This term is generally referenced in terms of one's overall Trading Plan.
A Trading Plan (as opposed to a Trade Plan, which is specific to a particular trade) should include decisions by the trader around:
- Strategies traded and trade management of these strategies
- Risk Management
- Time Frames trade
- How a trader is to respond in certain situations
- Rules around when to stop trading
- Goals; both personal and trading
- The "why" behind why you are trading
- How you plan to document your trading results
- Review process
- Factoring in the different markets that a trader is trading
To a certain degree, a robust Trading Plan supports a trader in removing as much of the "emotional tug of war" that comes with trading.
It helps to identify your strengths and weaknesses. Good trades want to repeat their strengths time and time again, at the same time as limiting their weaknesses. We want to replace one with the other (replace our weaknesses with our strengths).