The ultimate Trading Plan That Makes You Money
5 Steps Towards Financial Freedom (2021 Edition)


Updated 2021

This 5 Step process will teach you everything you need to know to create your own trading plan.

Lots of examples.

Easy to follow and complete.

Plus 4 new exercises for additional clarity and focus.

Discover the importance of a trading plan today...
5 Step Process For Creating a Successful Trading Plan

Step 1:
The Importance Of A Good Trading Plan And Why It Is Critical To Your Success

In this step you'll learn why a trading plan is absolutely critical to your success...

Just about every successful trader has a trading plan and...

Every failed trader doesn't

Specifically, I'll show you exactly what you need to succeed, why you need it, and how to personalize it for your own success.

Let's get started...
Step 1 - Why a Good Trading Plan?

why do you absolutely need a trading plan


“A goal without a plan is just a wish.”
― Antoine de Saint-Exupéry

The importance of a good trading plan.

I think one of the main reasons so many people fail at trading is that they don’t invest the time to write a trading plan for their success.

What do I mean by that?

Every profession uses some sort of a plan.

Doesn’t matter if you are a pro football team - you don’t hit the field without a game plan.

Sports Game Plan

An actor doesn’t hit the stage without a script.

Actor Always Has A Script

Rare is the entrepreneur who succeeds without a business plan,

Entrepreneur Business Plan

...My point being your success is greatly influenced whether or not you have an intentional plan to succeed. You are not leaving your success to the winds of fate.

You can learn to trade from so many different sources today. You can read books, watch youtube videos, join mentor programs, and even just sit at home doing your own analysis.

Very few of these online trading plans even mention a trading plan, let alone how to write one that will help you succeed.

That is why I believe the majority of home (retail) traders probably don’t write a trading plan.

It also explains the +99% failure rate in home traders.

Success Leaves Clues

I’ve always believed success leaves clues.

If you do just even a quick search among trading professionals you will see that the trading plan is the foundation of their success:

Without a plan you are just meat for the grinder.

You have no guide rails, no way to evaluate your performance, no, well, no nothing.

5 Reasons A Trading Plan Is Critical To Your Success

1. By Nature You Will Constantly Seek Out The Easy Button.

A trading plan prevents shiny object syndrome. If you have spent any time online, learning to trade you will know that there is an endless amount of trading opinions, trading systems, videos, books, forums, mentors, you name it. You will never even scratch the surface of what you could learn about trading in ten lifetimes.

All this information is incredibly distracting. You will constantly be pulled in one direction or the other. I call this shiny object syndrome or ‘squirrel’.

If you commit to following the steps in this guide, I promise you that your finished trading plan will help you stay focused and reach your goals.

2. Slay The Emotional Dragon.

Slay The Emotional Dragon

A trading plan tames your emotions. If you’re just starting and have never put real money into a trade you might not understand just how powerful your emotions can be. For beginner traders, amateurs, and even most professionals - emotions can be your greatest enemy in trading.

Your trading plan is your defense against the emotional roller coaster of trading

3. Build A Castle, Not A Sandcastle.

A trading plan gives you a foundation to learn and grow upon. This goes hand in hand with reason #1, the endless choices around trading.

When you have completed and committed to your trading plan you will have everything you need to get your baseline results.

Only from this can you begin to learn and grow.

You will make mistakes, lots of them.

But if you don’t create the baseline plan to learn from, you will wander down endless roads to ruin.

4. Build The Habits Of Success.

Create New Habits

A trading plan creates the habits of success. I don’t know if I believe it or not, but they say it takes 21 days to make or break a habit. The condition on this is that you have to perform the habit every day for 21 days. This means constant and consistent practice.

Without a trading plan you will not have any consistency. One day you trade this market, the next day that market.

One day options, the next forex.

You see the pattern.

No habits will form from this behavior.

Only when your trading plan is followed will you find and create the habits that will bring you success for the rest of your life.

5. Become The Author Of Your Success.

And most important, a trading plan protects your mental story. This is the dark side of reason #2.

You're dealing with very powerful emotions in trading… fear and greed.

If they take hold of you it is very difficult to break free.

In their clutches your mental story can change. The story you tell yourself on a daily basis that will shape your life.

