Strategies · Lesson 17 · Advanced
Your trading plan: the 7 building blocks
You build a written trading plan out of 7 mandatory building blocks, in which every decision is already fixed before you look at the chart.
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Why 7 building blocks
In the lesson on the tradable setup you learned the four mandatory parts of a single trade: entry, stop, target, timeframe. A trading plan sits one level higher. It defines which setups you look for in the first place, under what conditions, and how you learn afterwards.
Elder draws a clean line: you fix rules while your mind is neutral, not inside the trade. That is exactly what the plan is for. It takes the decision off your hands when it counts, because it has already been made. Each of the 7 building blocks gets one concrete, filled-in line. As a running example we use BTCUSDT.
The 7 building blocks in their mandatory order
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Building block 1: market and timeframe
Define what you trade and on which level you look and time. One market is enough at the start. Whoever jumps around compares nothing.
Example line: BTCUSDT perpetual. Setup search on the 4h chart, entry timing on the 15min chart (a factor of around 5 between the levels).
Building block 2: market-state filter
Before a setup counts, the market state has to fit. This is the censor from the lesson market state first. It strikes out one of the three options (long, short, stand aside).
Example line: long only when the 4h chart shows higher highs and higher lows AND the 13-EMA is rising. If the EMA is flat or falling, I stand aside. No shorts in this plan.
Building block 3: setup definition
Now the objective criteria: which constellation exactly do you look for? Phrase it so that a stranger on the same chart would read the same yes or no out of it.
Example line: EMA pullback in an uptrend. Price retraces 33 to 50 percent of the last impulse move back to the rising 4h EMA and forms a minor high there.
Building block 4: entry trigger
The trigger is the one visible event that makes you click. Without a trigger you wait forever or jump in too early.
Example line: long when a 15min candle closes above the last minor high of the pullback zone. Concretely, entry at 61,200 USDT.
Building block 5: stop and position size
First set the stop technically, then derive the size, never the other way around (the Iron Triangle from the sizing lesson). Leverage does not appear in the calculation, only the stop distance.
Example line: stop below the pullback low at 59,800 USDT, so a distance of 1,400 USDT. Account 10,000 USDT, 1 percent risk equals 100 USDT. Quantity = 100 divided by 1,400 = about 0.071 BTC.
Building block 6: exit and management
Decide in advance how you manage winners, not once the trade is running. Think in R units, not in USDT moods.
Example line: first target 1.5R at 63,300 USDT, close 50 percent there and pull the stop to break-even (61,200 USDT). Trail the rest with the 15min structure, out when a 15min swing low breaks.
Building block 7: review routine
The plan does not end at the exit. Without a record you repeat mistakes. Elder: do not step on the same rake twice.
Example line: every trade straight into the journal with entry, stop, target, screenshot and setup name. Weekly review every Sunday, mark rule breaks in red.
The complete example plan to copy
1. Market/timeframe: BTCUSDT perpetual, setup on 4h, timing on 15min.
2. Market state: long only on 4h higher highs/lows and a rising 13-EMA, otherwise stand aside, no shorts.
3. Setup: EMA pullback, 33 to 50 percent retracement to the rising 4h EMA with a minor high.
4. Entry trigger: 15min close above the minor high, entry 61,200 USDT.
5. Stop/size: stop 59,800 USDT (distance 1,400 USDT), risk 1 percent of 10,000 USDT equals 100 USDT, size about 0.071 BTC.
6. Exit: 50 percent at 1.5R (63,300 USDT), stop to break-even, trail the rest on the 15min structure.
7. Review: straight into the journal, weekly review on Sunday.
Test yourself
In your plan, building block 5 has only the entry 61,200 USDT, but no stop. What follows from that?
- The setup is not tradable, without a stop the position size cannot be calculated at all
- Does not matter, I will set the stop later once I see how it goes
- I just take a round quantity
The 4h chart is making lower highs and the 13-EMA is falling, but you see a beautiful 15min pullback. What does your plan say?
- Stand aside, building block 2 allows a long only with a rising 4h EMA
- Long anyway, the timing is too good
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The key points at a glance
- A plan consists of 7 building blocks: market, market state, setup, entry, stop plus size, exit, review.
- Every building block is a concrete number or rule, not a soft principle.
- The plan is created in calm, not inside an open trade.
- A setup is only tradable once all 7 lines are filled in.
Deep dive
Why a written plan works at all
Dennis' Turtles are the proof: 20 of 23 trained Turtles made an average of roughly 100 percent profit per year with the same teachable rules. The knowledge was free, the difference was discipline.
Elder draws a clean line: you set your rules while your head is neutral, never inside an open trade. As soon as a position is running, emotions take the wheel. The plan takes the decision off your hands before greed and fear get a say.
The most common gaps in beginner plans
A plan rarely fails at the entry, it fails on forgotten building blocks. Kovner is clear: position size is set by the stop, never the other way around. Leverage does not even appear in the calculation, only the stop distance does.
- A missing market-state filter: no criterion for when you stay out.
- Position size by gut feeling instead of derived from the stop.
- Correlation risk: long BTC and long ETH are one leveraged single bet.
- No emergency brake: a plan without a drawdown limit is a car without brakes.
From plan to equity curve: how you evaluate it
Elder's top evaluation metric is the slope of the equity curve: steady growth with small drawdowns, not individual big wins. A plan with two peak gains and then one account-wiping loss is a bad plan.
The review routine is the engine of improvement: every trade straight into the journal, rule breaks marked in red in the weekly review. That way you see whether losses come from the process or from broken discipline. Practice completeness on the demo exchange before capital is on the line.
1R = your risk unit: the loss you have budgeted per trade (distance from entry to stop-loss). +2R means: you won twice as much as you risked.
Sources: Elder, Alexander: The New Trading for a Living; Murphy, John: Technical Analysis of the Financial Markets
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