FOUNDATIONS: COURSE 3 | LESSON 3
Building a trading plan: entry, stop, target
Learning objectives
By the end you can write a one-line trade plan with an entry, a stop-loss, and a take-profit before you click buy or sell.
By the end you can calculate the risk-reward ratio of a planned trade and explain why it matters more than being right.
By the end you can attach a stop-loss and take-profit to an order in MT4/MT5 so the plan is enforced automatically.
Making a plan
In Lesson 1 you placed a trade with no stop, no target, and no reason. That was a mechanics drill.
From today, every trade you place has three numbers written down before entry:
- where you get in
- where you admit you're wrong,
- where you take profit.
That's a trade plan. It fits on one line, and it's the single biggest difference between trading and guessing.
The three numbers
Entry — the price where your idea says "act". Maybe EUR/USD has bounced off 1.0800 twice this week and it's approaching again. Your entry might be 1.0810, once you see it holding.
Stop-loss — the price that proves your idea wrong. Not "where it hurts too much" — where the reason for the trade is dead. If your idea is "1.0800 is support", then a drop to 1.0780 means support failed. Stop goes at 1.0780, and the trade closes itself there without a debate.
Take-profit (target) — where you'll bank the win. It should be a level with some logic behind it — the top of the recent range, a prior high — not a fantasy number. If EUR/USD has stalled at 1.0870 three times, that's an honest target: 1.0870.
So the whole plan reads: Buy EUR/USD at 1.0810, stop 1.0780, target 1.0870. One line. If you can't write that line, you don't have a trade — you have an urge.
Risk-reward: the maths that forgives you for being wrong
Your plan risks 30 pips (1.0810 → 1.0780) to try to make 60 pips (1.0810 → 1.0870). That's a 1:2 risk-reward ratio — every dollar risked chases two.
Here's why this number quietly runs your whole trading life. Suppose you take ten trades like this and win only four:
- 4 winners × 60 pips = +240 pips
- 6 losers × 30 pips = −180 pips
- Net: +60 pips, while being wrong 60% of the time.
Now flip it. A trader who risks 60 pips to make 30 (1:0.5) needs to win two-thirds of their trades just to break even. Beginners fall into exactly this trap: they take profits fast because winning feels good, and let losers run because closing one feels like defeat. The result is a string of small wins wiped out by occasional big losses — the most common account-killer there is.
A practical floor: don't take a trade below 1:1.5, and treat 1:2 as your default. This isn't a magic number; it's a margin for error. You will be wrong a lot. The plan's job is to make being wrong affordable.
One honest caveat: a good ratio on paper means nothing if the target is unrealistic. Risking 10 pips to "make 200" on a quiet Tuesday isn't a 1:20 trade, it's a 10-pip donation. Stops and targets both have to sit at levels the market actually respects.
Where do the levels come from?
At this stage, keep it simple and visual. Open a chart on H1 or H4 and mark:
- Recent lows that held → candidate support (stops go a little below, buys happen near them).
- Recent highs that capped price → candidate resistance (targets for longs, entries for shorts).
Course F3 (Market Basics) turns this into proper technique — support/resistance, trend, and candlestick signals. For now the rule is: your stop and target must each point at something on the chart. "Round number 30 pips away" is not analysis. "Below the level that's held all week" is.
A worked example on gold: XAU/USD is trading at $3,342 after pulling back from $3,375. The pullback has stalled twice around $3,330. Plan: buy 3,344, stop 3,318 (below the level that held, with a little room), target 3,370 (just under the recent high — don't demand the exact top). Risk $26, reward $26... that's only 1:1. Verdict: skip it or find a better entry closer to 3,330. Yes — the correct output of many trade plans is no trade. That's the plan working.
Putting the plan into the platform
MT4/MT5 lets you hard-wire the plan so discipline doesn't depend on willpower:
- Open the order ticket (F9 / New Order).
- Enter your volume, then fill in the Stop Loss and Take Profit price fields before clicking buy or sell. For a market order on our EUR/USD plan: SL 1.0780, TP 1.0870.
- If your entry is away from the current price — you want to buy at 1.0810 but price is 1.0835 — use a pending order (a buy limit at 1.0810) with the SL and TP attached. The platform then executes the entire plan while you get on with your life.
- After entry, you can drag the SL/TP lines on the chart or right-click the position → Modify. Moving your target is sometimes fine. Moving your stop further away is how plans die — we cover that discipline in Lesson 4.
The point of automation isn't laziness. It's that the calm person who wrote the plan is smarter than the stressed person watching the trade. Let the calm one drive.
Key takeaways
A trade plan is one line: entry, stop-loss, take-profit — written down before you enter, no exceptions.
Your stop goes where the trade idea is proven wrong, not at a random pain threshold.
At 1:2 risk-reward you can be wrong 60% of the time and still come out ahead; below 1:1.5, walk away.
Stops and targets must point at real chart levels, and both get typed into the order ticket so the platform enforces the plan.
"No trade" is a valid — and frequent — output of a good planning process.