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How to Write a Trading Plan: The 7 Ingredients (With Template)

Last updated: 3 July 2026 · By Spencer Li, CFTe

A trading plan is a written rulebook that decides, in advance, exactly what you will trade and how, so that when the market opens you only have to execute, not strategize. A complete plan has seven ingredients: your trading style, your timeframe, the product you trade, your risk management rules, your type of analysis, your type of strategy, and your trade-execution rules (entry, stop loss, target). Two bonus ingredients are worth adding once the core is in place: evaluation metrics and a short list of trading-psychology rules. The point of all of this is one thing. It separates the planning phase from the execution phase, so you are not trying to think and trade at the same time.

Here is each ingredient, in the order I would build them, with the numbers and rules that matter most.

What is a trading plan, and why do you need one?

If you have ever tried to start a business, you know you need a business plan: the A to Z of what you will do, the steps, the strategy, all of it on paper before you spend a dollar. Trading is no different. The plan is what you write before the money is on the line, so the decisions are made when you are calm rather than when price is moving and your heart rate is up.

The whole purpose is to separate the execution phase from the planning phase. The moment the market opens, you should be focused on executing a plan you already wrote, not building one on the fly. Try to do both at once and you will not do either one well.

The 7 ingredients at a glance

#	Ingredient	The question it answers	Quick rule of thumb
1	Trading style	How much time can I give this?	Lots → day trading · 1-2 hrs/day → swing trading · very little → position trading
2	Timeframe	Which chart do I watch?	Day → 5m/15m/1h · Swing → 1h/4h/daily · Position → daily/weekly/monthly
3	Product	What do I trade?	Pick one that fits your style and personality (forex, stocks, bonds, commodities, crypto, options)
4	Risk management	How much do I put at risk?	~1-2% per trade · keep total open risk under 5% · cap monthly drawdown
5	Type of analysis	How do I read the chart?	Price action, classical charting, technical indicators (learn all three, combine them)
6	Type of strategy	What kind of setup is this?	Breakout, trend-following, counter-trend, or market reversal
7	Trade execution	Where exactly do I act?	Entry, stop loss, target price (set all three before you click buy)

Ingredient #1: Trading style

The first thing to settle is your preferred trading style, and the main deciding factor is honest: how much time can you actually give this?

There are three main styles. Day trading means going in and out of the market within the day. It suits you if you trade full-time or have plenty of time, and if you genuinely like a fast-paced environment and quick decisions. Swing trading means holding for the medium term, days to weeks, and it fits a part-time trader with an hour or two a day. Position trading means long-term holds that last weeks or months, and it is the most effective choice if you have very little time, because it does not ask you to read charts day to day.

Personally, I teach swing trading, because most people are not full-time and an hour a day is realistic. Pick the style that fits your real schedule, not the one that sounds most exciting.

Ingredient #2: Trading timeframe

Your timeframe (the chart interval you make decisions on) follows directly from your style.

Day trading → an intraday timeframe: the 5-minute, 15-minute, or 1-hour chart.
Swing trading → the hourly, 4-hour, or daily chart.
Position trading → the daily, weekly, or even monthly chart.

Get the pairing right and the rest of the plan gets easier. A swing trader staring at a 5-minute chart all day has effectively become a day trader by accident.

Ingredient #3: Product selection

The third ingredient is the product: the market you choose to specialize in. It could be forex, stocks, bonds, commodities, derivatives, cryptocurrencies, or options, among others.

There are many products, so the job is to find one that suits your trading style, suits your personality, and is something you will genuinely get familiar with. Spreading yourself across everything at once is how you end up knowing none of them well.

Ingredient #4: Risk management

This is the part that decides how you allocate your resources, and it is the ingredient most beginners underbuild.

Start with your starting capital, the amount you begin with, because it sets your trade size and the risk per trade. A common rule is to risk 1 to 2% of your capital per trade. If you start with $10,000 and risk 2%, that is about $200 per trade.

Then there is open risk, which is the part people forget. Open risk is the total you would lose if every position you have open right now got stopped out at the same time. If you risk 1% per trade and hold five trades that all go sour together, you lose 5%. That 5% is your open risk.

Worked example. Risk per trade: 1%. Open positions: 5. If all five stop out at once → 5% gone. Keep open risk under 5% so a single bad day cannot take a large chunk of your capital.

