The fine print of trading and investing

Quiz · Risk Management · Intermediate

Poke a Hole in the Plan: A Trading Plan Quiz

A trading plan quiz where every plan looks finished at first glance. Find the line that would cost the account money, and say why in dollars.

AI-assisted, reviewed by the The Margin Report human editor: John Todora → Marked as you go Published

What it tests

Whether you can find the flaw in a written trading plan: stops, size, total open risk, sector bunching, targets, event dates and risk per trade.

Risk per trade: whatever feels right. Stop: mental. Written plans rarely say it that bluntly, but the flaw is often hiding in a line that looks harmless, and it only shows up once someone turns every line of the plan into a dollar figure and asks what happens on the bad day.

Each plan below has a single flaw. Find it.

Adding up what is at risk

The sum most plans skip is the total. Every open trade has its own dollar risk, entry minus stop times shares, and the account carries all of them at once.

Four percent is the loss if every stop is hit on the same day. That can happen. Related stocks fall together, and a gap can take several stops at once, so a plan that caps each trade and never caps the sum has left the largest number unchecked. The answer on adding up the risk on all your open trades goes further.

How to read the plans

Take each setup as a document someone wrote before trading. Check the stop, the size, the target and the calendar in that order, and put a dollar figure on whatever looks off. The hole is the line whose dollar figure is bigger than the plan admits.

Some holes sit outside the trade itself, in the account that holds it and in the weeks it will be open. Read both as part of the plan, since a stop that looks sensible on the chart can be useless once you look at the account and the calendar, and the facts for each are easy to look up before the order goes in. It takes minutes.

When you miss one

Go back to the sum the flaw would have changed and do it by hand. If a sizing rule fooled you, read conviction makes a terrible position size. If the margin question did, run the numbers through the margin call calculator. The course Nobody Rebuilds From Zero ends with a one-page risk plan that covers each line these plans get wrong. Then write your own plan, and poke at it the same way.

Pick an answer to mark it

The questions

  1. The situationPlan for a $30,000 account: buy 200 shares at $45 on a pullback to support. Target $51, the prior high. Risk 1% of the account. Exit if the trade stops feeling right.

    1Where is the hole?
    Show the answer

    B: There is no stop price, so the 1% risk rule cannot be checked or enforced. One percent of $30,000 is $300, and at 200 shares that means a stop $1.50 below the entry, at $43.50. The plan never says so. A feeling has no price, so the loss has no limit, and the risk rule is decoration.

  2. The situationMargin account plan: buy 1,000 shares at $40, a $40,000 position, with $20,000 of your own money and a $20,000 loan. The maintenance requirement is 25%. The stop is at $25, below a long-term support level.

    2Where is the hole?
    Show the answer

    D: The margin call arrives near $26.67, before the $25 stop can fill. To find where the call lands, divide the loan by shares times (1 - 0.25): $20,000 / (1,000 x 0.75) = $26.67. Below that the broker can demand money or sell shares on its own terms. A stop has to sit above the call price to stay in your control.

  3. The situationAccount of $50,000. Plan: risk 1% on ordinary setups. On setups you feel strongly about, risk 4%.

    3Where is the hole?
    Show the answer

    A: Size scales with a feeling nothing measures, so the biggest losses land on the trades you were surest of. At 4%, one stopped-out favorite costs $2,000, as much as four ordinary losses of $500. Confidence is not a probability you can check, and a strong feeling about a chart says nothing about the odds of the stop being hit.

  4. The situationAccount of $40,000. Rule: risk 1.5% per trade, which is $600. Open now: three semiconductor stocks with $600 at risk each, plus two unrelated positions with $600 each. The plan has no limit on total open risk.

    4Where is the hole?
    Show the answer

    C: No cap on total open risk, and three related stocks put $1,800 on one sector. Five trades at $600 put $3,000, or 7.5% of the account, at risk at once. The three chip stocks can fall together on one piece of sector news, so $1,800, or 4.5%, behaves like a single position. A total cap and a sector cap close both holes.

  5. The situationPlan: buy at $60, stop at $57 below the swing low, target $75 because a 5R trade sounds worth taking. The prior high, where the stock reversed twice, is $64.

    5Where is the hole?
    Show the answer

    B: The target rests on nothing on the chart, and the first real obstacle at $64 offers about 1.3R. Risk is $3 a share. To $75 the reward is $15, so 5R on paper. The stock has turned back at $64 twice, and to there the reward is $4, about 1.3R. A target needs a reason on the chart, and the nearest resistance is the honest one.

  6. The situationPlan for a two-week swing trade: 300 shares, stop $2 below the entry, a $600 risk. The company reports earnings in six days. The plan does not mention it.

    6Where is the hole?
    Show the answer

    D: The report falls inside the holding period, and a gap can blow straight through the stop. Stops fill at the next available price. If the stock opened $6 below the entry after the report, the loss would be $1,800, three times the $600 plan. The plan needs a line: exit before the report, hold a smaller size, or accept the gap risk in writing.

  7. The situationPlan: risk 5% of the current balance on every trade. Stops, targets and sector limits are all written down and sound.

    7What would a streak of ten straight losses do to the account?
    Show the answer

    A: Leave it down about 40%, needing a gain of about 67% to get back to even. Each loss takes 5% of what is left: 0.95 multiplied by itself ten times is about 0.60, so the account is down about 40%. Getting back needs 1 / 0.60, roughly a 67% gain. At 1% a trade the same streak costs under 10%.

Readers also ask

What should a trading plan include?

At a minimum: the entry, the stop price and the reason it sits there, the target and its reason, the position size worked out from a fixed dollar risk, a cap on total open risk across all trades, and any scheduled events such as earnings before the planned exit. Anything you would decide in the moment belongs in the plan instead.

How much of my account should I risk on one trade?

No rule sets a number. Many traders pick a small fixed share of the account, such as 1%, so a long losing streak leaves most of the capital intact. Whatever you choose, work out what ten losses in a row would do to the balance before you adopt it, and check that you could keep trading after that.

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