THE WRITTEN PLAN: FIVE LINES BEFORE ENTRY

Setup, entry, exits, size, invalidation — written before entry, every time, no exceptions for ‘obvious’ trades. The plan is the difference between a trade and a hope with a ticker symbol. Pilots file a flight plan before takeoff — route, fuel, and the alternate airport — not because they lack skill, but because weather does not negotiate at 30,000 feet and a busy mind improvises badly. The plan is not the flight; storms still come, routes still change. But every decision that can be made on the ground, calmly, with the charts spread out, is made there — leaving the airborne mind free for the few that can’t. A trade plan is the same filing: five lines on the ground, so that the person holding a losing position at 11am is executing a document, not writing one.

THE WRITTEN PLAN · STAGE 4 · LESSON 4

THE TAKEAWAYS

• Each line has a job. Setup: the reason, citing Stage 3 evidence — regime, levels, volume — not a feeling about the day. Entry: a price and a limit order (Stage 2: beginners default to limit), with its time-in-force. Exits: three of them — the profit target, the max-loss exit, and the time exit, because trades can fail by going nowhere as well as by going wrong. Size: Lesson 2’s division, shown in the plan, not asserted. Invalidation: the observable fact that proves the idea wrong — distinct from the max-loss exit, which is the action you take when you see it.
• The plan is written for a specific reader: you, mid-trade, down money, at speed. It must be readable in ten seconds and leave nothing to improvise — no ‘watch it’, no ‘decide later’, no blanks where the hard part goes. If a line can’t be written, the trade isn’t ready; that is the plan doing its first job before any money moves.
• Plans can change exactly one way: the change and its reason are written in the journal BEFORE the action, and Lesson 6 grades it as a change. Silent edits — the target that quietly moves, the invalidation that quietly softens — are how a plan becomes a diary of excuses while still looking like discipline from the inside.
• ‘No plan’ is also a plan: the market’s. Entry by impulse, size by leftover cash, exit by pain threshold — every account in Stage 0’s evidence was built from unplanned trades, each one individually explainable on the day it happened. The five lines are not bureaucracy. They are the whole border between this course and the statistics it opened with.

WORKED EXAMPLE — STEP BY STEP

1. Line 1 — THE SETUP, from Stage 3’s map (real, and frozen in that stage): SPY is ranging. Above: the 779–782 resistance shelf, six October approaches, no close above 779.09. Below: the 766–767 support shelf — held Sep 21, 23 and 25; lost Sep 28–Oct 1; reclaimed Oct 2; pierced intraday Oct 15 (low 764.44) and recovered the same morning. Oct 15 closed at 770.49. The plan: if the shelf is retested, buy it — that is where buyers have actually shown up, four separate times.
2. Line 2 — THE ENTRY: a limit buy at 768.00 (just above the shelf), good-till-cancelled, so the order waits for the retest instead of chasing today’s price. And an entry-side invalidation written now: if SPY closes below 759 before the order fills, the order is cancelled unfilled — the shelf story will already be over and the plan with it.
3. Line 3 — THE SIZE, with the division shown: the $10,000 example account at the course’s 1% setting gives a $100 budget. Invalidation is a close below 759, so risk per share = 768 − 759 = $9. Size = $100 ÷ $9 = 11.1, rounded down: 11 shares. Position value 11 × $768 = $8,448 — inside the cash account, unlevered. Planned risk: 11 × $9 = $99.
4. Line 4 — THE EXITS, all three: profit target 779 — the underside of the resistance shelf — worth +$11 a share, +$121 total, about 1.2× the planned risk; modest, and honest about what a range pays. Max-loss exit: a daily close below 759 means sell at the next open, at whatever it prints. Time exit: five sessions — if neither the target nor the invalidation has arrived, exit and re-plan from fresh eyes; a range trade going nowhere is renting patience.
5. Line 5 — THE INVALIDATION, restated as the idea-killer: a close below 759 — under the shelf, and under the 758.79 washout low of Sep 28–Oct 1 — means the buyers this plan counted on did not come. Not ‘give it one more day’. The idea is done, the exit line above is the action, and the journal (Lesson 6) will grade whether it happened.

FROM PLAN TO PLAYBOOK — WHERE THE FIVE LINES GO NEXT

The five lines are deliberately small enough to survive contact with a real morning: they fit on an index card, and the Paper-Trading Log in Downloads prints them at the head of every entry. Stage 8 builds the trade lifecycle on this skeleton — entries, management, exits as one written arc. Stage 9 goes further: a PlayBook entry is what a plan becomes after thirty graded repetitions — the same five lines, plus the evidence of how they actually performed, the annotated charts of the best and worst executions, and the one recurring error the journal exposed. Nothing in those later stages adds a new religion. They are this lesson, compounded.

COMMON BEGINNER MISTAKES

• Writing the plan after entry. That is not planning; it is rationalisation with a timestamp problem, and the journal will know.
• A target with no max-loss exit — half a plan, and the missing half is the half that matters on the bad morning.
• Invalidation as a feeling (‘if it looks wrong’) instead of an observable price or fact. A feeling can always be renegotiated; a close below 759 cannot.
• Size stated as a share count with no division behind it. If the arithmetic isn’t in the plan, the size came from somewhere else — leftover cash, or a hunch — and Lesson 2 has names for both.

CHECK YOURSELF

DO IT — WRITE A PLAN FOR A TRADE YOU WON’T TAKE

Using this morning’s ten-minute routine (Stage 3, Lesson 6) and the fresh SPY Sheet, write a complete five-line plan in your journal for a hypothetical SPY share trade: your own account figure (or the $10,000 example), your own levels from the real chart, the division shown, all three exits, and the invalidation as an observable fact. Place no order — this plan is an artefact, and it is one third of Stage 4’s gate. Date it. If any line won’t write, write that down instead: it is the most useful sentence in the journal so far.