Make a Plan

Having a trading plan is key to becoming a successful trader. A plan lets you know when to trade, when to take profits or cut losses and helps you set P/L goals. Below are a few steps to creating your own trading plan, taken from ig.com.

1. Outline your motivation: What is your reasoning for wanting to trade? Why do you want to become a trader?

2. Decide how much time you can commit to trading: Figure out how much time you want to commit to trading. Are there certain hours you want to trade or avoid trading?

3. Define your goals: How much money do you realistically plan to make? How much would you have to profit a day, month or year to reach this goal?

4. Choose a risk-reward ratio: How much do you plan to risk going into a trade? How much are you willing to lose if the trade fails to go in your direction?

5. Decide how much capital you have for trading: How much money can you afford to add to your trading account? How badly would it hurt financially if you lost it all?

6. Assess your market knowledge: What strategy do you plan to use while trading? Make a detailed list of when you should take trades or when you should avoid them.

7. Start a trading diary: Keep track of your trades using trade journal software or excel. Write down any thoughts you have for each trade. Review your journal to find common trends. 

Turn your plan into rules you can follow

A plan only helps if it is specific enough to follow in the middle of a fast market. “Trade carefully” is not a rule. These are:

• “I trade MNQ from 9:30 to 11:30 a.m. Eastern and nothing after.”
• “I risk no more than 1% of my account on any trade, and every trade has a stop before I enter.”
• “After two losing trades in a row, or a loss of $300 for the day, I stop trading until tomorrow.”
• “I do not enter a new trade in the five minutes before or after a scheduled report like CPI or an FOMC announcement.”

Write rules like these down and keep them where you can see them while you trade.

A simple way to size every trade

Position size should come from your risk, not from how confident you feel. Decide the dollar amount you will risk, measure the distance to your stop, and divide:

Contracts = dollar risk / (stop distance in ticks x tick value)

Example: you will risk $100 and your stop is 20 ticks away on the Micro E-mini S&P 500 (MES), where one tick is worth $1.25. Each contract risks 20 x $1.25 = $25, so you can trade 4 contracts. If the stop needs to be 40 ticks away, the same $100 allows only 2. Our What are Futures? article explains ticks and tick values for the common contracts.

A pre-market checklist

1. Check the economic calendar for reports and speeches during your trading hours.
2. Mark the levels you care about before the open: prior day high, low and close, the overnight range, and any major support and resistance.
3. Decide what you expect and what would prove you wrong.
4. Confirm your platform is connected, your account is the one you mean to trade, and your stop and target settings are loaded.
5. Check how you feel. Tired, angry or rushed is a reason to trade smaller or not at all.

Review the plan every week

Once a week, read your trading journal and answer three questions: Did I follow my rules? Which setups made money and which lost it? What one change will I make next week? Change the plan in small steps, and only on evidence from your journal, not after one bad day.

Let the platform enforce the hard rules

The rules you are most likely to break are the ones that matter most: the stop and the daily loss limit. In NinjaTrader, an ATM Strategy places your stop and target the moment you enter. Our Account Risk Manager enforces a daily loss limit and profit goal on each account and closes positions when a limit is reached, so the plan holds even on the days you would rather not follow it. For the emotional side of sticking to a plan, read Emotions and Psychology.