We all have the internal demons or angels.

The story you run in your head will end up being the reality you create for yourself and your family.

It is critical you protect these stories and make them as positive as possible.

Learn and grow.

Let Me Tell You A Story

If you don't have a trading plan....

The HFT (high frequency trading programs), algos, and the real professionals will just sit back, laugh, and take your money.

You have no control at all.

You will enter trades when you shouldn’t, you will add more money to losing trades.

Your emotions will run wild and ruin you.

One day you could win, but the majority of days you will lose and eventually blow your account.

Target Stock Bomb

How do I know this?

I have been there. 

In my trading career I have studied with master traders, read every trading book I could get my hands on, watched countless hours of video lessons, and spent countless hours in front of charts backtesting.

By all means, I should have been successful.

But I wasn’t.

I had wins, some great weeks and months even.

It didn’t matter, in the end

I blew through several accounts.

More money than most people earn in decades.

See, in trading you are dealing with two factors that make it unlike any other ‘business’ or ‘profession’ in the world…

Unique Factor 1 - fear and greed

Trading is a solitary activity. You are making the decision to open the trade or not. You are deciding how much you are willing to lose and how much you can make. You are writing the rules, printing the money.

Because of this, you are tapping into very raw emotions - and powerful ones at that.

Fear is by far the most powerful, base, crocodile brain emotion you have. And when you’re trading, you are tapping into the survival fear mode.

Fear and The Croc Brain

I would be willing to bet that most newer traders are using funds they can’t really afford to lose. Because of this, every trade takes on significance of unreal proportions.

To add pressure, you throw in ego, which there is plenty of in trading, and you get some seriously crazy states. Those voices in your head will become unbelievably loud and cruel.

Throughout this course I’m going to discuss how I learned to slay these emotional dragons and get my trading to a near mechanized, emotionless state.

Sounds funny, but you really want to make trading BORING.

Unique Factor 2 - The Only Zero-Sum Game

Most people fail to realize is that trading is a zero-sum game and what that means.

In order for you to win, someone else has to lose.

I’m not talking about stock investing here, I’m talking about trading. Be it options, futures, etc. Someone else almost always has the other side of the trade and they want to win as badly as you do.

Wall Street and hedge funds hire only the best and brightest. They spend fortunes on supercomputers for analysis and trade execution.

Do you think a company that invests $400 million dollars to gain a 5/1,000 microsecond advantage cares about anything but making money? Do you think you have a chance at beating funds like this?

And they are all like this.

Institutions pay hundreds of millions of dollars for the smallest of advantages.

Popular Mechanics Magazine

Popular Mechanics -

If you think you are going to beat them, you are sorely wrong. All you can do is wallow in their wake and do your best around them. Your hope is to join them, not beat them.

Don’t ever forget that whenever there is that much money at stake the smartest people in the world will do anything they can to get every cent they can.

You cannot beat them, you can only join them.

And your trading plan is your way to join them.

Your trading plan is going to be the foundation that will help you build a successful trading system and the lifestyle you can only dream of.

Now you have a choice to make…

Will you invest in yourself for the next five steps?

Will you take the time and put in the effort to create the life of your dreams?

Will you create a winning trading plan, or will you move on and try to succeed without one?

Step 2:
Your Vision And Values And Why You Have To Have Them

If I asked you right now to list your top 3-5 core values could you do it?

Do you know what they mean to you and why?

If you are like me, you spent most of your life defining success, your own sense of happiness and well-being by the values of other people.

It is about time you define your own values...
Step 2 - A Trading Vision and Values

The “keeping up with the Jones” kind of beliefs

That if I only had enough success,

enough money,

more time to spend with the kids,

the nicer car,

the better job, that my life would finally be fulfilling and I would be happy...

But then, as I slowly and tediously got what I thought would make me happy, I realized that there was always the nicer car, the better house, or the better job. I’m not saying that these are not of value to me, but in the end, they were not what I truly valued.

It wasn’t until I spent the time to think about and uncover my real values that I realized a monumental problem in my life.

No matter what I ‘earned’ in my life, I wasn’t going to be happy until I was congruent with my values.

I have been fortunate enough to have been around many extraordinarily successful traders. People who seem to have a crystal ball, visions from god, or some other magical insight that let’s them see the future and make fortunes because of it.

I have been right there when a winning trade goes from positive five figures, to more than $2 million loss, and end up closing the day positive $250k (in less than an hour, the
2010 Flash Crash).

I have known people who lose themselves in trading, who sacrifice everything in order to ‘win’ only to realize that once they ‘win’ they have very little of a real life left and ultimately ‘lose’.

People who sacrifice their friends, alienate their families, destroy their health sitting in front of computers, watching every tick. Stress eating away at the very brain they hope makes the decisions.

It isn’t just in the trading world.

It is in every profession, every corner of the planet.

These are people that might have the outward appearance of success and happiness, but are not living their values.

Lance Armstrong 

Fall from superstar to disgrace

On the other hand, I’ve also worked with people that have very clear intention around what trading is for them, how it fits into their life and lifestyle.

These people are rare. They are happy.

They are the visionaries.

What sets them apart is a vision. A vision based on values that are congruent with their personal beliefs. A vision based in fulfillment, not in achievement. They don’t define their lives with trading, they use trading to define a lifestyle.

Warren Buffett 

Highly regarded around the globe

It is subtle, but rather than my try to explain, let us work through an exercise and you can feel the results first hand. I promise that if you spend half an hour thinking through this exercise it can change your entire life, and not just your trading success, but every aspect of your life.

It is in every profession, every corner of the planet. 

These are people that might have the outward appearance of success and happiness, but are not living their values. 

What is your trading vision? are you setting yourself up for failure before you begin?

Are you looking to become a full-time trader, making millions and living the life you see on television?

The Symbols Of Success

Are you a retiree looking to boost your passive income on a very part-time basis?

Grow Your Retirement Plan

Are you a college student, looking for your own entrepreneurial opportunity offered through trading?

College Day Trader

Are you the next hedge fund guru like Bobby on the hit show Billions?

Showtime Billions

Whatever your vision is, and it is entirely personal, you need to understand the commitment and price you will have to pay to achieve it.

If you say you want to become a full-time trader making an above average income,

but you have almost no money to start with,

and you are not willing to invest in your learning,

and you need it to happen next month,

...well, I hope you can see that you will fail before you begin.

If you are retired and looking for that income booster, willing to invest in your education, and have the patience to see it through, well, you will probably succeed.

The difference between these two in my opinion are clear values. You have to know what you are willing to pay to achieve your goals.

Why knowing your values is so important?

Values are a bit of a mystery if you have not thought much about them. We tend to think of values as the right and wrong, the good and evil of our lives, but they are more than that.

You can think of them as the software programs that run your life. They are the fundamental building blocks that make you, you. They are not what you ‘think’ you should be, they are the building blocks of your life whether you recognize them or not.

Your Building Blocks For Success

Your values are the guideposts that you use in your life to make decisions.

When your actions and behaviors are congruent with your values everything just seems to line up.

When they are not, that is when your trading will suffer, your losses mount, and you will be fighting your emotions every step of the way.

Your core values are also not aspirational in nature.

They are not how you want to behave or believe you should behave, they are your true self.

And they are uniquely yours alone. You can’t use my values to give your life meaning.

We can share the same values, but yours are yours alone. Once you identify your values, something magical happens. Your work suddenly becomes so much more fulfilling.

There is an ease by which you can let go of the things you thought made you happy and turn your attention to what actually makes you happy. 

The question becomes...

How do you identify your values?

I don’t believe your values change much over your life.

They may rotate in priority and order during certain times of your life, but for the most part if you value connection and deep communication with other people that isn’t going to change.

As many times as I have gone through this exercise, I have gained deeper insight into my own values each and every time. They become more textured, more vibrant for me and I feel like my groove in life gets that much clearer.

I would encourage you to visit this value exercise at least once per year. If you are the type of person that sets New Year’s Resolutions, as am I, then that is a great time to revisit this exercise. Get even more familiar with your values.

Make them as colorful as you can.

That makes them real. Use real words and phrases. Don’t get all fancy pants and flowery language. They more real your values are are for you, the better off you will be.

