Lesson 68 of 69
Building a trading strategy
10 min read
Chapter checkpoints
0/4- The five things a strategy must define
- Confluence — stacking reasons, not indicators
- Backtesting basics
- Write it as a checklist
Optional — tick a chapter as you finish it to keep your place inside this lesson.
A strategy is not a chart pattern or an indicator. It is a written set of rules specific enough that two people reading it would take the same trade — and that you could follow at 3am without thinking. If your rules cannot be written down, you do not have a strategy yet.
The five things a strategy must define
| Component | It must answer | Example |
|---|---|---|
| Market conditions | When does this strategy apply — and when do I sit out? | Trending 4H structure only; no trading 30 minutes either side of high-impact news |
| Entry criteria | Exactly what has to be true before I click? | Sweep of the session low, then a bullish engulfing close inside my demand zone |
| Stop loss | Where does the idea become wrong? | A few pips beyond the sweep wick |
| Exit / take profit | Where do I get out, win or lose? | Next opposing liquidity, minimum 1:2 reward-to-risk |
| Position sizing | How much do I risk? | A fixed 1% of the account, calculated from the stop distance every time |
Size every trade the same way
Use the position size calculator so your risk stays fixed no matter how wide the stop is.
— stacking reasons, not indicators
Confluence means several independent things pointing the same way at the same price: a session window, a zone, a swept low, and a . Each one on its own is weak. Together they describe a specific situation you can recognise and test.
Confluence — stacking reasons, not collecting indicators
- 1Higher-timeframe trend is up
- 2Price inside a demand zone / order block
- 3Liquidity below the zone already swept
- 4Bullish engulfing closes inside the zone
- 5It is inside your chosen session window
More boxes ticked usually means a cleaner setup — but no amount of confluence removes the possibility of a loss.
Where confluence goes wrong
Adding a seventh indicator until something agrees with you is not confluence, it is looking for permission. Pick three or four conditions, fix them in writing, and accept that you will miss trades that only tick two.
Backtesting basics
Backtesting means checking your written rules against historical price before risking money. It costs nothing but time, and it is the only honest way to find out whether an idea has any merit for you.
- 1Write the rules down first. Testing a vague idea just produces a story you like.
- 2Pick one pair and one , and scroll back to a random date at least six months ago.
- 3Hide the right-hand side of the chart (replay mode, or cover it) and move forward one candle at a time.
- 4Every time your rules are met, log the trade: date, entry, stop, target, and the outcome — win, loss or .
- 5Collect at least 50-100 trades. Below that, the results are noise.
- 6Then calculate: win rate, average reward-to-risk, largest losing streak, and worst .
The number that matters most
Not win rate — the longest losing streak. A strategy that wins 40% of the time at 1:3 is highly profitable, but it will hand you six losses in a row. If you cannot sit through that without changing the rules, the strategy is unusable for you no matter how good the maths looks.
Write it as a checklist
Turn the finished rules into a short checklist you physically tick before every entry. It converts your strategy from a feeling into a repeatable process — and it plugs straight into the from Module 6, because the checklist becomes the "why I took it" column.
Example pre-trade checklist
0/7Related lessons & next steps
Key takeaways
- A strategy defines market, timeframe, setup, entry, stop, target and risk in writing.
- If a rule cannot be checked objectively, it is not yet a rule.
- Backtest and forward-test before risking meaningful money.
- Judge a strategy over a sample of trades, never on the last one.
Knowledge check
3 quick questions — your best score is saved to your progress.
1. Which of these must a complete strategy define?
2. 'Confluence' means…
3. Why backtest before trading real money?
Progress is saved on this device.