Building a Trade Plan
Sizing is one piece of the puzzle. This lesson ties it into one simple, repeatable plan, so you never place a trade on a whim again.
- The five questions every trade should answer before you enter
- How to match a strategy to your outlook and to IV
- Why position size is what keeps you in the game
- How to turn discipline into one repeatable routine
The difference between a gambler and a trader is not the strategies they know. It is that one has a plan and the other has a feeling.
Knowing how much to risk, from the last lesson, is one piece. The thing that turns that discipline into results is boring and powerful: a plan you make before money is on the line, when your head is clear, and then follow when it is not. Let me hand you a simple one that ties it together.
The Five-Question Plan
Before you place any trade, answer five questions. Every one of them you already know how to answer from earlier lessons. Together they are your whole plan.
Five questions, answered in a minute, and your trade is no longer a whim. It has a reason, a plan to win, a plan to lose, and a size. That is what a professional trade looks like.
Match the Trade to the Moment
Questions one and two do most of the work, because together they pick your strategy for you. Your outlook sets the direction; IV decides whether you are selling premium or buying it. Here is a quick reference for how that pairing plays out.
Look at that. Every market mood has a trade that fits it, whether or not you have built each one yet. Knowing the matching logic is what lets you plug in whichever strategies are already in your toolbox.
Size It So You Survive
The last question is the one that keeps you in the game long enough for the rest to matter. No matter how good a setup looks, you risk only a small slice of your account on it, commonly somewhere between 1 and 5%.
Big bets are how good traders blow up. One oversized loss can erase months of careful work and, worse, push you into panicked decisions. Keep every position small enough that being wrong is just a normal Tuesday. You saw the deeper math of sizing in the last lesson, but the principle is simple and it is the whole ballgame: never let one trade take you out.
When I was advising clients, the people who lasted were almost never the flashiest. They were the ones with a dull little routine, the same five questions, the same small size, every single time. Boring is what survives.
- A trade plan answers five questions: outlook, IV, strategy, exits, size.
- Your outlook and IV together point to a specific strategy from your toolbox.
- Set your profit target and stop before you enter, never after.
- Risk only a small slice (commonly 1 to 5%) so no single trade can take you out.
- Boring and repeatable beats clever and reckless, every time.
Pop Quiz
Three quick questions to finish strong. Pick an answer and the explanation shows up right away.
You are neutral on a stock and IV rank is high. Which trade fits?
Neutral sets the direction, high IV says sell premium. Together they point to an iron condor or butterfly, collecting rich credit on a stock you expect to go nowhere.
When should you decide your exits?
Set your profit target and stop before money is on the line. In the moment, fear and hope make terrible decisions. The plan protects you from yourself.
Why keep each position small?
Small size means no single loss can hurt you badly, so you survive streaks, stay rational, and keep trading. Staying in the game is what lets everything else add up.
Bottom Line
A trade plan is what turns a collection of strategies into actual skill. Answer five questions before every trade: your outlook, the IV, the strategy that fits both, your exits, and your size. Match the trade to the moment, set your exits in advance, and keep every position small enough that being wrong is no big deal. Do that, and you are not guessing anymore. You are trading.
Next up: Managing Winning Trades. You have a plan for getting in. Next comes the half nobody teaches: knowing when a winning trade has given you enough, and why closing early usually beats holding for the last dollar.