The goal of this exercise is to get a small list, not more than 3-5 core values that you can use to create your trading plan. You may not see right now why this is so important, but I promise you, this is the foundation which all great traders build their careers and fortunes upon.

If this is the first time you have sat down and thought about this, then consider this your first-draft version.

Congratulations, Let's Get Started

I would encourage you to go through this exercise with someone that you trust like your spouse or a sibling. Even a trusted co-worker or friend. I have found that being able to get these out of your head and talk about them will help you gain clarity around the meaning of your values.

This is your value partner.

People Helping People

You will find this to be a fun hour to spend with someone close. The exercise will deepen your relationship more than you can image.

Find a place where you both can sit and have a good conversation.

Just click below and we will send you a copy you can print and use over and over.

The Trading Plan Worksheets

Get the Values Worksheets Here

We have created a Values Worksheet to help you with this process. It is free to use.

Step one, your people

On your values worksheet you will see the first column is your people column. Sit back for a few minutes and think about the people in your life. The people who behave in the way you admire. They could be co-workers, friends, associates, even celebrities or fictional characters.

List 5-6 people’s names that you admire.

Write these people’s names on your worksheet in column one.

Step two, the attributes

On the worksheet, in column two, I want you to think about the attributes, or the “why” you listed each of those people.

What actions or behaviors do they do that you admire?

What is it about them that you admire?

Think about each person individually and write down what springs to mind for each person. It could be one, or several attributes per person.

Take a few minutes and discuss why you wrote the attributes with your value partner.

For example…

Why did you put down Josh on your list (your names will obviously be different).

Example answer:

"I think I wrote down Josh because he always listens extremely well to what I say. He seems to hear exactly what I mean when I say it. And then, he has the courage to tell me like it is. He doesn’t sugar coat it for my benefit. He doesn’t try to protect my feelings. He gives me the truth and, although it is sometimes hard to hear, I really appreciate that."

From this answer your partner would write down what they think are the qualities that you are trying to describe.

For my friend Josh here it might be… a deep level of communication and connection.   An honest relationship built on trust and love. True friendship.

There isn’t right or wrong answers here, just keep trying to get closer and closer to the qualities that you are trying to uncover.

Continue to go through your list of people and write down the attributes for each of them.

In the next step, we will make them yours.

Step three, the story

I’d like you to think of a story from the life for 3-5 of the people on your list. Try to get at least three stories.

Pick one person off your list and write a short story about the person. Try not to relist the attributes that you did in step two. It should sound something like this…

Example answer:

“The last time we met, Josh was there, along with a few other friends. We were talking about my recent trading results and the last month in the Forex markets. I had a decent month, few winning trades, few losing trades.

I was talking about my losing trades and, honestly, making excuses for why I even took the trade in the first place.

That was when Josh spoke up. He asked me about my entry decisions. He saw and heard what I wasn’t willing to admit to myself and my other friends. He called me out about those trades and how they weren’t according to the plan we had made together. He took the time to show me where I got greedy and entered the trade when I shouldn’t have.

He helped me see my choices were wrong and he helped me to clarify how not to make the same mistakes in the future.”

Tell the story of what your admiration person said and did. Your values partner should be writing down as much of the story verbatim as they can. Doesn’t have to be perfect, just as much as they can. They can ask you for further details or to repeat parts.

The goal is to get a brief story written for at least 3-4 of the people on your list.

Step four, decode the story and discover your values

Now, you want to take a good look at the story your partner writes down and you should be able to see phrases that have meaning for you.

In my example story, I would write below the story some of the values I see…

“He called me out…”  =  value honesty and responsibility
“He took the time to show me…”  =  caring for others
“He helped me see…”  =  being a thoughtful leader

You can see it might take a little interpretation, but as you work through the stories with your values partner you will notice that they will jump out at you.

When you are finished, you should have a list of values that are very meaningful for you. They will be powerful statements that should move your heart and your mind.

Here are my values from the last time I completed this exercise:

My Personal Example Values

I value deep and honest connections with people that goes far beyond just friendship. Being able to talk and share at a deep level, with many people in my life brings me the most joy and fulfillment.

I value my freedom to be able to spend my days as I choose. I get to use this freedom to get more of value #1, connection with people.

