Build a Trading Plan

A setup is the specific situation you trade — the pattern you have studied and decided is worth your money. Examples: a pullback to the 20-day moving average in an uptrend, a breakout above yesterday's high on rising volume, a double-bottom bounce off support. Your plan starts by picking one setup. Not five, not "whatever looks good." One.

The test is simple: can you describe your setup in one sentence? If you cannot, you do not have a setup — you have a vibe, and vibes do not survive losing streaks. Write the sentence down. Then add the conditions that confirm it: the market context it needs (trending? above a moving average?), and anything that disqualifies it (earnings this week? choppy sideways market?).

Beginners resist narrowing down because it feels like leaving money on the table. The opposite is true. Trading one setup fifty times teaches you exactly how it behaves — where it fails, what it looks like on its best days, which entries work. Trading fifty different setups teaches you nothing, because you never see any of them enough times to learn. Depth beats breadth. Master one setup, add a second only when the first is consistently profitable.

Every trade in your plan has three lines drawn before you enter — never after:

• Entry trigger — the exact event that gets you in. Not "when it looks strong" but "a 5-minute candle closes above the pullback high" or "price touches the 20-day average and the next candle holds above it." If you cannot point to the trigger on a chart, it is not a trigger.
• Invalidation — the exact level where your trade idea is proven wrong, which is where your stop-loss goes (TF-105, TF-106). "Below the pullback low" beats "a little lower." The stop is not a suggestion; it is the exit you commit to before the trade starts.
• Targets — where you take profit, decided in advance. Common choices: the next resistance level, a measured move of the pattern, or a fixed reward-to-risk multiple (TF-104). Writing targets before entry stops you from holding winners until they turn into losers — and from cutting winners short out of fear.

Write these three lines for your setup in plain language, with an example chart marked up. If a trade cannot fill in all three blanks, it is not a valid trade — you pass, no debate, no exceptions. That single rule will save you more money than any indicator.

Half of a trading plan is a list of when you do not trade. Markets are not always tradeable, and you are not always tradeable. Write both lists.

Market no-trade conditions: the first 15 minutes after the open (too chaotic for most beginners), major economic announcements (jobs report, Fed decisions), earnings week for the stocks you watch, sideways choppy markets where your trend setup cannot work, holidays with thin volume. For each, write the rule: "No new trades within 30 minutes of the Fed announcement." Specific beats vague.

Personal no-trade conditions: trading while angry, exhausted, or distracted; trading after hitting your daily loss limit (TF-106 — that is already a rule); trading to "make back" a loss; trading because you are bored and the market is open. These feel embarrassing to write down, which is exactly why they must be written down. The plan is a contract with yourself on your worst day, not your best one.

Add one more line: maximum trades per day. Two or three while learning. Every trade past your best setups is, statistically, your worst decision of the day. A cap forces you to spend your trades on only the cleanest signals.

Your finished plan fits on one page. Really. If it is longer, it is a textbook, and you will not read it at 9:30 AM with the market moving. The one-page plan has five blocks:

1. My setup — one sentence plus confirmations and disqualifiers.
2. Entry trigger — the exact event.
3. Invalidation — where the stop goes.
4. Targets — where profit is taken.
5. No-trade conditions — market and personal, plus max trades per day and the daily loss limit from TF-106.

Print it. Tape it next to your monitor. Read it before every session. The plan only works if it is easier to follow than to improvise — one page, in your own plain words, is how you make following it the path of least resistance. In TF-108 you will test this plan against history before it ever touches real money.

A plan is only as good as its track record — and yours has none yet. TF-108 "Backtesting and Journaling" shows you how to audition your plan against years of market history and how to keep a trade journal that turns every trade into a lesson.