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The trading plan — the five steps, in order

By TradingPrimer · Published 11 Sep 2026

Ask ten traders whether they have a plan and ten will say yes. Ask them to show you the plan for the trade they are in right now and most will describe a feeling about the chart. That gap is the whole subject of this lesson. A plan is not a document you write once in a burst of good intentions; it is a short chain of questions that runs every time, in the same order, and the order is not a formality. Each step produces one thing — a direction, a dollar figure, three prices, a live stop order, an exit rule — and hands it to the next step as its only input. Swap two steps and you keep all five numbers and quietly change what they mean. This lesson walks the five steps with one trade, then measures what a swap costs, and finishes by paying a debt the previous lesson ran up: showing exactly why the journal you built there is the thing that can tell you whether you followed any of this.

The card is the plan: five rows filled in order, the chart on the right only exists because rows one to three were answered first, and the arrow from row five back to row one is what “start over” means after a stop.

What is a trading plan, and why five steps instead of a document?

A trading plan is a sequence of closed questions. Closed means each one has an answer you could write in a box — a direction, a dollar amount, a price — or the answer “not today”. It is not a mission statement, and it is not the strategy itself. The strategy tells you what a good setup looks like; the plan is the order in which you check it, budget it, place it and manage it, so that the same you shows up for trade 200 as for trade 1.

The course this site is built on lays the plan out as six numbered steps in Part 4: read the main trend, set the stop-loss amount and derive the capital per trade, set entry, stop and target, enter and place the stop immediately, watch and manage, then close and write the journal. The sixth step got its own lesson last time, because a journal has enough structure to deserve one. What is left is the five steps that run before the trade is closed — and the thing the course is careful about, and most write-ups are not, is that they are numbered for a reason.

Here is the reason. Every step produces exactly one output, and that output is the next step’s input. Step one produces a permitted direction; without it, step two has nothing to budget for. Step two produces a dollar figure; step three cannot turn that into a size until it knows how far away the stop is. Step three produces three prices; step four cannot execute without them. Step four produces a live stop order; step five cannot manage a trade that has no defined exit. Read the chain backwards and you see why a plan cannot be a document: a document has all five answers filled in at once. A plan has them filled in in order, and the order is what stops you from back-filling an answer to justify a decision you have already made.

The teaching notes behind the course add the rule that makes this a filter rather than a form: if any box is blank, stand aside. The stated goal is not to find trades. It is to say no to most of what you see — the notes put it at eight or nine out of ten — so that the one or two you say yes to are the ones every step agreed on. That is the same idea Lesson 47 measured from the other side, where the cost of never skipping an opportunity turned out to be the ability to ever know whether you have an edge. The plan is the mechanism that does the skipping for you, one closed question at a time.

Step 1 — which direction is even allowed?

Step one reads the main trend on the higher frames — the course says daily to weekly — and returns one of three answers: long only, short only, or stand aside. That is the entire output. Not an entry, not a level, not an opinion about how far it might go.

The slide puts the consequence in one line each way: if the trend is up, buy, or wait to buy; if it is down, sell, or wait to sell. Notice what is missing. In an uptrend there is no third state called “sell”; the button might as well not be on the screen until step one changes its answer. The notes give the reason as a cost, not a rule: trading both directions leaves you inconsistent, because every pullback becomes an argument with yourself about whether it is a dip to buy or a top to sell, and an argument you can win either way is not analysis.

The third answer is the one people forget is allowed. The course frames the market as sideways about 80% of the time and trending about 20%, and says plainly: only trade when it trends. Treat the 80/20 as the course’s way of setting expectations rather than a measured statistic, but take the instruction literally. A range on the daily chart is not a failed step one; it is step one answering “stand aside”, and the process ends there for today. How to make that diagnosis is Lesson 20, and why the higher frame gets the vote is Lesson 21. Step one does not re-teach either; it just insists on collecting their answer first.

For the worked trade that runs through the rest of this lesson, assume the daily and weekly are both printing higher highs and higher lows. Step one returns long only. Everything below is now allowed to think about buying and nothing else.

Step 2 — how much may this trade cost, and why decide that before the entry?

Step two sets the dollar amount you will lose if the stop is hit, and from that — once the stop distance is known — the capital that goes into the trade. The slide gives the budget as at most 2% of the account and states the formula for the case where the stop sits 5% below entry: Volume = capital × 2% ÷ 5%. On a $10,000 account that is $200 of risk, and $4,000 of position.

Most write-ups file this under “risk management” and put it at the end. The course puts it at step two, before there is any entry to be excited about, and the placement is the point. The budget has to be decided while the trade is still hypothetical, because the moment you have a price you like, every number you set afterwards will bend towards keeping it. Decide the $200 first and the size is a consequence. Decide the size first and the $200 becomes a negotiation.

