How to Make a Trading Plan: Rules, Loss Limits and a Template

What is a trading plan, and why write it down?

A trading plan moves every decision to the moment when no money is at risk and you can still think clearly. It answers the questions a session will ask you: is this my setup, is it at a level, does it pay enough, how big, and when am I done for the day.

Once a position is open, judgment bends: a loss feels like something to fix, a winner like something to grab before it disappears. A plan written the night before turns those moments into lookups. The drawing at the top shows the idea as a flowchart: setup in the plan, at a level, R:R of at least 2, size at 1% risk, then enter. Every “no” leads to the same box: skip.

A plan does not make a method profitable and does not prevent losing trades; every setup fails often. What it does is keep each loss at the size you chose and make your results measurable, so you can tell a weak method from weak discipline. The risk management guide covers the numbers behind it.

Markets, hours and when not to trade

Start narrow: two to five liquid instruments, for example SPY, QQQ and two or three large-cap stocks, and nothing else. Fewer charts mean you learn how each one moves.

Then fix your hours. The US regular session runs 9:30–16:00 ET, which is 16:30–23:00 in Riyadh until November 1, 2026, and 17:30–00:00 after US clocks change. A hypothetical plan might trade 9:45–11:30 ET only, skipping the erratic first 15 minutes and the midday lull. Pick the timeframes too: a 1-hour chart for direction, a 5-minute chart for entries.

Then write down when you do not trade, so that decision is never made in the heat of the moment:

• Scheduled news. The monthly US jobs report and CPI come out at 8:30 ET, before the open, and the Fed announces its rate decision at 14:00 ET after each of its eight scheduled meetings a year: 15:30 and 21:00 in Riyadh until November 1, an hour later after that. Example rule: no new trades from 13:45 to 14:30 ET on Fed days.
• Earnings. No trades in a stock on the day it reports.
• Chop, defined so you can see it: “price crossed VWAP four or more times in the last hour” or “no level within reach”.
• You: tired, ill, angry, rushed or still replaying the last trade, and any day your loss limit is hit.

Setups with exact entry rules

A setup is a pattern you trade, written so precisely that two people reading it would take the same trades. “Buy strong stocks on dips” is not a rule: which stock, how strong, which dip, when to press the button? Every vague word becomes a decision made mid-session, exactly what the plan was meant to remove.

Exact rules still lose often. Hypothetical: the rules below fire, you buy the close back above support at $50.00, and three candles later price falls through the zone to the stop at $49.40. That planned −1R loss is the plan working: small and decided in advance. The plan breaks when you buy a candle that has not closed, or a stock not on your list, because it “looked ready”.

If your entry rule is a closed candle at a level, UpTickFlow, our invite-only TradingView indicator, can serve as a second check: it waits for the candle to close at a level, draws an entry, a stop and a target before the trade, scores the setup from 0 to 100 and stays quiet in chop. It does not write your plan, size your trade or place orders.

Each setup needs location (a level), confirmation (a closed candle), a stop and a size, like the checklist drawn below. A hypothetical example:

1. Trend: the 1-hour chart makes higher highs and higher lows. See multi-timeframe analysis.
2. Location: price pulls back into a support zone marked before the open, such as the prior day's high, or to VWAP. See the support and resistance strategy.
3. Confirmation: a 5-minute candle closes back above the zone. A wick through it does not count.
4. Entry: at the close of that candle. If price is already more than halfway to the target, skip.
5. Stop, target and size: set by the rules in the next section.

Stop, target and position size (fixed % risk)

The stop goes where the setup is proven wrong: just beyond the support zone and the swing low, plus a small buffer for noise. The target goes just in front of the next level that could stop the move, such as resistance or the prior day's high. Then divide: if reward ÷ risk is below your minimum, for example 2, there is no trade. The stop loss and take profit and risk/reward ratio guides go deeper.

Size comes last and is fixed as a percentage of the account, so every full loss costs the same: shares = (account × risk %) ÷ (entry − stop), rounded down. Many traders risk 1% or less per trade, and beginners often start at 0.5%.

Hypothetical: a $10,000 account risking 1% accepts a $100 loss, so 1R = $100. Buy at $50.00 with the stop at $49.40, under a support zone: $0.60 of risk per share, so $100 ÷ $0.60 = 166 shares, an $8,300 position. Resistance sits at $51.30, so the target is $51.20: $1.20 of reward, or 1:2. At the target the trade makes 166 × $1.20 = $199.20 (+2R); at the stop it loses 166 × $0.60 = $99.60 (−1R), plus costs.

The failure case: with resistance at $50.70 instead, the honest target is $50.65, $0.65 for $0.60 of risk, about 1:1.1, so the rule says skip. Keeping $51.20 “because it might break” turns the plan into a wish. And a stop becomes a market order when triggered, so a gap can cost more than 1R. The position size calculator does the arithmetic.