Finally, cap your monthly drawdown. You do not want to lose a big slice of capital in one period, because if this month wipes you out, there is nothing left to trade next month. If a month is going badly, the sensible move is often to step away from the screen and come back to fight the next month.

Ingredient #5: Type of analysis

The next category is the type of analysis you will use. There are three main types: price action, classical charting, and technical indicators.

Each is a deep topic on its own (I have separate tutorials on all three). You should decide which one you will specialize in, but most of the time the right answer is to learn and master all three, because in practice you combine them. That combination is what leads you into your strategies, which is ingredient #6.

Ingredient #6: Type of strategy

Personally, I find that most trading strategies fall under four main categories. Knowing which one a setup belongs to tells you its strengths and weaknesses before you take it.

Breakouts are when price breaks to new highs or new lows.
Trend-following is finding a way to ride a strong trending market, usually by entering on pullbacks.
Counter-trend is targeting extremes, where the market has gone too overbought or too oversold. Pinpointing those is the essence of counter-trend trading.
Market reversals are the big turns. They do not happen often, but when one does, you want to catch it, because it changes the major trend.

Every setup you take should map cleanly onto one of these four. If you cannot name which category a trade belongs to, you do not yet understand the trade.

Ingredient #7: Trade execution

The final ingredient is execution, and it comes down to three parameters you must set before you enter: the entry, the stop loss, and the target price.

The trade entry is the price you get in at, decided by the strategy and setup you are using. The stop loss is the price you get out at to protect and limit your loss; decide in advance whether you are using a fixed stop, a trailing stop, or another type, and write it into the plan. The target price is where you take profit if the trade goes your way. Have preset rules for it: how you project a target, and where you scale out or exit fully.

If any of these three is undecided when you click buy, you are not executing a plan. You are improvising.

Bonus ingredients: metrics and psychology rules

Once the seven core ingredients are in place, two extras are worth adding.

Evaluation metrics, so you can measure and improve your trading over time rather than guessing whether you are getting better. And trading-psychology rules, a short list of guardrails to stop the cognitive biases and tilt-driven mistakes that wreck otherwise-good plans.

Where the human edge comes in

Here is the quiet point underneath all seven ingredients. A tool can scan markets, flag setups, and even draft an entry, stop, and target for you. What it cannot do is the thing the plan exists for: make you actually follow the plan when the market is moving and the temptation is to override it. The plan is the easy part to write. Executing it without re-strategizing mid-trade is discipline, and discipline is one of the Five Edges no tool will trade for you.

FAQ

What should a trading plan include?
At minimum, seven ingredients: your trading style, your timeframe, the product you trade, your risk-management rules, your type of analysis, your type of strategy, and your execution rules (entry, stop loss, target). Add evaluation metrics and psychology rules once the core is set.

How much should I risk per trade?
A common rule is 1 to 2% of your capital per trade. Just as important, keep your total open risk (everything you would lose if all open trades stopped out at once) under 5%, and cap your monthly drawdown so one bad month does not end your trading.

What is open risk in trading?
Open risk is the combined loss you would take if every position you currently hold got stopped out at the same time. If you risk 1% per trade across five open trades, your open risk is 5%.

What are the four types of trading strategy?
Breakouts, trend-following, counter-trend, and market reversals. Naming which category a setup falls under tells you its strengths and weaknesses before you take it.

Do I really need a written trading plan?
Yes. The plan’s whole job is to separate planning from execution, so that once the market opens you are only executing decisions you already made calmly, not strategizing under pressure.

Now that you have the seven ingredients, which one is weakest in your current plan? Most traders find it is #4, risk management. Let me know in the comments.

And if you want the full method behind these ingredients, read the pillar: The Definitive Guide to Swing Trading.

Want a plan you can actually run in 15 minutes a day? Grab the free 15-Minute Swing Trading Starter Kit. It is the exact routine I use to scan once a day and trade any market in 15 minutes, with the risk rules already built in.

About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe) with 15 years of trading across stocks, forex, crypto, commodities, and bonds. His trade log is public, 404 trades, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.

Education, not financial advice. Synapse Trading is not licensed by MAS to advise on investment products. Trading carries risk of loss; past performance is not indicative of future results.

Definitive Guide to Swing Trading (pillar) · How to manage risk in trading · Price action vs indicators · Trading psychology rules