21 Questions for a Trading Plan

Before you can trade you must first have a trading plan.  A trading plan is written while the market is closed to tell you what to do when the market is open. A trading plan tells you how to specifically execute your trading system in real time with real money. A trading plan forces discipline and consistency onto your trading by allowing you to create a framework of execution with your mind to help manage your emotions and impulses when they are activated by price action, profits, and losses.

Here are the 21 questions that you have to ask and find the answer for before you start to trade real money:

  1. What markets will you trade?
  2. What timeframe will you trade them on?
  3. What will be your entry signals?
  4. What will be your exit signals?
  5. Are your stop losses at price levels that will avoid the noise of normal price action and only be triggered when you are proven wrong?
  6. How will you use trailing stops to maximize gains?
  7. Will you have a price target or will you just leave your profits open ended?
  8. Have you back tested your entries across multiple market environments to ensure they were profitable long term?
  9. How big of a position size will you take for each trade?
  10. What do you want your maximum loss on any one trade to be?
  11. What are your goals for annual returns?
  12. What do you want to limit you maximum drawdown to?
  13. What is your expected winning percentage?
  14. What is your goal for risk/reward ratio?
  15. How many open positions will you have at one time?
  16. How much will be your maximum risk exposure at one time?
  17. How will you position size based on the underlying asset’s volatility.
  18. Will you use margin?
  19. Will you use leverage in your trading?
  20. Are the markets you are trading liquid enough and have tight bid/ask spreads?
  21. Will you keep performance records to monitor the quality of your trade executions?

These are the right questions to get you started on finding the right answers for your own personality, goals, and risk tolerance. Your trading journey should begin here.