Beyond a Trading Plan

Trader's Mindset

Aug 12

Beginners are taught the importance of developing a trading plan. The problem with a trading plan is that most trading plans will read like a wish-list. They are not likely to be based on facts or empirical evidence. Example of a well-intentioned but poor trading plan:

My plan is to trade the ES using tape reading/order flow. I will only trade the morning session. I will risk max 2 points per trade and will target to average $500 per day trading max 2 lots. I will take a max of 3 trades per day. I will risk max $300 per day.

But, what’s wrong with this trading plan?

  • Specific rules do not allow for adapting to changing market conditions.
  • Profit target is too big for the number of contracts traded and risk limit.
  • There is no “development” path. No end point or evaluation or target. It is not a work in progress but a wish list.

Let’s look at a better but similar plan. Instead of rules, we shift the focus to principles. We add targets and end points and we make the plan more realistic:

Markets Traded
I will focus primarily on the ES but will trade other equity index futures depending on volatility and opportunity. I will require at least 2 weeks of simulator experience or a system for any non equity index future.

Times Traded
I will primarily focus on the morning session and will later shift to strategy development, more conservative graybox trading, or sim trading.

I will trade in a disciplined way. Every trade will have a stop loss. I will not attempt to “load the boat” on a single trade whether it has a large edge or small edge. I will bet more on my best trades but in a disciplined and strictly controlled manner.  I will risk $750 per day and target 20%-40% return on risk or around $200-$250 per day. If I have closed profits over $200 on the day, I will become more conservative and may stop for the morning session and move to either simulator, research, or only take system trades.  I will focus on the morning session but will work on developing my ability to trade other times by working on new systems and processes. Depending on volatility and opportunity, I may break the day in up to 3 or 4 sessions with individual risk limits but will never risk more then my daily loss limit.

Scaling Plan
I will start with a maximum of 2 lots. Normal trades will be entered with 1 lot. High confidence trades with 2 lots. I will add an additional lot for every +$3,000 in profit.

Goals, Improvement, Revision
I will set a goal to work for something to work on every week. I will evaluate and score how I did on my goal every week. Every 30 days, I will re-evaluate my plan and revise as necessary.  I will develop new grayboxes and track my results with them.

Final Evaluation
After 90 days, I will do a serious evaluation to see if the plan is still working and will analyze critically ways to improve or adjust the plan to make it work better.


Ideally, you can make a sort of mini-plan or evaluation for every graybox or methodology you trade. Take ways:

  • Prefer principles over rules
  • Prefer goals over plans
  • Prefer making some money over losing money (don’t oversize!)
  • Use intuition where it works, trade ideas but keep it out of the money management (where it doesn’t work)
  • Be flexible
  • Evaluate and look for ways to improve
  • Be willing to fail a methodology without failing yourself.




About the Author

The author is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact the author at