There is a subtlety in the wording that is easy to skip. The slide says set the stop-loss amount, then work out the capital per trade. The amount is fixed at step two; the capital is only computable once step three has told you how far the stop is. So step two is really a step and a half: the budget now, the size as soon as the stop exists. The size is an output of the plan, never an input to it. Lesson 42 owns the arithmetic of that; this lesson only insists on where in the chain it sits, and section seven prices what happens when it moves.

Step 3 — where exactly do you get in, get out wrong, and get out right?

Step three produces three prices: the entry, the stop, and the target. Not two. A trade with an entry and a stop but no target is a trade with no reward to measure the risk against, which means the R:R in Lesson 41 cannot be computed and step five will have no rule to manage by.

The course is specific about what earns the three prices. It lists four things that should agree: RSI pulling back cleanly, the moving averages giving the same conclusion, price sitting at support, resistance or a channel line, and the price patterns, candles and volume all favouring the decision. Then it says something more careful than “use indicators”: when all four agree, the analysis tends to be highly accurate. The word is agree. Any one of them can be found saying yes on most charts on most days; the filter is the requirement that none of them is saying no.

The stop comes from the chart, not from the budget. Lesson 43 put it as sharply as it can be put: “I’ll risk $200, so my stop goes here” is not one of the legitimate places a stop can go. In this lesson’s language, that sentence is step three being run backwards from step two. The budget says how much you may lose; the chart says where the trade is wrong; the size is what reconciles them.

Here is the worked trade with all five steps filled. Numbers are illustrative — a round price level, not a forecast — and every one of them is reproduced in the method file linked at the end.

Two things are worth noticing in the table before moving on. The size row sits under step three even though the budget was fixed at step two, because that is when it becomes computable. And every answer has a place it lives — either a line you dated before entry or a record the exchange keeps — which is what section eight is about.

Step 4 — why must the stop exist before you leave the screen?

Step four is a single instruction with two halves that the course refuses to separate: enter with the right size, and set the stop loss immediately after entering. The output is not “a position”. It is a position with a live stop order on the exchange. Until the second half is done, step four is not finished, and the process should not have moved on.

Why insist on the order object rather than the number? Because the number already exists — you wrote 57,000 in step three. What changes when it becomes an order is who has to act for the trade to be closed. A mental stop requires you to click sell at the worst moment of the trade, when the price is exactly where you said you would be wrong and every part of you is looking for a reason it might not be. Lesson 48 measured how little movement of that exit point it takes to erase an edge: on a 40%-win, 1:2.5 system, widening the loss and trimming the win by a quarter each took the expectancy to exactly zero. A stop order removes you from that moment. To widen it you have to go back to the platform and edit an order, and the platform will remember that you did.

There is a mechanical detail behind the word immediately. In the seconds between a fill and a stop being placed, the position is unhedged against exactly the kind of move the stop exists for. On most exchanges the practical answer is to place the stop as part of the same ticket — a stop-market or stop-limit attached to the entry — so there is no gap at all. If your platform separates them, the fill confirmation is the cue, and the exchange will timestamp both. That timestamp is the first plan-adherence measurement you can take without trusting yourself, and it returns in section eight.

Step 5 — what are you allowed to do while the trade is open?

Very little, on purpose. The slide reduces step five to two branches. If price hits the stop, start over. If price moves into profit, watch, and judge whether to add or to hold. That is the whole permitted menu: two branches, three actions, none of which is “move the stop further away”.

The first branch is more precise than it looks. “Start over” means return to step one, not to step three. A stop-out is not merely evidence that the entry was early; it is new information about the direction you chose, because the price you said would prove you wrong has just printed. Re-entering long on the next dip without re-running the trend check assumes step one’s answer is still true after the market has argued with it. To see what that assumption costs, take an illustrative case with made-up but plausible numbers: suppose that when the daily trend is intact your re-entries win 45% and pay 2R, for an expectancy of +0.35R, and that 40% of the time a stop-out was actually the trend ending, after which the same re-entry wins only 25%, for −0.25R. A trader who re-enters blind blends the two and gets +0.11R. A trader who goes back to step one, and stands aside when it now says so, keeps the +0.35R. In that example, skipping the trend check gives away 69% of the re-entry edge. The exact numbers are assumptions; the shape of the result is not.

The second branch hands off to work you have already done. Whether to add to a winning position, and how much, is Lesson 44; step five’s only contribution is that the decision must follow a rule written before entry, not a feeling formed during it. The course has one more instruction about the open trade — when a run of stops means you should stop trading altogether — and that belongs to the lesson on avoiding the big loss, which is next but one.

