How to Plan a Trade (Step-by-Step)
Before entering any trade, work through these five steps to define your risk, set your exits, and understand your potential reward. Each step links to the calculator you need.
The 5-Step Trade Plan
Size the Trade
Decide how much of your account to risk on this trade. Most traders use 1–2% per trade. Position sizing ensures one bad trade doesn't blow up your account.
Not sure whether to use fixed sizing or Kelly? Compare Position Size vs Kelly →
Define Stop Loss + Take Profit
Set your exit points before you enter. Know exactly where you'll cut losses and where you'll take profits. This defines your risk/reward ratio.
Want to validate your risk level is survivable? Compare Stop Loss vs Risk of Ruin →
Check Whether the Move Is Realistic
Use implied volatility to see how much the market expects the stock to move. If your target is outside the expected range, your odds are lower than you might think.
Trading options? Plan your strikes with Multi-Leg Breakeven →
Map Options Payoff (If Trading Options)
Visualize your profit/loss at expiration. See your max gain, max loss, and breakeven price before you commit. This step is for options traders only.
Need to understand Greeks too? Compare Greeks vs P/L →
Plan Multi-Leg Strategy (If Needed)
If you're trading spreads, straddles, or condors, calculate net cost, breakeven points, and max profit/loss across all legs. Use expected move context to pick strikes.
Recommended Flow
- Size your position — decide risk % before anything else
- Set stop + target — define exits before entry
- Check expected move — is your target realistic?
- Map payoff — understand max gain/loss (options)
- Build strategy — if multi-leg, calculate net position
Related comparisons
Frequently Asked Questions
What should I decide before entering a trade?
At minimum: how much you're risking, where you'll exit if wrong (stop loss), and where you'll take profits. Never enter a trade without knowing your exit plan.
How much should I risk per trade?
Most traders use 1–2% of their account per trade. This keeps any single loss manageable and helps you survive losing streaks. Use the Position Size Calculator to find the right share count.
Do I need a stop loss for every trade?
Yes. A stop loss defines your maximum risk. Without one, a single bad trade can wipe out weeks of gains. Even mental stops should be defined before entry.
Why does expected move matter?
Expected move tells you how much the market thinks a stock will move based on implied volatility. If your price target is outside this range, you're betting against the odds implied by options pricing.
Should I use Greeks or a P/L payoff chart?
Both serve different purposes. Use P/L to understand your payoff at expiration. Use Greeks to understand how your position behaves before expiration as price, time, and volatility change.