A Step-by-Step Guide to Building a Jeff Cooper-Style Trading Plan

A Step-by-Step Guide to Building a Jeff Cooper-Style Trading Plan

A trading plan is the cornerstone of a disciplined trading career. It is a comprehensive document that outlines a trader's goals, strategies, and risk management rules. For a trader looking to implement Jeff Cooper's methodologies, a detailed trading plan is not just recommended; it is essential. This guide will provide a step-by-step framework for building a robust trading plan based on the principles of Hit and Run trading.

Step 1: Define Your Goals and Objectives

The first section of your trading plan should clearly state your objectives. Are you looking to generate supplemental income, or is your goal to become a full-time trader? What is your desired annual return on investment? These goals should be realistic and measurable. This section should also include an honest self-assessment of your risk tolerance and your available time commitment to trading.

Step 2: Select Your Trading Universe

Next, you must define the universe of securities you will trade. Will you focus on stocks, or will you trade futures like the ES and NQ? If you are trading stocks, what are your criteria for inclusion in your watchlist? A Cooper-style trader might focus on:

• Market Capitalization: Mid-cap and large-cap stocks ($2 billion and above).
• Liquidity: Stocks that trade an average of at least 1 million shares per day.
• Price: Stocks trading above a certain price, such as $20 per share, to avoid low-priced, speculative names.

This defined universe will be the basis for your daily scanning and analysis.

Step 3: Detail Your Setup and Entry Rules

This is the heart of your trading plan. You must precisely define the exact criteria for entering a trade. For a 5-Day Momentum Method trader, this would include:

• Indicator Settings: 14-period ADX, 8-period Fast %K Stochastic.
• Long Setup Criteria: ADX > 35, +DI > -DI, Fast %K <= 40.
• Short Setup Criteria: ADX > 35, -DI > +DI, Fast %K >= 60.
• Entry Trigger: Entry one tick above the signal day's high for longs, or one tick below the signal day's low for shorts.

There should be no ambiguity in these rules. A trade is either a valid setup, or it is not.

Step 4: Codify Your Risk and Position Sizing Rules

This section outlines how you will protect your capital. It must be non-negotiable.

• Maximum Risk Per Trade: State your maximum acceptable loss as a percentage of your trading capital (e.g., 1%).
• Position Sizing Formula: Detail the exact calculation you will use to determine your position size for every trade, based on your maximum dollar risk and the specific risk (in points or dollars) of the setup.
• Initial Stop-Loss Placement: Define the precise placement of your initial stop-loss order (e.g., one tick below the signal day's low for a long trade).

Step 5: Specify Your Exit Strategies

How you exit a trade is just as important as how you enter it. Your plan must detail your exit rules.

• Exit Strategy 1 (e.g., 5-Day Exit): If not stopped out, exit the position on the close of the fifth day.
• Exit Strategy 2 (e.g., Trailing Stop): Detail the rules for moving your stop to breakeven, taking partial profits, and trailing the stop on the remainder of the position.

Choose the strategy that best fits your trading style and time commitment, and stick to it.

Step 6: Outline Your Daily Routine

A successful trader has a structured daily routine. Your plan should outline this routine.

• Pre-Market: Review overnight news, update your watchlist, and identify potential setups for the day.
• Market Hours: Execute trades according to your plan. Monitor open positions.
• Post-Market: Review all trades taken. Log your trades in a journal with notes on your performance. Scan for new setups for the next day.

Step 7: Keep a Detailed Trade Journal

Your trading plan should mandate the use of a trade journal. Every trade must be logged with the following information:

• Date
• Ticker
• Setup
• Entry Price
• Exit Price
• Profit/Loss
• Notes on your execution and emotional state.

This journal is your feedback loop. It will allow you to review your performance, identify your weaknesses, and refine your strategy over time.

By creating and adhering to a comprehensive trading plan, you are building the foundation for a successful trading business. It is the ultimate tool for instilling discipline, managing risk, and consistently executing your edge in the market. A trader with a well-defined plan is a trader who is prepared to succeed.