# Building a Trading Plan > A trading plan is your written rules for what, when and how much to trade. Learn the parts of a good plan, see a complete example and build your own. Source: https://learn.tradelabsai.com/start-here/building-a-trading-plan/ Track: Start Here · Level: Beginner · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Building a Trading Plan", https://learn.tradelabsai.com/start-here/building-a-trading-plan/ A trading plan is a written set of rules that decides what you trade, when you enter, when you exit and how much you risk. It exists so that decisions are made calmly, before a trade, instead of emotionally, during one. Traders without a plan react to every price move. Traders with one mostly follow instructions they wrote when they were thinking clearly. ## Why a written plan matters - **It removes guesswork.** When the market moves fast, you already know what to do. - **It makes results measurable.** If you always trade the same way, your [Trading Journal](https://learn.tradelabsai.com/start-here/trading-journal/) can tell you whether the method works. Random trades produce random data. - **It protects you from yourself.** Rules about risk and daily limits stop one bad day from becoming a disaster. ## The parts of a trading plan A useful plan answers these questions in writing. ### 1. Why and how much time Your goals and the time you can commit. Someone with an hour after work needs a different plan from someone watching markets all day. This decides your style, for example [Swing Trading](https://learn.tradelabsai.com/strategies/swing-trading/) rather than [Day Trading](https://learn.tradelabsai.com/strategies/day-trading/). ### 2. What you trade A short list of markets, such as five large US stocks and one index ETF, or Bitcoin and Ether only. Fewer markets means you learn how each one behaves. ### 3. Your setup The exact conditions that must be true before you enter. Write them so another person could check them. "Looks bullish" is not a setup; "price above the 50 day moving average, pulls back to a prior resistance level that is now support, and forms a bullish candle on the daily chart" is. ### 4. Entry The order type and price. For example, a [[limit-orders|buy limit]] just above the support level, or a [[stop-orders|buy stop]] above the high of the signal candle. ### 5. Exit for a loss Where your idea is proven wrong, placed as a stop order the moment you enter. See [Stop Loss Strategies](https://learn.tradelabsai.com/risk/stop-loss-strategies/). ### 6. Exit for a profit A target, a trailing stop or both. Your target should give a [Risk/Reward Ratio](https://learn.tradelabsai.com/risk/risk-reward-ratio/) that makes sense for your win rate. ### 7. Position size How much you risk per trade, usually a fixed percentage of the account, and how you turn that into a number of shares or contracts. See [Position Sizing](https://learn.tradelabsai.com/risk/position-sizing/). ### 8. Limits A maximum loss per day and per week, a maximum number of open positions and what you do when a limit is hit. See [Maximum Trade Risk and Daily Loss Limits](https://learn.tradelabsai.com/risk/daily-loss-limit/) and [Portfolio Heat](https://learn.tradelabsai.com/risk/portfolio-heat/). ### 9. Routine and review When you prepare, when you trade, when you journal and when you review. See [Trading Routine and Reviews](https://learn.tradelabsai.com/start-here/trading-routine-and-reviews/). ## A complete example plan | Item | Rule | |---|---| | Time | 45 minutes after the US close each weekday | | Markets | SPY plus 8 large US stocks with average volume above 5 million shares | | Style | Swing trades held 2 to 15 days | | Setup | Daily close above the 50 day moving average, pullback to the 20 day moving average, bullish engulfing or hammer candle | | Entry | Buy stop 0.1% above the signal candle's high, valid for one day | | Stop | 0.1% below the signal candle's low | | Target | 2.5 times the risk; trail the stop to breakeven at 1.5 times the risk | | Risk | 1% of account per trade | | Limits | Maximum 4 open trades; stop trading for the week after a 4% loss | | Review | Journal every trade the same evening; review all trades every Sunday | **Example: Turning the plan into an order** Account: $20,000, so risk per trade is $200. Signal candle high $151.20, low $147.40. Entry about $151.35, stop about $147.25, risk per share $4.10. Position size: $200 ÷ $4.10 = 48 shares. Target: $151.35 + 2.5 × $4.10 = $161.60. ## Writing your first plan Start simple. A one page plan you follow is far better than a twenty page plan you ignore. Pick one setup, write the rules, and test it on paper with [Paper Trading](https://learn.tradelabsai.com/start-here/paper-trading/). After 30 to 50 trades, review what worked and change one rule at a time. **Tip: Make it checkable** For every rule, ask: could someone else look at the chart and agree whether this rule was met? If not, make it more precise. This also makes your plan ready for the [Pre-Trade Checklist](https://learn.tradelabsai.com/start-here/pre-trade-checklist/). ## Common mistakes - **Making the plan so loose that any trade fits it.** - **Skipping the risk section.** Entries get the attention, but sizing and limits decide survival. - **Changing the plan after every loss.** Judge a plan on a meaningful sample of trades. - **Never updating it.** Review it monthly and refine rules based on journal evidence. ## Frequently asked questions ### What should a trading plan include? At minimum: markets traded, setup rules, entry, stop loss, profit target, position size, daily and weekly loss limits, and a review routine. ### How long should a trading plan be? One or two pages is enough for most traders. Precision matters more than length. ### Do professional traders use trading plans? Yes. Professional desks have mandates, risk limits and documented strategies, which are the institutional version of a trading plan. Next, turn the plan into a quick routine you run before every trade with the [Pre-Trade Checklist](https://learn.tradelabsai.com/start-here/pre-trade-checklist/). ## Continue learning - Next lesson: [Trading Journal](https://learn.tradelabsai.com/start-here/trading-journal/) - Previous lesson: [Moving From Paper to Live Trading](https://learn.tradelabsai.com/start-here/paper-to-live-trading/) - Related: [Moving From Paper to Live Trading](https://learn.tradelabsai.com/start-here/paper-to-live-trading/): How to switch from paper trading to real money safely: readiness checks, starting size, scaling up rules and how to handle the emotional jump. - Related: [Pre-Trade Checklist](https://learn.tradelabsai.com/start-here/pre-trade-checklist/): A pre-trade checklist stops impulsive trades. Use these twelve checks on setup, risk, costs, news and your own state of mind before you place any order. - Related: [Trading Journal](https://learn.tradelabsai.com/start-here/trading-journal/): A trading journal records every trade so you can find what works and what keeps costing you. Learn what to log, a template and how to review it. - Related: [Position Sizing](https://learn.tradelabsai.com/risk/position-sizing/): Position sizing decides how many shares or contracts to trade so each loss stays small. Learn the formula, worked examples for each market and common mistakes. - Related: [Risk/Reward Ratio](https://learn.tradelabsai.com/risk/risk-reward-ratio/): The risk/reward ratio compares a trade's potential loss with its potential gain. Learn the formula, how it links to win rate, break even maths and common traps. - Related: [Maximum Trade Risk and Daily Loss Limits](https://learn.tradelabsai.com/risk/daily-loss-limit/): A daily loss limit stops you trading after a set loss, preventing one bad day from wrecking your account. Learn how to set daily, weekly and per trade limits.