Definition
A trading plan is a written document that spells out exactly how a trader will operate before any capital is committed. It defines which markets and strategies are in scope, how positions are sized, what conditions trigger an entry, and the rules for taking profits or cutting losses.
The plan exists to convert intention into discipline. By deciding the rules in advance, a trader removes much of the emotion that drives impulsive decisions when prices move sharply.
Why it matters
How it works
A complete plan typically covers goals and risk tolerance, the universe of instruments traded, entry and exit criteria, position-sizing math, maximum loss per trade and per day, and a routine for reviewing results. With options, it also specifies which strategies are allowed and how assignment will be handled.
The plan is not static. Disciplined traders keep a journal, compare actual behavior against the plan, and revise the rules as evidence accumulates — but only between trades, never in the heat of a position.