I value the beauty and art of all things. Be it a painting or an outstanding trade, a good book, or even the glint in someone’s eye for a moment. There is beauty everywhere if you just look.

I value constant learning and growth. I appreciate that one can never know all there is to know about anything and to approach life with an open mind, a cup ready to be filled every moment makes my life richer every day.

… and I have a few more, but you get the idea.

I hope you take the time to invest in yourself and develop a list of your personal values. There is no way I can describe how much this will add to your life if you will own your values. 

It just might change everything in your world…

Now, stick with me for step three, setting your goals.

This is where the rubber meets the road.

The Trading Plan Worksheets

Get the Values Worksheets Here

We have created a Values Worksheet to help you with this process. It is free to use.

Step 3:
Setting Trading Goals

Today we are going to continue our work towards writing a great trading plan.

A plan that will help you... 
  • find better trades, 
  • execute trades better, 
  • minimize the emotional roller coaster of trading,
  • and ultimately help you make more money.
Step 3 - Define Your Goals

“You can do anything if you set goals. You just have to push yourself.” —RJ Mitte

In Step Two I asked you to invest the time to discover your personal values. If you gave yourself the time to complete this exercise I hope you can see how valuable it is.

The next step is to take your value based vision and create the building blocks to making it a reality. Those building blocks are your goals.

People Helping

I want to give you some ideas and perspective on setting goals that you will be able to apply throughout your life and not just for your trading plan.

I have spent the better part of 35 years setting goals. 

I have years where goals dictated my daily life. I have also spent years floating through life without goals. 

Honestly, I wasn’t a huge fan of setting goals.

I think I was just afraid to clarify what it was that I really wanted out of life. I was also afraid of failing. That is the thing with goals, when done right, they force you to create a life with intention. 

Not just drifting, waiting for fate to intervene.

When I thought about it though, I realized that I almost always achieved my goals, no matter how big they were. It was rare that I even came up short.

It was a lot like writing the story of my life, but in the future.

With this realization why wouldn’t I want to set goals?

Plus, when they are congruent with my personal values, goals became fun and easy. Goals gave my life focus and more meaning. 

I knew why I would have to do the difficult things in life. 

So even if you have never set goals before, or if you are hesitant to set goals, please spend the next few minutes and let’s do this.

Do Your Goals

The forgotten components of a high achievement goals

I’d like to take a moment and mention a few lessons I have learned over the years around goals and creating a life of your dreams.

The first advice I would give you is to celebrate your victories

In most societies today we have been taught an overwhelming sense of humility and urgency.

Combined, these rarely allow people to celebrate their victories before they are off to the races on the next goal.

I’m the first to admit that I rarely celebrated any wins in my life. As soon as I would reach a goal I would sit down and start to work on the next.

My goals changed from being a motivating guiding light in my life to just a giant list of To Do’s I had to work on every day. I started to resent them.

It wasn’t until I was reminded to celebrate the little victories in life that my goals became fun again. A game to play rather than chores.

Do yourself a favor.

In addition to setting goals according to the instructions below, think and note how you are going to celebrate when you do achieve them too.

Celebrate Your Success

The second advice I would give you is about closing the circle

What I mean by this is that life is a bit of a circle. I don’t want to set your expectations that everything is easy and simple.

You will fail.

Particularly in trading.

In my case, I can be particularly brutal on myself when I fail. I have to constantly remind myself that failure is a necessary ingredient for success.

No one bats 1,000 ever. No one wins all the time.

And more importantly, if you don’t realize this and forgive yourself when you do fail, your failures will destroy and paralyze you rather than empower you to move forward.

Understand that you will fail and that you MUST forgive yourself for it.

Learn from them and then, let the failures go.

When you do this you become invincible.


A final comment about success and trading goals

Before we get to my time-tested technique for setting goals, I’d like to give you one last thought.

I always set goals that were outcome driven. I will achieve this or that, something I could typically hold in my hand or show someone.

I would encourage you as well, in addition to outcome goals, set one or two goals that are process driven.

What I mean by this is setting goals around the process of becoming a successful trader. The process of becoming a successful human being.

Goals around creating and following a system.

For example, “I will review and follow my trading rules every time I place a trade for the next 30 days.”

Also goals around education and growth.

