happens. This lesson walks through the six parts, then lets you practice on a simulated session.

1. Thesis

   One conditional sentence: “If ___ while ___, then ___ becomes more likely.” Include the context — the regime and where price sits relative to the zones. A thesis that can’t be wrong isn’t a thesis.

2. Trigger

   The observable event that makes the plan active (trigger), such as a 5-minute close back above a zone’s upper edge. If two people couldn’t agree whether it happened, it isn’t specific enough.

3. Invalidation

   Where the idea is clearly wrong (invalidation), not where the loss starts to hurt. For a plan built on a zone holding, that’s usually a close beyond the zone with a small buffer.

4. Size

   Risk budget ÷ distance from entry to invalidation. A $50,000 account risking 0.2% has $100 to lose; with $1.80 between entry and invalidation, that’s 55 shares. Then check the cost: 55 shares at $577.80 is about $31,800, which that account can cover. If the cost doesn’t fit, the smaller size wins. For a defined-risk option position, use the maximum loss per contract instead of the distance.

5. Exits

   Four of them, written in advance: a profit exit, the invalidation exit, a time exit if neither happens, and an event exit before scheduled news. Decide too whether the position comes off all at once or in parts.

6. Review

   What you’ll record afterward: whether each part was followed, the result in units of planned risk, and one note on what to keep or change. Note what you saw at the time, not what you know now.

Weak plans and stronger ones

Let the regime shape the plan. In a Volatile regime, moves tend to run further and fake-outs are more common, so some traders give the invalidation more room and cut size to keep the dollar risk the same: twice the distance, half the shares. When price sits near the Flip Line and the regime reads Mixed, the map is less reliable, and “no trade” is a complete plan. Price holding or breaking a zone is the confirmation a plan waits for; the level alone is never the reason. Before a plan is finished, check the unglamorous parts too: the bid-ask spread and liquidity of what you’d trade, the economic calendar, and, for options, the expiration and implied volatility.

Practice before it costs anything

Replay Trader plays a simulated session with the future hidden. You write your plan, rate how confident you are, then reveal what happened. It scores two things: whether you followed your plan, and your calibration — whether the calls you rate 70% likely come true about 70% of the time, measured with a Brier score. It models spread and slippage, and it doesn’t score profit, because one lucky session says little about skill. A Brier score of 0 is perfect; answering 50% every time scores 0.25, so a score above that means your confidence ratings are adding error rather than information. Results are simulated, not actual trading.