The Trade Plan

Why a checklist at all

Surgeons and airline pilots use checklists. Not because they've forgotten how to do their jobs, but because under pressure, experienced people skip steps — and they skip them without noticing.

Trading applies pressure of exactly that kind. You will be tired, or behind for the week, or convinced by a chart that looks obvious. Every one of those states makes you likely to skip the step that would have stopped you.

The plan below has seven steps. Its real value is in being a gate: if a setup can't get through all seven, it isn't a trade. Not a smaller trade, not a trade with a wider stop — not a trade.

Step 1 — Check the session and the calendar

Before you look at a single chart, answer two questions.

Is this a sensible time to trade? If it's the dead zone between New York closing and Tokyo opening, close the laptop. Liquidity is thin, spreads are wide, and moves that look like breakouts are frequently nothing.

Is there high-impact news due? Interest rate decisions, inflation releases, US non-farm payrolls. In the minutes around these, spreads widen dramatically, price can gap straight through your stop, and technical analysis stops describing the market.

The practical rule: don't open a new position in the two hours before a high-impact release for a currency in your pair. If you're already in a trade, decide in advance — before the release, not during it — whether you're closing or accepting the risk.

Step 2 — Establish the trend, top down

Start on the daily chart, drop to the 4-hour, then to your entry timeframe. Always that direction. Starting small and zooming out is how people end up shorting into a raging uptrend.

On each timeframe ask one question: is price making higher highs and higher lows, or lower highs and lower lows?

• Higher highs and higher lows — uptrend. You are looking for buys.
• Lower highs and lower lows — downtrend. You are looking for sells.
• Neither — a range. This is the one most people refuse to see, and it's where the money goes to die.

You want your timeframes agreeing. Daily up and 4-hour up is a strong setup. Daily up and 4-hour down is a pullback — potentially an opportunity, but a harder trade requiring more confirmation. Daily down and 4-hour up is how people buy a falling market and call it "value".

Step 3 — Mark your area of interest

You now know the direction. You still need a location — a price area where you'd actually want to get involved.

This is the discipline that separates a plan from a whim. In an uptrend, you don't buy because it's going up. You mark the level where you'd buy, and you wait for price to come to you. Chasing a move that has already run means entering exactly where your stop has to be widest.

Good areas of interest are:

• Previous support or resistance — where price clearly turned before.
• A broken level, now expected to act in reverse (see break-and-retest in Chapter 3).
• A moving average that price has respected repeatedly, commonly the 50 EMA.
• A round number — 1.3500, 150.00. Crude, but a lot of orders sit there.

Mark these as zones, not lines. Price does not respect a one-pixel line you drew last Tuesday. A zone of 10–20 pips is realistic and will save you being stopped out by a wick.

Step 4 — Wait for a break of structure

Price has arrived at your zone. Do not buy yet.

A level holds until it doesn't, and "it's at support" has preceded an enormous number of losing trades. What you want is evidence the move is resuming — a break of short-term structure in your intended direction.

Concretely: price has pulled back into your zone, made a small lower high on the way down, and then pushed back up through that lower high. That break says the pullback is finished and buyers have re-engaged.

This single step is the difference between "catching a falling knife" and "waiting for the knife to land". It costs you a few pips of entry. It saves you entire trades.

Step 5 — Get a candlestick trigger

Structure has broken your way. Now you want a specific candle to enter on — something showing the level was actively rejected rather than merely touched.

The three worth knowing, covered properly in Chapter 3:

• Engulfing candle — a candle whose body completely covers the previous one, in your direction. The strongest of the three.
• Hammer / pin bar — a long wick into your zone with a small body, showing price was driven back out.
• Morning or evening star — a three-candle reversal.

Wait for the candle to close. A candle that looks like a perfect hammer twenty minutes before the close can finish as something else entirely. Acting on an unclosed candle is acting on a pattern that does not yet exist.

Step 6 — Place stop and target BEFORE you enter

This is the step that decides whether you are trading or gambling, and it is non-negotiable.

Before you click anything, you must know three numbers: where you get in, where you're wrong, and where you take profit. All three before entry, because afterwards you will be emotionally invested and your judgement will be measurably worse.

The stop goes where you're wrong

Not where the loss feels tolerable. Your stop belongs at the price which, if reached, means your analysis was wrong — below the low of the move you're buying, or above the high of the move you're selling, with a little room for noise.

If that stop is further away than you'd like, the answer is a smaller position, not a closer stop. A stop placed for comfort rather than logic will be hit by ordinary noise, and you'll be stopped out of trades that go on to work.

The target needs to justify the stop

Measure the distance to your stop. That's your risk — one unit, one "R". Your target should be at least 1.5R, and preferably 2R, at a level price plausibly reaches: a previous high, the next resistance zone.

Step 7 — Execute, then leave it alone

Place the trade with the stop and target attached. Then the hard part: do nothing.

You made your decisions with a clear head. Every change you make while the trade is live is made with money on the line and your judgement degraded. The two classic destroyers:

• Moving the stop further away because price is approaching it. This converts a planned, survivable loss into an unplanned one. It is the single most expensive habit in retail trading.
• Closing early for a small profit because you're nervous. Do this often enough and your winners are all small while your losers are full size — arithmetic that cannot be rescued by any win rate.

Moving a stop in your favour is a different matter, and a legitimate technique. Chapter 4 covers trailing properly.

The checklist, on one card

Print it. Keep it where you trade. Run it every time, including — especially — on the setups that look too obvious to need it.