What breaks when you swap two steps?

The average barely moves. The tail moves a lot. That is the short answer, and it is worth seeing the numbers because the plan’s critics have a fair point: with five steps that are each individually sensible, it is not obvious why the order should cost anything.

Take the most common swap: deciding the size before the stop. Almost nobody does this on purpose. It happens as “I usually trade about four thousand dollars”, and then the stop goes wherever the chart says. To make the comparison fair, hold the average exposure constant. On the $10,000 account with a $200 budget, chart-given stops of 3%, 5% and 8% produce correct sizes of $6,666.67, $4,000 and $2,500, whose mean is $4,388.89. So give the reversed-order trader a fixed $4,389 on every trade. Same account, same budget written down, same average position, same three stop distances. Only the order in which size and stop are decided differs.

In the correct order every row risks $200, and five losers in a row cost exactly $1,000, or 10% of the account, whichever stops they happened to land on. In the reversed order the risk is $131.67 when the stop is 3% away, $219.44 at 5% and $351.11 at 8% — 0.66, 1.10 and 1.76 times the budget — and the trader does not know in advance which trades are the big ones. The average risk is $234.07, 17% over budget, even though the average size was matched exactly; a fixed size multiplied by a varying stop does not average back to the budget. And five losers that happen to fall on 8% stops cost $1,755.56, 17.6% of the account: 1.76 times the planned cluster, from identical decisions about where the market was wrong.

Run it forward and the same pattern holds. Simulating 100 trades with a 45% win rate, a +15% target and stops drawn evenly from 3%, 5% and 8%, over 100,000 paths and with no compounding in either version, the median maximum drawdown is 8.3% in the correct order and 10.3% reversed; the 95th percentile is 16.5% against 20.6%; the 99th is 22.2% against 27.8%. Expected profit per trade falls from +$186.25 to +$167.51, about 10%, because the extra risk lands on losers. None of this comes from a worse read of the chart. It comes entirely from letting a number that should be an output become an input.

The other swaps do not need a simulation because earlier lessons have already priced them. Running step three before step one is trading a setup without knowing which direction is permitted, which is the range-playbook cost in Lesson 20. Treating step four as “enter” and leaving the stop for later is the exit-squeeze in Lesson 48. Running step five before step three — managing a trade that has no written target — is the state in which “hold or add” has nothing to be measured against. In every case the plan’s five answers can still be filled in afterwards. They just stop being a plan.

How does the journal know whether you followed the plan?

Because each step leaves a trace, and the traces are of exactly the two kinds Lesson 49 said could be trusted: lines you dated before the outcome existed, and lines the exchange wrote for you. That lesson ended by promising to show why the journal it built is the thing that can tell you whether you followed the plan. Here is the payment.

Steps one and three are yours, and they are sealed by the clock. The permitted direction is what column three of the journal is for — “why I am entering”, read from the higher frame down. The three prices and the R:R are column four. Both are written before you click, so hindsight has nothing to edit. Steps two, four and five are the exchange’s. It records the size that was actually filled, which either equals budget divided by stop distance or does not. It records the time of the fill and the time the stop order was placed, and the gap between them is a number — seconds if step four was done as written, minutes or never if it was not. And it records how the trade ended: at the stop, at the target, or by a manual close, which is what column five compares against column four.

That is the reason the journal can grade plan adherence at all. “Did I follow the plan?” would be a useless question if it depended on remembering honestly. It does not. Three of the five steps have an exchange-side record and two have a dated line you cannot back-fill. The only genuinely soft entry in the whole process is the last column of the journal, and Lesson 49 already turned that one into a yes-or-no comparison. Put the two lessons together and you have something most traders never build: a plan whose every step is auditable, and a record that does the auditing.

Practice corner

Two things you can do this week, both on a chart you already look at. First, before your next trade, write the five answers in order on one line — direction, dollar budget, entry/stop/target with the size that falls out, and the two branches of step five — and do not click until all five are filled. If step one says stand aside, you are done, and that counts as following the plan. Second, open your order history for your last ten trades and write down, for each one, the gap between the fill time and the time a stop order first existed. If that column has any blanks or anything measured in minutes, you have found the step your plan is skipping, and you found it without having to trust your memory.

PRACTICE CORNER

Step four only works if the stop is an order on the exchange, not a number in your notes. If you want to practise the full five steps on a small spot account — budget fixed first, size computed from the stop, stop placed on the same ticket as the entry — these are the exchanges we use:

Binance→ OKX→ Bybit→

Affiliate links — we may earn a commission at no cost to you. Disclosure · Education only, not financial advice.

