A trading plan defines as a systematic method for identifying and trading securities that takes into consideration variety of variables including time, risk and therefore the investor’s objectives. A trading plan outlines how a trader will find and execute trades, including under what conditions they’re going to buy and sell securities, how large of an edge they’re going to take, how they will manage positions while in them, what securities can be traded, and other rules for when to trade and when not to.
Most trading experts recommend that no capital is risked until a trading plan is formed. A trading plan is a researched document that guides a trader’s decisions.
A trading plan refers a road map for a way to trade, and no trades should be placed without a well-researched plan. The plan is written down and followed. It is not altered unless it’s found to not work (make money) or the trader finds how to enhance it.
A basic trading plan includes entry and exit rules, also as risk management and position sizing rules. The trader may add additional rules at their discretion to control when and how they trade.