Trading Plan

The trading plan is where it all comes together. It's where my option trading system gets captured into an action plan that I, or someone else can follow.

My trading plans include rules and processes for how I find potential trades, when to enter the trade, when to exit the trade, how much I'll risk and daily, weekly and monthly routines. I have one of these for each of the strategies I trade (ex. vertical spreads, calendar spreads, iron condors, etc).

I've already talked about a lot of these concepts in general terms on my trading rules and money management pages. What I'd like to do here is talk more about what my actual trading plan looks like and how I fill out each section. The major headings of my trading plan are made up of the following: Strategy name, Definition of success, Watch List Criteria, Entry Rules, Exit Rules, Money Management and Routines.

Strategy Name

This may seem like a silly category, but it refines the strategy appropriately. If I used a strategy name like Short Vertical Spreads, that would encompass bull put spreads and bear call spreads. The rules for each of these could be potentially mixed up.

If I had a plan for high probability, out of the money short vertical spreads, this may have a different set of rules than an at the money short vertical spread.

For the sake of clarity, I am better served to have my plan be very clear and narrow. So, I may have a trading plan called 'High Probability, Short Put Spread'. This is a very specific strategy that I can now collect my trading rules around.

Definition of Success

I like to start my plan by defining how I know I'm successful with the plan. I don't find it too helpful to define this by $ amount earned because this will fluctuation. If you think about the strategy, taking money out of the equation, what would be a set of indications you had a successful strategy? For me, it is a measure of what percentage of my trades close profitably or break even. It is a number that measures what I can expect to earn on average for every dollar risked (expectancy).

These definitions will be based on time, practicing this strategy, tracking the results of each trade, and generating statistics. Using a spreadsheet such as Microsoft Excel can be very handy for this.

Watch List Criteria

It's important to realize that trades don't appear without having a pool of potentials to chose from. I've found that having 20-30 potentials to pick from allows me to watch for the ideal setups, picking from the cream of the crop so to speak. On the trading rules page, I talked about defining rules for what should be in the watchlist for this strategy. The rules should help me define when a new stock or ETF should be added - or when an existing one should be removed.

Entry Rules

Here, I would capture the rules that would tell me when I should enter a trade. Put another way, if I am reviewing my watchlist for this strategy, what rules or indicators tell me whether I have a potential trade? What market conditions might need to exist to consider this trade?

Exit Rules

My exit rules should contain rules for what to do when my trade is successful and what to do if it isn't. For me, I need rules that were absolute as a backup to rules that are less absolute. I find using technical exit rules more subjective, so I've learned to add absolute exits (i.e. exit when cost to close is 2x the initial credit). The clearer and more specific these rules are the easier it is to know when to pull the trigger and follow them. This is important for most categories of rules but it is CRITICAL for exit rules.

Money Management

I've talked quite a bit about money management already. Here is where those rules get captured. Rules should include how much total capital will be allocated to this strategy and how much capital per trade should be allocated. Additional rules can be added as needed or desired. Amounts should be in percentages to allow for account growth and shrinkage.


I like to define my daily, weekly and monthly routines. Since I have a tendencey to forget what these are, I capture them here. I've even printed them out and put them on my wall so I am reminded of what I should be doing.


The trading plan is my roadmap to success in my options trading. It gives me a structure that helps me be consistent in my actions, which in turn helps ensure I am consistent in my overall success. This trading plan does not guarantee that every trade will be successful. It only helps me do the same things over and over, which ideally lead to long term success!

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