Daily and weekly loss limits

A per-trade limit does not stop a string of losses. A daily loss limit does: once the day's realized losses reach a set number of R, you are done until tomorrow. The drawing shows a −3R limit. Hypothetical day: the first trade makes +1R, then four trades in a row hit their stops. At −3R, $300 on the example account, the line touches the limit and the rest of the day is greyed out.

Add a weekly limit, for example −5R ($500, or 5% of the account), after which you stop until the next week and reread your journal. Set both before the session, count from the starting balance, and never raise them during the day.

The faint dotted path in the drawing is the failure case: revenge trading. After touching −3R, the trader doubles the size to win it back and loses twice more at 2R each. The day ends at −7R, $700 or 7% of the account, more than two planned worst days in one morning. The limit exists for exactly that moment, when judgment is at its worst; the trading psychology guide covers revenge trading in depth.

Your routine before and after the session

A routine makes the plan automatic: the same steps after every close and before every open. The after-close half is the journal. Before anything else, log every trade, like the page in the drawing: date, setup, entry, stop, target, result in R and a note. The three rows shown, +2R, −1R and +1.5R, add up to +2.5R. Add a chart screenshot and answer the margin question honestly: why did I take it? A trade taken outside the plan is marked as a rule break, even if it made money.

The before-open half takes about 20 minutes. A hypothetical version:

• Check the economic calendar and earnings dates; cross out anything on your no-trade list.
• Mark levels on each chart: the prior day's high, low and close, and the pre-market high and low.
• Note the 1-hour trend for each instrument: up, down or unclear. Unclear means no trades in it today.
• Set TradingView alerts at those levels so you are not watching every candle.
• Reread the plan and write today's 1R in dollars at the top of the page.
• Ask honestly whether you are rested and calm. If not, watch or skip the day.

The monthly review: when to change the plan

Change rules only at a scheduled review, never right after a loss. Once a month, or after at least 20 trades, total the journal in R: the number of trades, total and average R, rule breaks, and which setup and time of day made or lost the most.

Hypothetical month: 20 trades, 8 winners averaging +1.9R and 12 losers at −1R. That is +15.2R − 12R = +3.2R, or +0.16R per trade before costs: a thin edge, and 20 trades prove little. Past results do not predict future ones.

The failure case is changing the rules after every loss. A trader widens the stop after two stop-outs, drops the R:R minimum after a missed winner and adds a new setup after a slow day. By month-end, five versions of the plan have a few trades each, and none can be judged. Change one rule at a time, write down the date, and give it at least a month.

Add a drawdown rule, because losses are harder to recover than they look: the drawing shows that −10% needs +11% to get back to the peak, −25% needs +33% and −50% needs +100%. For example: cut the risk per trade in half after a 10% fall from the account's peak (on the example account, at $9,000 the risk drops to 0.5%, or $45), and stop to review the method after a 15% fall.

A trading plan template you can fill in

Copy this trading plan template onto one page, fill in every blank with a number or an exact condition, and keep it next to the screen. The examples in parentheses are hypothetical, not advice: pick numbers you would keep through a bad month.

1. Markets: ___ (example: SPY, QQQ and two liquid large caps).
2. Hours: ___ ET (example: 9:45–11:30).
3. Timeframes: direction ___, entries ___ (example: 1-hour and 5-minute).
4. Setup name and rules: trend ___, level ___, confirmation ___ (example: 1-hour uptrend, pullback to marked support or VWAP, 5-minute close back above).
5. Entry: ___ (example: at the close of the confirmation candle).
6. Stop: ___ (example: below the zone and the swing low, plus $0.05).
7. Target and minimum R:R: ___ (example: just before the next level; at least 1:2).
8. Risk per trade: ___% = $___ = 1R (example: 1% = $100). Size = 1R ÷ (entry − stop), rounded down.
9. Loss limits: daily ___R, weekly ___R, drawdown rule ___ (example: −3R, −5R, half size after −10%).
10. No-trade conditions: ___ (example: Fed hour, earnings day, chop, tired).
11. Routine: before the open ___, after the close ___.
12. Review date: ___. Rules change only on this date.

Why trading plans fail

Most plans fail in a few predictable ways, usually during the first bad week. Each one has a fix that can be written into the plan itself.

• Too vague. “Trade breakouts with good volume” leaves every decision to the moment. Rewrite each rule until a stranger could follow it.
• Changing the rules after each loss. Every change resets the sample, so the plan never gets tested.
• Revenge trading. Bigger size after a loss to “get it back”: the dotted path in the daily-limit drawing.
• Too many setups. One or two is plenty at first; the day trading for beginners guide starts with one.
• Size creep. Risk drifts from 1% to 2% after a few wins. Raise risk only at a review, after a full month inside the rules.
• A plan you do not read. If it is not open on the desk during the session, it is a document, not a plan.