For example, “Every time I execute a trade that fails I will invest the time to do a proper trade analysis and discover if I made an error.”

These are process type goals. They focus on the process rather than the outcomes.

Just food for thought.

The Process Is The Solution

How to Set Goals To Achieve Any Dream

  • Good goal secret #1

The first advice I have about setting goals is to make sure you use your values from the Step Two in this course.

When your goals are consistent with your values you will find that they become much easier to achieve. They will be fun to work on. You will have much more fulfillment throughout your entire life when you do this.

Let me give you an example of what I mean.

I value deep connections with other people.

If I set a goal that requires me to sit in front of a computer 8-10 hours per day with little or no contact with other people - how successful am I going to be with this goal?

Is it going to be easy and fun?

Or is every day going to be a struggle and I will more than likely quit.

I think you get my point.

  • Good goal Secret #2

Your goals need to be S.M.A.R.T.

If you Google SMART goals, you will find thousands of pages and videos on how to set goals that are SMART.


Each of your goals should contain each of these elements to be considered “good”.

How to set S.M.A.R.T. Goals

Specific Goals

Specific Goals

Specific goals are written in such a way that it is clear what you want.

If you set a goal that you want to make a full-time living as a professional trader, you might think that is specific.

But, you can do much better.

The problem with this vague goal is that you don’t have a real picture of what that goal means to  you in your mind.

How much do you need as a full-time income?

Is it a minimum amount or a good lifestyle amount?

Have you taken into account taxes and any other expenses you will incur?

So a much more specific goal would be to say something like:

“To make $75,000 per year, after taxes, as a professional trader.”

You can see how knowing the number will give you a sense of purpose and clarity. When you are specific about your goals you will know if you are on or off course towards reaching them.

You will also know if they are realistic, as we will talk about in a minute.

Measurable Goals

Measurable Goals

The second trait of successful goal setting is to write them to be measurable. This goes along with specific.

In our example above, once you name the amount you need rather than just saying “full-time income” you can measure and know when you have achieved it.

If you aren’t specific like this, then you can not measure your goal and you will never know if you actually achieve it or not.

Plus, you can use the specific measurement and break it down into components.

With this example goal you can see that it will take you at least $8,000 per month in profits (depending on your tax situation) to reach your goal. You can even break it down further to a weekly or daily goal.

It will give you a sense of progression and how you are doing.

Achievable Goals

Achievable Goals

This means that your goals have to be realistic.

Again, our example goal of earning $75k per year, after taxes, is realistic. Particularly if you are just getting started.

Setting a goal that says “I am going to make a million dollars trading” when you are just getting started is completely unrealistic.

Your mind has to believe you have a chance at succeeding with your goals. Don’t sabotage your success by creating goals that are impossible to achieve.

And, yes, I am a dreamer and like to reach.

I do believe you can accomplish most anything you set your mind to.

But, I also believe in momentum. When you create a goal that is reaching, but not impossible, you have a greater chance of reaching your goals.   And the more goals you reach you will set bigger and bigger goals.

You create a flywheel of success in your life. The momentum will help carry you forward and it will seem as though the entire universe is conspiring to help you succeed.

Realistic Goals

Realistic Goals

Are the goals you are setting relevant to you? To your values?

This is often where people fail to realize how their goals might actually be impossible to achieve because they don’t align with their values.

If you set a goal to “I am going to make a million dollars income trading” and you don’t value money or income as a primary personal value, then this type of goal isn’t relevant to you.

But, if one of your personal values is family time, and this goal can help your husband leave his job and spend more time with you then it is totally relevant.

And, you will find that when it gets difficult, you just have to think about that and it will help you get through the tough times.

Timely Goals

Timely Goals

The final trait of good goal setting is making sure that your goals have a time element that you can hold yourself accountable to.

“To make $75,000, after taxes, as a professional trader.”

Is close to being a SMART goal, only you don’t specify how much time you are going to give yourself to reach this goal.

The final element is giving yourself a deadline for the goal.

“To make $75,000 per year, after taxes, as a professional trader by January 01, 2020.”

Adding in the time bound element gives you the final trait in all successful goal setting.

Print out our goal setting worksheet and give yourself an hour or two to think through and set goals that will motivate you and help define a life you have always dreamt of.

