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How to write a trade thesis

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A trade thesis is a short written statement, made before or at entry, of why this trade should work: what you see, what you expect to happen, and - most importantly - what would prove you wrong. Its purpose is not prediction. It is to make the decision inspectable later, so a review can separate "the idea was bad" from "the idea was fine and I abandoned it".

The four questions a thesis answers

  1. What is the setup? The specific, observable condition that made you look: a level reclaimed, a funding-rate extreme, a narrative with a catalyst date. “It looks bullish” is a feeling, not a setup.
  2. Why now? What makes this the moment rather than yesterday or next week. If nothing distinguishes now, the entry is impulse.
  3. What do you expect? The path you are paid on - a target zone, a time horizon, or both - stated concretely enough to be checked against what happened.
  4. What invalidates it? The price, event or elapsed time at which the idea is wrong and the position should be closed regardless of how it feels. A thesis without an invalidation is a hope with a position attached.

Add your confidence at the time of writing. Recording it lets a later review ask a sharper question than “did it win?” - namely whether your high-confidence ideas actually perform better than your low-confidence ones.

A hypothetical worked example

“Long SOL at 142. Setup: reclaimed a level that rejected price three times last month, on rising spot volume while perp funding is still flat - suggesting spot-led buying, not leverage. Expect a move toward 158–162 within two weeks. Invalidated by a daily close below 136, or by funding spiking while price stalls. Confidence: 6/10. Risk: 0.75R of the account.”

Every clause is checkable afterwards. If price closes at 137 and drifts for a month, the review can say precisely which part failed - the timing expectation - rather than filing the whole trade under “didn’t work”.

Common failure modes

  • Writing it after the exit. Hindsight rewrites intent. A thesis is only evidence if it predates the outcome.
  • Vagueness that cannot lose. “Expecting continuation if conditions hold” is compatible with every outcome and therefore teaches nothing.
  • Moving the invalidation. If the review shows invalidations routinely edited after entry, that is one of the clearest and most fixable patterns a journal can surface.
  • Length. A thesis is three to six sentences. If it takes a page, the idea is not yet clear enough to fund.

Closing the loop

The thesis is half of a pair; the other half is the post-trade review, where you grade how faithfully you executed the plan you wrote - a separate judgment from whether the trade made money. How to review your trades covers that half.