How to build a robust trading strategy
8 min readLesson 32
The six components every strategy needs, with a complete example.
A strategy is a set of rules that tells you exactly what to do in every situation that matters. If you need to "feel" whether to take a trade, you do not have a strategy yet.
The six components
- Market and timeframe. Which instruments, which charts, which hours.
- Market condition. When the strategy is active, for example only in trends defined by price above a rising 50 EMA on the 4-hour chart.
- Setup. What must be present before you consider a trade, for example a pullback into a support zone.
- Trigger. The exact event that opens the trade, for example a 15-minute candle closing above the previous candle's high.
- Exits. Where the stop goes, where the target goes, and whether you trail or take partials.
- Risk. How much you risk per trade and per day.
A complete example
| Component | Rule |
|---|---|
| Market | EUR/USD and GBP/USD, 07:00–16:00 UTC |
| Condition | 4-hour price above a rising 50 EMA |
| Setup | 1-hour pullback into a 4-hour support or demand zone |
| Trigger | 15-minute close above the high of the previous 15-minute candle |
| Stop | Below the zone, at least 1.5 × 15-minute ATR |
| Target | 2R, or the next 4-hour resistance, whichever comes first |
| Risk | 0.5% per trade, maximum 2 trades open, stop for the day after −1.5% |
Making it robust
- Few rules, clearly defined. Each added filter must earn its place in testing.
- Logic you can explain. "Buy pullbacks in an uptrend at support" makes sense; "buy when RSI is 37 on Tuesdays" does not.
- Tested over many trades and different conditions, as covered in the backtesting lesson.
- Survives costs, including spread, commission and the occasional bad fill.
Are you ready for the exam?
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