Building and Testing a Strategy
The six questions every rule set has to answer.
advanced · 3 min read · 15 XP
If your strategy exists only in your head, it will quietly change shape every time you are uncomfortable. Writing it down is what makes it testable, repeatable, and capable of being improved rather than merely abandoned.
A complete strategy answers all six. Anything less leaves a gap that discretion will fill, usually badly.
1. What do I trade? Which pairs, which timeframe, which sessions. "Any pair, any time" is not an answer — it means every decision is made fresh under pressure.
2. What has to be true before I look for an entry? The context filter. "Daily trend is up" or "price is inside a range that has held twice."
3. What exactly triggers the entry? Specific enough that two people reading it would enter on the same candle.
4. Where is the stop? Defined by structure — a level whose failure means the idea is wrong — not by a number picked for comfort.
5. How do I exit a winner? Fixed target, trailing stop, time-based, or a structural signal. Pick one and specify it.
6. How much do I risk? A fixed percentage, and the formula that turns it into a position size.
The test of a written strategy
Hand it to someone who trades. If they can look at a chart and take the same trades you would, it is specified. If they have to ask "how do you decide when…", you have found the gap where your discipline will leak.
Market. EUR/USD and GBP/USD, H4, London and New York sessions only.
Context. Price above a rising 50-EMA on D1 (uptrend only).
Setup. A pullback on H4 that reaches the 20-EMA and holds above the prior H4 swing low.
Entry. On the close of the first H4 candle that closes above the previous candle's high, after the pullback has touched the 20-EMA.
Stop. 2 pips below the prior H4 swing low.
Exit. Target at 2× the stop distance. Move the stop to breakeven at 1×.
Size. 1% of account risk, sized from the stop distance.
Every one of those sentences removes a decision from the moment of the trade. That is the entire purpose.
Plenty of profitable traders are discretionary. But there is a difference between discretion within a specified framework and making it up.
Legitimate discretion: "My rules produce a valid setup, but the ECB speaks in twenty minutes, so I skip it." You applied judgement to a defined situation.
Illegitimate: "I don't have a setup but this looks like it's going up." There is no framework, so there is nothing to be disciplined about.
Yes — deliberately, between trades, with a reason, and recorded. What must not happen is changing them during a trade because the current one is uncomfortable. Version your strategy the way you would version code: a change is an event with a date and a rationale, not a drift.
What to remember
A strategy is an idea specified precisely enough that another trader could execute it identically. It must answer six questions — market, context, entry, stop, exit and size — and every answer removes a decision from the moment you are least equipped to make it.