Trading Plan Template

One of the most important things you should do as an investor/trader is to develop a written trading plan. Having a written plan takes the emotions out of investing/trading. It also provides a disciplined approach. Unfortunately, this is one step that most people don't put enough time into, if at all. Some people invest/trade without a written plan, and, IMHO, that's a recipe for disaster.

In the interest of helping everyone write their own trading plan I included a Trading Plan Template below. My own trading plan is also posted on this blog. I hope you take the time to not only read that document but also put it to use and develop your own trading plan BEFORE you place your first trade. Even if you already started trading it's never too late to write down your trading plan.

Another important reason to have a written trading plan, that most people don't think of, is for backup purposes. As investors/traders we mostly trade in isolation. You might know what you're doing and think you don't need a written plan but what if something should happen to you? Who will take over if you're unable to trade? What will happen to your open positions? These are important issues to consider. If you're married, will your spouse know what to do? Without a written trading plan, probably not. So your plan should be detailed enough, including step-by-step instructions, so that someone else can take over for you in an emergency. Share your plan with your spouse or a friend you can trust or your broker. Make sure they understand it and can execute it if needed.

Once it's written remember it's not caste in stone. It should be a living document, updated as needed. I'm on the 3rd version of my trading plan. I'm constantly tweeking it as I learn from experience, and you should too.


TRADING PLAN TEMPLATE


OBJECTIVE

Describe the objective of this trading plan (e.g. capital appreciation, current income, etc.), your return requirements, and how you will measure your results (e.g. account balance, cash flow, etc.).

STRATEGY

Describe the strategy you will use to meet your objectives (e.g. trend following, breakouts, option spreads, covered calls, etc.).

Determine the risks involved in your chosen strategy and what you will do to minimize those risks.

CAPITAL

Broker: Name of the brokerage firm
Account Type: Cash, Margin, or IRA
Capital Available: Starting capital

INSTRUMENTS

Describe the investment instruments you’ll be trading (e.g. stocks, options, bonds, indices, futures, commodities, etc.)

TIMEFRAME

Describe both the overall timeframe for this plan and the timeframe of individual trades (e.g. short, medium, or long term).

POSITION SIZING

Describe how much capital will be invested in any given trade, how much total capital will be invested and how much will be held as cash reserves (e.g. 2% per trade, 90% invested, and 10% cash reserves).

TRADE ENTRY STRATEGY

Describe, in detail, your criteria for entering a trade (e.g. technical analysis, fundamental analysis, etc.).

Describe how you will enter a trade (e.g. market order, limit order, leg in, spread, etc.) including the commission cost.

TRADE EXIT STRATEGY

Describe, in detail, your criteria for exiting a trade (e.g. technical analysis, fundamental analysis, etc.).

Describe how you will exit a trade (e.g. stop loss, market order, limit order, leg out, spread, etc.) including the commission cost.

POSITION MANAGEMENT STRATEGY

Describe, in detail, how you will manage a position once it’s entered, assuming it hasn’t met your exit criteria.

What will you do if:

1. The price is unchanged.
2. The price is slightly lower.
3. The price is significantly lower.
4. The price is slightly higher.
5. The price is significantly higher.

TAX STRATEGY (For Taxable Accounts Only)

Describe, in detail, how you will manage taxable events and, if possible, defer taxes to subsequent years (e.g. year-end tax strategies, SysCW Tax Deferred Strategy, etc.).