The Trading Plan Worksheets

Get the Goal Planning Worksheets Here

We have created a goal planning worksheet to help you with this process. It is free to use. 

Insert Lead Generation

Step 4:
Risk Management - What separates professionals from amateur traders

In this step you'll learn why a trading plan is absolutely critical to your success...

Just about every successful trader has a trading plan and 

Every failed trader doesn't

Specifically, I'll show you exactly what you need to succeed, why you need it, and how to personalize it for your own success.

Let's get started...
Step 4 - Define Your Risk

The Most Basic Risk Management Strategy

Managing your risk in trading happens on several levels.

Risk Management
The Most Important Risk To Manage

From the highest level, the most important risk to manage is protecting your mental space.  Not letting doubt or frustration stop you from reaching your goals.

You have to understand and accept that you will experience failed trades. You will lose money. This is part of the business.

And it isn’t easy.

What is critical is not letting losses define you or your success.

That is why it is so crucial to have proper risk management whether you are day trading, swing trading, or simply just investing for the long haul. It all matters - the time frame doesn’t.

The discussion around mental barriers in trading is too broad and important to discuss here. We will tackle that in upcoming conversations, but...

For now, just keep in the back of your mind, the #1 Asset you have is your mental clarity and confidence.

Your Brain Is Your Best Asset

How To Define Your Account or Portfolio Risk Management

Protecting and growing your account is the goal of your trading business. You have to develop a set of rules that will allow you to place trades that have the appropriate amount of risk and size.

This is a business where you want to be around for the long-term. You can make good money quickly, but the best professional traders look at the big picture.


Determine Your Risk Per Trade

Professional Portfolio Risk Management begins at the per trade level. As a general rule, most professionals use anywhere between 2-5% of the total account value as the total risk per trade.

For all the following examples we are going to use our friend Josh again.

Let’s say Josh has an account with $10,000 that he is going to start trading with. His first decision he has to make is deciding what percent of his account he is willing to risk per trade?

Josh decides 3% is the total risk per trade.

The math would then look like:

$10,000 starting account capital
$300 per trade risk capital

This means that for any given trade, you only risk $300.

This HAS to be a hard rule. 

You can fudge a little depending on what markets you are trading. There is always slippage, fees, and, in the case of options, valuation. You will rarely hit $300 exactly, but be sure not to let it exceed a few dollars in either direction.

$290 >< $310 is fine.

Now, this $300 per trade risk isn’t how much you are going to actually use of your account for each trade.

People often confuse this.

$300 would be the amount of money in your account that you are willing to lose if the trade is bad.

Your trade size will vary depending on your strategy.

We will get to position sizing next.


Determine your stop loss and position size

For every trade that you execute, you should have some reason to take the trade.

Whatever system you are using, whether technical studies, fundamental investing theories, market profile dynamic, or even insider trading (tsk, tsk) you have a reason for taking the trade.

Let’s go back to my friend Josh. He is using a simple moving average crossover trading system. This will show him when to get into a trade, and if well done, his strategy will also tell him when to get out.

We will develop your trading rules in the next section of this plan.

This example is how Josh would set his trade stop loss…

Josh sees on xyz corp that the crossover just happened and the stock is trading at $30 per share. He can look back and see that the average move for the stock is about $5.

He can then determine his stop loss to be $5.10.  He adds the .10 knowing the average move and doesn’t want to get stopped out too soon, but doesn’t want to let a bad trade run against him either.

With the rule we developed in Step One, we have a maximum risk capital of $300 for this trade.

How many shares of XYZ Corp would Josh buy?

To determine your position size you simply divide your maximum risk capital by the stop loss.


Josh can buy 57 shares of XYZ Corp for this trade. You round down for the added risk.

Josh would end up paying $1710 total for this trade.

$30 per share
$1710 + broker fees

Do you see the difference between your trade risk amount and the actual trade amount?

This trade would leave Josh with several thousand dollars to use for other trades and he can now execute this trade.


Determine your maximum account drawdown for the time period

The final step is to set some rules around your maximum account drawdown. You will have losses for a given time period.

Let’s face it, losing streaks happen.

Sometimes you just get a run of bad luck, or your head isn’t in the right place.