What people get wrong about trading plans

• Writing the plan once and filing it. A plan is not a document with five answers already in it; it is five questions asked again on every trade, in order. The document version has the answers back-filled, which is the one thing the order exists to prevent.
• Treating “stand aside” as a failure of step one. It is one of step one’s three valid answers, and the course says it should be the most common. A day with no trade because the daily chart is in a range is a day the plan worked.
• Deciding the size first. “I usually trade about four thousand” feels like discipline and is the swap in section seven: same average exposure, 17% more average risk, 76% more in the worst cluster.
• Calling a trade with no target a trade. Step three produces three prices. Two prices give you a risk with no reward to compare it to, so step five has no rule to manage by.
• Counting a mental stop as step four. The step is not done until a stop order exists on the exchange. The whole point of the order object is that widening it leaves a timestamp; a number in your head can be revised silently.
• Re-entering at step three after a stop-out. The slide says start over, and it means step one. The stop being hit is information about the direction, not just the timing.
• Adding a sixth, seventh and eighth question. Extra confirmations feel rigorous and mostly add places for the process to stall. The course’s four-way agreement in step three is already the filter; the plan is the five steps, not the fifteen.

When this lesson is wrong

Three conditions, and they matter because a plan taken as scripture is just a different way of not thinking.

If you trade a tested range system — buying the bottom of a box and selling the top, as Lesson 20 describes — then step one’s “only trade when the market trends” is the course’s guardrail for a trend-following method, not a law about markets. Your step one still exists; it just returns “range on this frame, both edges permitted” instead of one direction. The order of the remaining steps does not change.

If your stop distance never varies — you always use the same percentage regardless of the chart — then the swap test in section seven shows no difference, because a fixed size times a fixed stop is a constant. The order of steps two and three genuinely does not matter for you. It is only fair to add that Lesson 43 would say the stop should come from the chart, so this exemption is usually bought at the price of a different mistake.

And if you have no edge, a perfect plan followed perfectly will lose money in an orderly way. The plan controls how you lose and how much; it does not make a coin flip favourable. Whether the setups that pass all five steps actually win more than they cost is a question for the journal after fifty or more trades, and for nothing before that.

Frequently asked questions

Isn't a trading plan just the strategy written down?

No, and the difference is the order. A strategy describes what a good setup looks like - the four things the course wants to agree in step three. The plan is the fixed sequence in which you check the direction, fix the dollar budget, find the three prices, execute with a live stop and manage by a written rule. You can have a good strategy and no plan, which is the trader who knows the setup and sizes it by feel; you can also have a plan and no strategy, which loses money in an orderly way. The plan is what makes trade 200 look like trade 1.

The course says six steps. Why does this lesson say five?

Because the sixth - close the trade and write the journal - got its own lesson, Lesson 49, and there was enough in it to justify that. This lesson covers the five steps that run before the trade is closed: direction, budget, three prices, execution with the stop, and management. Read the two together and you have all six, in the course's order.

What if step one says stand aside for weeks?

Then the plan is working, and the uncomfortable part is that this is what it is supposed to feel like. The course frames the market as sideways about 80% of the time and says only to trade when it trends; the teaching notes put the target at saying no to eight or nine opportunities in ten. A long run of stand-aside answers is the filter doing its job, not a sign the filter is broken. If you trade a tested range method the answer changes - see the section on when this lesson is wrong - but for a trend-following plan, weeks of no trades is the normal state, and the account is not shrinking while you wait.

Can I decide my position size in advance to keep things simple?

You can, and section seven prices what it costs. Holding the average exposure constant on a $10,000 account with a $200 budget, a fixed size lifts the average risk 17% and the worst five-loss cluster from $1,000 to $1,755.56, because a fixed size multiplied by a stop distance that varies with the chart does not average back to the budget. If your stop distance genuinely never varies, the two orders give the same result and a fixed size is harmless - but that usually means the stop is not coming from the chart, which is a different problem.

Sources and method. The step wording, the 80/20 framing, the 2% budget and the sizing formula come from Part 4 of our own ten-part course (the six-step trading strategy); step six is covered in Lesson 49. The worked trade, the swap test and the 100,000-path simulation (100 trades, 45% win rate, +15% target, stops drawn evenly from 3%, 5% and 8%, no compounding in either version, seed 20260911) state their assumptions inline and are illustrative, not forecasts. The re-entry example in section six uses assumed probabilities to show a mechanism, not measured ones. Full working: de-cuong-bai/do-so-bai-50.py. Published 11 Sep 2026.

Next: Entry timing — amateurs buy A, professionals buy A-prime; where inside step three the entry actually goes, and why the stop is found on a lower frame.