How Do I Create a Simple Risk Management Plan for My Strategy?

A trading plan sounds like boring paperwork. It is. It's also the difference between success and failure. Most traders skip it because it feels tedious. That's why most traders fail.

Your simple plan has five sections:

Section 1: Account and Risk

Write this down: - Account size: $10,000 - Risk per trade: 2% - Dollar risk per trade: $200

This is non-negotiable. Every single trade risks exactly $200. No more, no less. Print this section and tape it to your monitor.

Section 2: Position Sizing

Write the formula:

Position Size = Risk ($200) ÷ Stop Loss Distance

Example: If stop loss distance is $0.50, you buy 400 shares. If stop loss distance is $2, you buy 100 shares.

This makes position sizing mechanical. You don't think about it. The math decides.

Section 3: Stop Loss Rules

Write this down:

For long trades: - Place stop loss below support - Use ATR if unsure (2 ATRs below entry) - Never put stop more than 5% away from entry

For short trades: - Place stop loss above resistance - Use ATR if unsure (2 ATRs above entry) - Never put stop more than 5% away from entry

This removes guesswork. You have a rule for every situation.

Section 4: Take Profit Targets

Write this down:

For long trades: - Target 1: Next resistance level - Target 2: Resistance 2 levels away - Target 3: Let winners run with a trailing stop

For short trades: - Target 1: Next support level - Target 2: Support 2 levels away - Target 3: Let winners run with a trailing stop

This prevents the "I should have held longer" regret. You have a plan for taking profits.

Section 5: Losing Streak Protocol

Write this down:

If you hit 3 losses in a row: - Stop trading for the rest of the day - Review each losing trade - Ask: "Was this a good setup that lost, or a bad setup?"

If you hit 5 losses in a row: - Take the next day off - Review your entire week of trades - Check if you're deviating from your plan

If you hit 10 losses in a row: - Stop trading for one week - Review your system with fresh eyes - Ask: "Is my system broken or did variance happen?"

This saves you. Most traders don't have this section. When they hit a 5-loss streak, they have no protocol. They panic and revenge trade.

The full plan in writing:

It looks like this: