Trading Plan Generator

The Stats:

• 90% of traders fail (most have no plan)
• Professional traders ALL have written plans
• Plan + discipline = edge

Core Components of a Trading Plan

1. Trading Goals & Mindset

• Financial goals (realistic)
• Time commitment
• Risk tolerance
• Trading philosophy
• Success definition

2. Risk Management (MOST IMPORTANT)

• Maximum risk per trade (1-2% recommended)
• Maximum daily loss limit
• Maximum drawdown tolerance
• Position sizing rules
• Stop-loss requirements
• Risk/reward minimums

3. Market Selection

• What markets you trade (stocks, forex, crypto, options)
• Liquidity requirements
• Price range preferences
• Sector focus (if any)
• What you DON'T trade

4. Trading Setup Criteria

• Entry signals (technical/fundamental)
• Confirmation requirements
• Timeframes used
• Pattern recognition
• Market condition filters

5. Entry Rules

• Exact entry triggers
• Order types (market, limit, stop)
• Position sizing calculation
• Scaling in (if allowed)
• Time-of-day restrictions

6. Exit Rules

• Stop-loss placement (hard rules)
• Take-profit targets
• Trailing stop strategies
• Time-based exits
• Scaling out rules
• Break-even stops

7. Trade Management

• When to adjust stops
• When to add to position
• When to reduce size
• When to exit early
• Never scenarios (what you never do)

8. Psychology & Discipline

• Pre-market routine
• Emotional state check
• Tilt recognition
• Break requirements
• End-of-day review
• Accountability measures

9. Performance Tracking

• Trade journal requirements
• Metrics to track
• Review frequency
• Improvement process
• Strategy adjustment criteria

Risk Management Frameworks

The 1% Rule (Recommended for Most Traders)

Never risk more than 1% of account on single trade

Example:

• Account size: $50,000
• Maximum risk per trade: $500 (1%)
• Stock entry: $100
• Stop-loss: $98
• Risk per share: $2
• Position size: $500 / $2 = 250 shares
• Total position: $25,000 (50% of account)
• Actual risk: $500 (1% of account)

Benefits:

• Can survive 20+ consecutive losses
• Removes emotion from sizing
• Consistent risk across trades
• Protects capital

The 2R Minimum Rule

Only take trades with 2:1 reward-to-risk or better

Example:

• Entry: $100
• Stop: $98 (risk = $2)
• Target: $104 (reward = $4)
• R:R = 2:1 ✅

Why it matters:

• Can be profitable with 40% win rate
• Forces selective trading
• Improves overall edge

Maximum Drawdown Limit

Hard stop trading if down X% from peak

Recommendations:

• Conservative: 10% drawdown → stop trading
• Moderate: 15% drawdown → stop trading
• Aggressive: 20% drawdown → stop trading

When hit:

1. Stop trading immediately
2. Review all trades
3. Identify mistakes
4. Paper trade until recovered mentally
5. Resume with reduced size

Trading Styles

Day Trading

Definition: Open and close all positions same day

Characteristics:

• Multiple trades per day
• No overnight risk
• Pattern Day Trader rules ($25K minimum)
• High screen time requirement
• Quick decisions

Best for:

• Full-time traders
• High risk tolerance
• Quick decision makers
• Pattern recognition skills

Key rules:

• Never hold overnight
• Reduce size near close
• Stop trading after daily loss limit
• First 30 min often volatile

Swing Trading

Definition: Hold positions 2-10 days

Characteristics:

• 2-5 trades per week
• Overnight risk acceptable
• Part-time friendly
• Technical + fundamental mix

Best for:

• Part-time traders
• Day job professionals
• Trend followers
• Patient traders

Key rules:

• Always use stop-losses
• Check positions before/after market
• Respect earnings dates
• Weekend gap risk consideration

Position Trading

Definition: Hold positions weeks to months

Characteristics:

• Long-term trend following
• Fundamental focus
• Low trade frequency
• Larger position sizes

Best for:

• Investors with edge
• Low time availability
• Fundamental analysts
• Macro trend followers

Key rules:

• Wide stops (volatility-based)
• Focus on major trends
• Ignore daily noise
• Strong thesis required

Entry Strategies

Technical Entry Methods

1. Breakout Entry

• Price breaks above resistance
• Increased volume confirmation
• Wait for pullback or buy breakout
• Stop below breakout level

2. Pullback Entry

• Wait for trend pullback
• Enter at support/moving average
• Continuation confirmation
• Stop below support

3. Reversal Entry

• Identify overextended move
• Look for reversal signals
• Multiple confirmations required
• Wider stops needed

4. Pattern Completion

• Specific pattern (flag, triangle, etc.)
• Pattern completion signal
• Volume confirmation
• Target based on pattern