When this happens you have to recognize the situation and have rules to keep you from blowing your entire account.

Most professionals use either a percentage of the account or number of bad trades per time period.

Let’s return to our example Josh.

He is short-term trading stocks. His trade duration lasts anywhere from a day to a couple of weeks on the outside.

He could set a rule that says if he exceeds 5% of his total account value in a week or 3 trades in a row he will stop all trades for a week.

This rule can be a bit arbitrary but you do want to at least define the rule. Find a rule that will work for you.

Over trading is a real problem, particularly in shorter time frames.

If you have several losing trades in a row, your inclination will be to trade more to get it back, but that would be the amateur way to lose all your money.

With a rule set like Josh’s you would know that after three bad trades your done. You can take the rest of the week off and figure out if it was just the market behaving strangely or if you have an error in your judgement or just execution?

I hope you can see now that risk management isn’t that complicated but it is absolutely critical to your reaching your goals.

It is one of those things that is deceivingly simple, easy to do and even easier to not do.

If you consider yourself a professional, or soon to be professional trader, then you will take the next 15-20 minutes, print out our Risk Management Worksheet below, fill it out, and hang it above your desk.

In the next session we will break down how to develop your own trading system.

The Trading Plan Worksheets

Get the Risk Management Worksheets Here

We have created a Risk Management Worksheet to help you with this process. 

Step 5:
How to Develop a Successful Trading System That Profits and Makes You More Money Than You Can Imagine


You are one day closer to living your dreams.

You are almost finished completing your successful trading plan.

This final section is where the rubber meets the road.

Let’s finish this up and make some money!
Step 5 - Write Your Trading Plan

The Hard Truth

You have spent day one on your vision and values

You have defined your goals for your trading business

You have defined your risk management strategies to keep you in the game

And now we are going to discuss how you actually create a trading strategy.

I wish I could sit you down and tell you here is step one, do this...

Then, step two, do this next,

Finally, exit and make money…

But it isn’t that easy.

See, trading strategies are like clothing. Every person has their own unique style. One that they feel comfortable with. That fits them. A style that is uniquely theirs.

Think about it or look around you right now.

Every single person is wearing different clothes and as strange as it seems, rarely do you see someone wearing the same clothing as another person.

The point is that I cannot give you your strategy.   That is something you must define on your own.

If you have completed all the exercises in this guide, then you are well on your way to creating a successful trading strategy.

If not, well, you know what to do.

Download and print out the worksheets.

Complete all the exercises.

Review our list of recommended trading systems and find the one that matches your goals, time available, funds, etc.

Then get to work creating the life of your dreams!

Our Recommended Trading Programs and Education

As you can imagine, we get to see many different trading programs and strategies. While we haven't gone through all of them, we certainly have seen trends in what works and what doesn't.  The following trading education courses will help you master your own trading strategy. 

My Trading Journal

First, you have to use a trading journal

I don't care what level of trader you are. You should be using a trading journal. 

This is how you document your progress, your trades, and how you become a professional trader. I promise you, every pro out there has extensive notes and documentation about their trades and systems.

We wrote this trading journal to work for every market. It is perfect for the beginner to advanced trader. 

The trading journal is a 30 day journal to help you make more money with your trades.

Learn to Trade Using Other People's Money

We have found one of the most amazing programs available to any aspiring trader.

How would you like to trade ES futures or Forex using someone else's money and then split the profits with the account owner?

Sounds amazing, right? All you have to do is prove your skills and Top Step Trader will give you a funded account to trade. It is that simple.

Learn candlesticks from the Master

Steve Nison, CMT and inductee in the Traders Hall of Fame, is uniquely qualified to help you fully exploit the opportunities candlestick charts present to today’s markets.


Our Favorite long-term trend system

Sublime Trading is the first trading system built around a lifestyle rather than a lifestyle built around trading. If you want a long-term trend trading system that doesn't require you to sit in front of your computer for hours every week, then this is the trading system for you.

You're Turn

So that’s everything I have on writing a successful trading plan.

Now I want to turn it over to you:

What did you think about this guide? 

Or maybe there’s something I missed.

Let me know by leaving a comment below.

Thank you so much, here is to your trading Success!!

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