Building a Trading Strategy

The components

• Market and timeframe: which pairs, which charts.
• Condition: the state the market must be in, such as a daily uptrend.
• Setup: what must be present, such as a pullback to a level with a rejection candle.
• Entry: the exact trigger, such as a close above the rejection candle's high.
• Stop: where and why.
• Target or exit: a fixed target, a trailing stop, or a rule for both.
• Risk: percent per trade, daily and weekly limits.
• Filters: when not to trade, such as before high-impact news.

Start simple

One idea from the earlier courses is enough: buy pullbacks to a moving average in a daily uptrend, with the stop below the last swing low and a target at twice the stop. It will not be the best strategy in the world. It will be a complete one, and a complete simple strategy that you can follow beats an elaborate one that you cannot. Complexity is added later, one rule at a time, and only when the record says a rule helps.

Where edges come from

Retail edges are usually behavioural rather than informational: being willing to buy pullbacks when others chase, holding winners when others take profit early, sitting out when there is no setup. A strategy encodes those behaviours so that they happen whether or not you feel like it. Nobody has an edge on every trade; the strategy is what makes the average trade positive.

Write it down

A strategy that lives in your head changes every time you look at a chart. Write it as a checklist you can tick, keep it beside the platform, and when you want to change it, change the document first and the trading second. The next lessons turn the strategy into a plan and a journal.

Key takeaways

• A strategy specifies market, condition, setup, entry, stop, exit, risk and filters.
• Start with one simple complete rule set and add to it only when the record justifies it.
• Edges are behavioural; the strategy enforces the behaviour.
• Write it down and change the document before the trading.