Fundamental Entry Triggers

For Stocks:

• Earnings surprise
• Guidance raise
• Product launch
• Sector rotation
• Insider buying
• Short squeeze setup

For Macro:

• Fed policy change
• Economic data surprise
• Geopolitical event
• Seasonality

Exit Strategies

Stop-Loss Methods

1. Percentage Stop

• Fixed % below entry
• Simple and clear
• Example: 2% below entry

2. Support/Resistance Stop

• Below key technical level
• Makes technical sense
• Varies by setup

3. ATR-Based Stop

• 1.5-2x Average True Range
• Adapts to volatility
• Prevents whipsaw

4. Time Stop

• Exit if no progress in X days
• Frees up capital
• Prevents dead money

Take-Profit Methods

1. Fixed R Multiple

• 2R, 3R, 4R targets
• Predetermined exit
• Consistent methodology

2. Technical Target

• Previous resistance
• Fibonacci extension
• Measured move
• Pattern target

3. Trailing Stop

• Move stop as profit grows
• Lock in gains
• Ride trends longer

4. Partial Profits

• Take 50% at 2R
• Trail remaining 50%
• Reduces regret
• Balances risk/reward

Position Sizing Formulas

Fixed Dollar Risk

Position Size = Account Risk $ / (Entry - Stop)

Example:
- Account: $50,000
- Risk per trade: $500 (1%)
- Entry: $100
- Stop: $97
- Risk per share: $3
- Shares: $500 / $3 = 166 shares

Fixed Percentage Risk

Position Size = (Account × Risk %) / (Entry - Stop)

Example:
- Account: $50,000
- Risk: 1%
- Entry: $50
- Stop: $48
- Risk per share: $2
- Shares: ($50,000 × 0.01) / $2 = 250 shares

Kelly Criterion (Advanced)

Position Size % = (Win Rate × Avg Win - Loss Rate × Avg Loss) / Avg Win

Example:
- Win rate: 55%
- Avg win: $500
- Loss rate: 45%
- Avg loss: $300
- Kelly: (0.55 × $500 - 0.45 × $300) / $500 = 28%
- Use 1/4 Kelly = 7% position size (conservative)

Warning: Kelly can be aggressive, use fractional Kelly

Trading Psychology

Pre-Market Routine

• Review previous day's trades
• Check overnight news
• Identify key levels
• Plan potential setups
• Check emotional state
• Confirm risk limits

Emotional State Check

Don't trade if:

• Angry or frustrated
• Desperate for money
• Revenge mindset
• Distracted or tired
• Overconfident
• Fearful

Green light to trade:

• Calm and focused
• Following plan
• Accepting of losses
• Patient for setups
• Clear-headed

Tilt Recognition

Warning signs:

• Increasing position size
• Abandoning stops
• Taking marginal setups
• Revenge trading
• Checking P&L constantly
• Breaking rules

When tilting:

1. Stop trading immediately
2. Close all positions
3. Take a break (hour/day/week)
4. Review what triggered it
5. Return when calm

Daily Loss Limit

Critical rule: Stop trading at daily loss limit

Example:

• Daily limit: -2% of account
• Account: $50,000
• Stop at: -$1,000 loss

Why it matters:

• Prevents blowup days
• Forces you to stop tilting
• Tomorrow is another day
• Protects capital

Market Conditions & Filters

When to Trade

• Market trending clearly
• Volatility in normal range
• Volume above average
• Your setups present
• Clear technical levels
• Emotional state good

When NOT to Trade

• Choppy, rangebound market
• Major news pending (FOMC, etc.)
• Low volume (holidays)
• Extreme volatility
• No clear setups
• Emotional/tilting

Market Regime Recognition

Bull Market:

• Buy dips
• Longer holds
• Reduce short exposure
• Follow momentum

Bear Market:

• Sell rips
• Shorter holds
• Reduce long exposure
• Focus on defense

Sideways/Choppy:

• Reduce size
• Take quick profits
• Avoid breakout trades
• Trade ranges

Performance Tracking

Metrics to Track

Win Rate:

• % of trades profitable
• Target: >50% for day trading, >40% for swing

Average Win vs Average Loss:

• Avg $ won on winners
• Avg $ lost on losers
• Should be 1.5:1 or better

Profit Factor:

• Gross profit / Gross loss

• 1.5 is good, >2.0 is excellent

Expectancy:

• (Win Rate × Avg Win) - (Loss Rate × Avg Loss)
• Must be positive to be profitable

Maximum Drawdown:

• Largest peak-to-trough decline
• Track and improve over time

Sharpe Ratio:

• Return / Volatility

• 1.0 is good

Trade Journal Requirements

For each trade log:

