Building a price-action trade plan

Reading the chart well is only half the job. A trade plan turns that reading into decisions you make before you enter, so you are not improvising with money at risk. This lesson builds a complete plan from the ideas in the previous three lessons and works through one example with illustrative numbers.

The parts of a plan

Every price-action plan should answer these questions in writing before the order is placed:

1. Context: what is the structure on your main timeframe and one timeframe higher?
2. Level: which level are you trading from, and why does it matter?
3. Entry trigger: what exactly must happen for you to enter? For example, a 1-hour close back above the level, or a rejection wick on a retest.
4. Stop-loss: where is the idea proven wrong?
5. Target: where is the next level that could stop the move?
6. Position size: how many lots keep the loss at your chosen risk if the stop is hit?
7. Invalidation before entry: what would make you cancel the idea altogether?

Stops beyond structure

A stop should sit where the trade idea is clearly wrong, not at an arbitrary number of pips. In price action, that usually means just beyond the swing point that your idea depends on. If you buy a retest of broken resistance, the idea is wrong if price falls back below the retest low, so the stop goes below it.

Add a small buffer beyond the swing point. Obvious levels attract stop orders, and price often trades a few pips through them, as covered in the breakouts lesson. The buffer is a judgement call; many traders use a few pips on intraday charts and more on daily charts. The spread also matters, because a sell stop on a long position is triggered by the bid price.

Never move a stop further away to avoid being stopped out. If the correct stop is too far away for your risk limit, the answer is a smaller position or no trade.

Worked example

All prices below are illustrative examples, not real or current prices. The account is in USD and the pair is EUR/USD, so 1 pip on 1 standard lot is worth 10 USD.

Context. The daily chart is making higher highs and higher lows. On the 4-hour chart, price has been in a range with resistance at 1.1000.

Setup. Price closes above 1.1000, then pulls back. The retest dips to 1.0985, prints a rejection wick, and the next 1-hour candle closes back above 1.1000.

Plan.

• Entry: 1.1005, after the confirming close.
• Stop: 1.0980, which is 5 pips below the retest low of 1.0985.
• Stop distance: 1.1005 minus 1.0980 = 0.0025, which is 25 pips.
• Target: the previous swing high at 1.1080. Distance: 1.1080 minus 1.1005 = 0.0075, which is 75 pips.
• Reward-to-risk: 75 ÷ 25 = 3, so the target is 3R (three times the amount risked).

Position size.

• Account: 10,000 USD. Risk per trade: 1%.
• Risk amount: 10,000 × 1% = 100 USD.
• Position size: 100 ÷ (25 pips × 10 USD per pip per lot) = 100 ÷ 250 = 0.4 lots (40,000 EUR).

Outcomes, before costs.

Margin check. The notional value is 40,000 EUR × 1.1005 = 44,020 USD. At 30:1 leverage, required margin is 44,020 ÷ 30 = about 1,467 USD. Margin is not the same as risk: the risk in this plan is the 100 USD set by the stop, provided the stop is filled at its price.

At a 3R target, the trade breaks even over time if about one trade in four reaches the target (1 ÷ (1 + 3) = 25%), before spreads, commission and slippage. Costs push that figure higher, and gaps or fast markets can fill a stop at a worse price than planned.

Review and record

After every trade, record the screenshot, your written plan, what happened and whether you followed the plan. Judge yourself on following the process, not on single outcomes. A well-planned trade can lose and a careless one can win; only a record over many trades shows whether your approach has an edge.

Remember that leveraged trading carries a high level of risk, and most retail CFD accounts lose money. Practise the full planning routine on a demo account before using real funds.

Key takeaways

• Write the context, level, trigger, stop, target, size and invalidation before entering.
• Place stops just beyond the structure that proves the idea wrong, with a small buffer.
• Position size = risk amount ÷ (stop distance in pips × pip value per lot).
• Margin is what the broker holds; risk is what you lose if the stop is hit. They are different numbers.
• Keep a journal and judge your process across many trades, not single results.