How to Create a Day Trading Plan?

22 December 2023
9 min read
How to Create a Day Trading Plan?

Theoretically, Intraday Trading is all about buying low and selling high within the same day. These opportunities for buy/sell can be for a particular stock, sector, or the market as a whole. The success of an intraday trader lies in identifying and taking the right position at the right time.

However, the reality is much more complicated. One of the biggest roadblocks that intraday traders have to face is a tendency to get swayed by market sentiment. While some traders get swayed in the direction of the sentiment, others sway in the opposite direction.

So, if there is a buzz in the market about a particular sector, most day traders are buying stocks of companies in that sector. Some traders participate in the trend and some short-sell such stocks playing against the hype. However, as a day trader, the margin for error is small and a wrong call can lead to losses.

Hence, it is prudent to have a plan to execute your day trading activity and keep close to your investing strategy. This is a Day Trading Plan – a broad framework allowing you to make trading decisions that are well-suited to you. So, if you’re wondering about “How to Make a Trading Plan successful?” or “how to create a trading plan?”, this blog is just for you! Today, we will share some steps to help you create a personalized day trading plan for yourself.

Before we begin, it is important to stress the fact that no one size fits all and this blog should be considered as a starting point when it comes to chart your day trading plan. Please conduct the necessary due diligence before venturing into the Intraday Trading discipline. Let’s begin!

Steps to Creating A Day Trading Plan

Any information you deem useful can be included in your Day Trading Plan, but it must always cover the below steps:

Step 1: Determine Your Primary Motivation & Trading Objectives

This is the first and most important step in developing a day trading strategy, so it's critical that you keep your trading objective in mind. This straightforward query, or your "Why?" of trading, will serve as the foundation for almost all of your future decisions.

Lastly, keep in mind that your passion must be greater than anything else!

Step 2: Choose Your Day Trading Style

There are primarily two approaches taken by day traders to create a Trading Investment Plan:

  1. Scalping – This is a fast-paced trading approach. As the name suggests, day traders who take this approach look to book small profits or losses within a short time. They buy/sell stock and square it off within minutes. This approach requires you to understand minute stock price movements and capitalize on them. It is all about timing.
  1. Regular Day Trading – This approach is about opening a position during the first half of the day and closing it by the end of the day. This involves a better understanding of the macroeconomic conditions that can impact the markets/sector(s). It is about identifying a potential trend and taking a position accordingly. 

Step 3: Create Your Own Checklist To Meet Your Trading Requirements Or Figure Out How Many Confluences You Need To See Before You Can Make A Trade.

A trader can examine far too many confluences before making a decision. To avoid getting lost in the vast array of indicators and strategies available, it is crucial to identify the indicators that work best for YOU.

If you keep an eye out, some simple technical analysis can separate a bad trade idea from a good one. It will be simpler once you establish the number of confluences that are appropriate for you because you can then make a decision without violating your own rules.

Step 4: Determine Your Risk Tolerance

Risk tolerance. This is a common term heard across investing and trading circles. However, what is risk tolerance, and why is it important? Every investment comes with associated risks.

So, if you are buying shares, then the price of the share can get influenced by various factors. This includes the country’s economic, social, and political situation and the company’s performance. If the government makes a sudden policy change affecting an industry or the market, then the share price will respond either in favour of or against you.

Risk tolerance is the amount of risk you can take without making emotion-driven decisions. While long-term investors have time to allow the share prices to move up, day traders barely have a few hours. Hence, before you start Intraday Trading, ensure that you assess your risk tolerance level.

Step 5: Establish A Trading Schedule, Including the Frequency Of Your Trades.

The most effective method for day trading is to implement strategies that work well at a certain time of the day, and then only trade during those times. Therefore, it is very important for you as a trader to trade at the same time each day.

Step 6: Identify The Conditions That Would Cause You To Exit A Trade

Everyone focuses on entry or confluences, but nobody develops a strategy or set of rules for getting out of the trade, so you need to decide when and where you're going to exit a trade.

Determining this is crucial because you won't be consistent if you don't have a rule book for your individual trading activities.

Step 7: Create & Implement Rules for Risk Management (At Entry & Exit Levels)

While on the topic of risks, let’s talk about risk management too. A day trader without a strategic risk management plan is like a deep-sea diver without his gear – he is bound to fail.

