Building Your Trade Plan

Most trading plans fail one simple test: could somebody else follow it and take the same trades as you?

Try it on yours. If it says something like "enter on a pullback in an uptrend when there is confluence", then no, they could not. What counts as a pullback? How deep? An uptrend on which timeframe? Confluence of what, exactly, and how much of it?

Every one of those vague words is a decision you have quietly left to your mood on the day. And your mood on the day is not consistent, which means your results will not be either. Worse, when you review a losing month you will not be able to tell whether the strategy is bad or whether you simply did not follow it, because there was nothing precise enough to follow.

A useful plan is boring and specific. "Daily chart in an uptrend, defined as price above the 50 EMA with a higher swing low in the last 20 sessions. Enter on the first four-hour close back above the 20 EMA after a pullback of at least 38%. Stop below the pullback low. Target the prior swing high." You may disagree with every rule there, and that is fine - the point is that two people reading it would take the same trades.

The next chapter covers the five questions your plan has to answer that precisely. Answer them and you have something you can test. Leave them vague and you have a paragraph about your goals.