When you’re crafting a trading plan, it has to take into account what you are doing, what you want to be doing, and what your goals are as a trader.

For example, because I trade more than one system at a time, I have two levels to my trading plan:

1. My Strategic Overall Investment Plan
2. My Tactical Trading Plan

My Strategic Overall Investment Plan

Your Strategic Investment Plan Holds Your Goals, Criteria and Processes for your entire Trading Portfolio

My strategic investment plan holds my goals for my entire portfolio as a trader. What I intend to achieve, what my profit targets are, the levels of drawdown I’m willing to take, etc. It includes my time frame for getting things done (i.e. Learn xxxx, setup xxxx trading systems, by when), as well as what criteria a trading system has to pass through BEFORE it makes it to the LIVE trading stage.

Because I trade more than one system, it helps to have a birds eye view of what my plans are for my trading portfolio. My Strategic Investment Plan tells me how each system I trade might impact my overall returns, and what to expect from the individual systems.

My Strategic Trading Plan also contains the criteria I require in order for a system to qualify for live trading. For example, systems have to be profitable and robust to make money over a period of time going through different market cycles before I allocate a major chunk of my capital to them. I also state the level of drawdown I’m willing to risk per trading system, the amount of trading capital I’m allocating to a particular trading system, etc.

The purpose of my strategic trading plan is to give me that big picture view of what I want to have in my trading, what I’m currently doing, the rationale of why I’m doing what I’m doing. If you’re only trading one system, you might consider doing a strategic trading plan to cover the allocation of your trading capital and how much you are willing to risk before you stop trading that particular system.

My Tactical Trading Plan

The Tactical Trading Plan is your Trade Execution Plan

My tactical trading plan covers the details per system I’m trading. It covers both the position sizing calculations as well as the trade management parameters.

The Tactical Trading Plan tells me the parameters for the following:

Trade Selection and Other Criteria

• Checklist for items that must be fulfilled in order to qualify as a potential trade (i.e. the reason(s) for the trade)
• The Risk:Reward Ratio (the minimum in order to qualify as a trade)
• The Trade Trigger
• The Trade Entry Type (i.e. Market order, Limit Order, Stop Order)

Position Sizing Rules

• Maximum Risk per trade
• Calculating the Risk per Trade
• How many shares/contracts/lots to trade

Trade Management Rules

• Initial Stop Loss
• Trailing Stop Loss
• Time Stop Loss
• Event or Fundamental Stop Loss
• Profit Targets

In Conclusion

As you can tell, it can get quite detailed. However, it’s important to include the main criteria for your trading, especially the risk management and trade management rules. You can “pretty it up” as you go along and learn more, but get the basics of your trading plan in place. Once you’ve done that, you’ll be better equipped to handle the emotions and decisions of having a live open position.