Risk management is primarily the difference between gambling and intraday trading. This plan will help you have a bird’s-eye view of the overall risks of your trades and potential losses. Ensure that you have a Risk Management Plan in place before starting intraday trading.

Step 8: Learn How to Read Charts

As a day trader, you will want to look at the open, close, high, low, and last closing price of a share before investing. This information is essential to make an informed trading decision. There are various types of charts used by traders like line charts, bar charts, and candlestick charts.

Of these, most traders prefer the candlestick charts as they offer detailed information in an easy-to-understand manner. Each chart is drawn for a specific time frame. Hence, you have one-minute charts that track the performance of the share price every minute, hourly charts, etc. There are various free tools available online to help you get the hang of reading and analyzing them.

You can also read our detailed blog on ‘How to Read Candlestick Charts for Intraday Trading?’ for more understanding.

Step 9: Acknowledge & Understand Market Correlations.

If anything, history teaches us what to expect from the future. Even if it is not 100%, it gives you a good place to start. This is the basis of the concept of market correlation.

For example, what if I were to tell you that every time the NYSE (New York Stock Exchange) rallies, the BSE rallies too (at least more often than not). If that’s what historical numbers tell us, then do we assume that the future markets will behave in a similar fashion?

They may not. However, making trading decisions is all about probabilities and odds taken in a calculated manner. Hence, banking on prior market correlations can help you fairly estimate the direction of the markets and take a position accordingly. Also, if things go wrong, you have a risk management plan to prevent you from falling too far.

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Example of the Perfect Day Trading Plan

Each trader is different and requires a unique trading strategy. To create the perfect trading strategy for you, use the steps listed below as an example:

  • Where Do You Stand?

Intraday trading is a fast-paced activity. Hence, your skill levels will matter when you have to make split-second decisions. Before you create a trading plan, do some paper trading (dummy trading) to assess how your skills stand up to the markets.

Ensure that your trading plan is based on your skills and not a perception.

  • Creating Emotional Filters

Yes, you read that right. Successful day traders stay away from the markets if they are not emotionally or psychologically up for the challenge.

Identify your emotional triggers and how you react to them, and ensure that you filter out days when you are not at your best.

  • Determining Risk-Per-Trade

While we have spoken about risk management and risk-reward ratio, you also need to ensure that you don’t expose your portfolio to too much risk in one trade alone. Many day traders lose a fortune by over-investing in a position.

Regardless of the confidence you have in the position, markets are unpredictable. Hence, determine the maximum percentage of your trading portfolio that you will expose to risk in one trade.

  • Being Realistic

Who wouldn’t want to invest Rs.100 and make thousands out of it. In fact, the internet is always abuzz with such stories and claims of strategies that can make millionaires out of anyone.

While we would love to see all our investors as millionaires, it is important to remain realistic while setting expectations from the markets.

  • Being An Informed Trader

Day traders are aware of what is happening in the world. They watch the news, listen to government policy changes, keep a watch on any political events (domestic or international), stay aware of social situations, etc.

Being informed can give you an edge over other traders who tend to follow than take the initiative and pre-empt a market movement.

  • Choosing A Day Trading Strategy/ Day Trading Strategies

There are various strategies adopted by day traders. While each of them will require some practice, it can help you approach trading in a more structured manner.

You can read about some popular strategies in our blog, ‘Introduction to Intraday Trading Strategies’.

  • Setting Entry/Exit Rules

As explained above, it is important to set entry/exit rules to help you make data-driven decisions and steer clear of emotions clouding your judgment. As a day trader, it is important to remember that sometimes market sentiment can benefit you, and sometimes it can take you south.

Hence, setting entry/exit rules is important to keep your trades price-driven and not sentiment-driven.

  • Maintaining Records of Your Trades

Successful day trading involves learning from your mistakes and triumphs. If you win, then you should know what you did right so that you can replicate the process.

On the other hand, if you lose, then analyzing your trades can help you identify the why’s and how’s and allow you to prevent repeating them. It can also help you understand which strategy or approach worked for you in the past and whether you need to re-look at something to be more successful in the future.


In summary, each trader needs a precise Trading Plan for Intraday Trading. Creating a well-arranged trading network is the initial step toward becoming an expert and successful trader, which will expand your prospects of victory in both the short as well as long term.

Using the steps provided in this blog, you can make your own personalized Day Trading Plan and start trading today!

Happy Investing!

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