• Date and time
• Ticker/instrument
• Entry price and size
• Stop-loss and target
• Exit price and reason
• P&L ($ and %)
• Setup/pattern
• Market condition
• Emotional state
• Mistakes made
• Lessons learned
• Screenshot

Review Schedule

Daily:

• Review all trades
• Calculate P&L
• Note mistakes
• Plan next day

Weekly:

• Calculate weekly metrics
• Identify patterns
• Best/worst trades
• Rule compliance %

Monthly:

• Full performance review
• Strategy adjustments
• Goal progress
• Mindset check

Common Mistakes to Avoid

❌ Fatal Errors

1. No Stop-Loss

• One bad trade can wipe account
• ALWAYS use stops
• No exceptions

2. Overleveraging

• Position size too large
• Can't handle normal volatility
• Forced exits at worst time

3. Revenge Trading

• Trading to "get back" losses
• Emotional decisions
• Breaks all rules

4. Moving Stops

• Moving stop to avoid loss
• Invalidates risk management
• Path to blowup

5. Averaging Down Losers

• Adding to losing position
• Doubles down on mistake
• Increases risk dramatically

6. No Plan

• Winging it
• Inconsistent decisions
• Can't improve

✅ Best Practices

1. Risk < Reward

• Always 2:1 R:R minimum
• Selective trading
• Math works in your favor

2. Consistent Sizing

• Same risk each trade
• Removes emotion
• Sustainable growth

3. Follow Your Plan

• Even when uncomfortable
• Trust the process
• Track compliance

4. Take Breaks

• After losses
• When tilting
• Regularly

5. Keep Learning

• Review trades
• Study markets
• Adapt and improve

Using This Skill

Generate a Trading Plan

./scripts/generate_plan.sh

Interactive workflow guides you through:

1. Trading style and goals
2. Risk management rules
3. Market and setup selection
4. Entry and exit criteria
5. Psychology and discipline
6. Performance tracking

Validate Your Plan

./scripts/validate_plan.sh path/to/plan.md

Checks for:

• Risk management defined
• Position sizing rules
• Entry/exit criteria
• Stop-loss requirements
• Performance tracking
• Completeness

Calculate Position Size

./scripts/position_calculator.sh

Quick calculator for:

• Shares based on risk
• Risk amount
• R:R ratio
• Compliance check

Access References

references/risk_management.md - Complete risk frameworks
references/trading_psychology.md - Mental game and discipline
references/technical_setups.md - Chart patterns and entries
references/performance_metrics.md - Tracking and improvement

Trading Plan Checklist

• Clear trading goals defined
• Risk per trade specified (1-2% recommended)
• Daily loss limit set and hard stop
• Position sizing formula defined
• Markets traded clearly identified
• Entry criteria specific and measurable
• Stop-loss rules mandatory for every trade
• Take-profit strategy defined
• Trade management rules for scaling
• Emotional checks before trading
• Trade journal template ready
• Performance metrics to track
• Review schedule committed to

Quick Start

Beginner Trader Template

• Risk: 0.5% per trade
• Style: Swing trading
• Daily loss: -1.5%
• Minimum R:R: 3:1
• Simple technical setups
• Conservative sizing

Experienced Trader Template

• Risk: 1-2% per trade
• Style: Your preference
• Daily loss: -3%
• Minimum R:R: 2:1
• Advanced setups
• Discretionary management

Important Disclaimers

This skill provides frameworks, not financial advice.

• Trading involves substantial risk
• Past performance ≠ future results
• Only trade with risk capital
• Educate yourself thoroughly
• Consider working with professionals
• Comply with all regulations
• You are responsible for your decisions

Risk Warning:

• You can lose all your capital
• Leverage amplifies losses
• Emotional control is critical
• No guaranteed profits
• Most traders lose money

Best Practices

1. Start Small

• Paper trade first
• Then micro positions
• Prove profitability
• Then scale up

2. Focus on Process

• Not on money
• Follow rules
• Track metrics
• Improve systematically

3. Protect Capital

• Risk management first
• Survive to trade tomorrow
• Slow and steady wins

4. Stay Disciplined

• Plan your trades
• Trade your plan
• No exceptions
• Review constantly

5. Keep Learning

• Markets evolve
• Adapt strategies
• Learn from mistakes
• Study the best

Summary

A trading plan is your blueprint for success. It:

• Protects your capital with risk management
• Guides decisions with clear rules
• Controls emotions through discipline
• Tracks performance for improvement
• Builds consistency over time

Remember: The goal isn't to get rich quick. It's to trade consistently, manage risk properly, and compound gains over time.

"Plan your trade, trade your plan, and manage your risk. Everything else is noise."