Trading Strategies

What a Trading Strategy Is

A trading strategy is a repeatable set of rules that tells you when you will consider entering a trade, where the trade becomes invalid, how much you will risk and how you plan to exit.

A strategy should help answer questions such as:

What market will I trade?
What timeframe will I use?
Which session will I trade?
What market conditions am I looking for?
What must happen before I enter?
Where will my Stop Loss go?
Where will my Take Profit go?
How much will I risk?
When should I avoid trading?

A strategy is not simply:

“I think EUR/USD is going up.”

It is a structured process that can be followed repeatedly and, importantly, backtested.

If the rules are clear enough to test on historical charts, you can begin collecting evidence about how the strategy has behaved in the past.

Key Takeaway

A trading strategy turns an idea into a repeatable set of rules that can be tested before real money is put at risk.

The Building Blocks of a Strategy

A structured strategy will usually define several important areas.

Market — what you trade
Timeframe — where you analyse and enter
Session — when you trade
Market condition — trend, range, breakout or another environment
Setup — what must happen before an opportunity exists
Entry — what triggers the trade
Stop Loss — where the trade idea becomes invalid
Take Profit — where you plan to exit in profit
Risk — how much of the account you are prepared to lose
No-trade conditions — situations where you stay out

The more clearly these rules are defined, the easier the strategy becomes to backtest.

A rule such as:

“Buy when the chart looks bullish.”

is difficult to measure.

A rule such as:

“Only look for Buy trades during the London session when the market is already trending upwards and price pulls back into a predetermined area.”

is much easier to test consistently.

Key Takeaway

If two people cannot apply the same rules in roughly the same way, the strategy may still be too vague to test properly.

Popular Trading Strategies to Research

There are many different approaches to trading.

Some popular concepts traders may choose to research include:

ICT concepts
Smart Money Concepts (SMC)
Session liquidity sweep and reversal
Support and resistance
Breakout and retest
Trend continuation
Pullback trading
Range trading
Mean reversion
Moving-average strategies
Candlestick and price-action strategies
Market structure strategies

These approaches can differ significantly, and traders may interpret the same concept in different ways.

The purpose of researching them is not to find a strategy that promises guaranteed profit.

The aim is to find ideas that make sense to you, convert them into clear rules and then backtest those rules yourself.

Key Takeaway

Do not choose a strategy because it is popular. Choose something you can understand, define and test.

Researching Strategies on TradingView

Open TradingViewAffiliate link and use historical charts to research and practise different trading approaches.

You can also search the Indicators section using terms such as:

Market Structure
Support and Resistance
Liquidity Sweep
Session High Low
Breakout Retest
Trend Indicator
Moving Average
Smart Money Concepts
ICT Concepts
Backtesting

Indicators can help make certain concepts easier to see on a chart.

They should be treated as visual tools, not as proof that a strategy is profitable.

Whenever you find an indicator or concept that looks useful, test it against historical price rather than relying only on the signals it displays.

Key Takeaway

Use charting tools to help research strategies, but let testing determine whether the rules deserve your confidence.

Turning an Idea Into Rules

Remove vague language
Define exactly what you need to see
Decide what invalidates the setup
Define risk before entry
Make the rules testable

Imagine you have the idea:

“Buy when price pulls back in an uptrend.”

That is not yet a complete strategy.

You might need to define:

What qualifies as an uptrend?
How large must the pullback be?
Which timeframe are you using?
Which session can the trade occur in?
What triggers the entry?
Where is the Stop Loss?
Where is the target?
What causes you to skip the trade?

Once these questions have clear answers, the idea can begin to become a strategy.

You can then go backwards through historical charts and check how those exact rules performed.

Key Takeaway

A trading idea becomes useful when it can be expressed as rules that can be repeatedly tested.

Backtesting

Test the strategy on historical charts
Follow the same rules on every example
Record wins and losses
Record rule failures
Avoid changing the strategy during every losing trade

Backtesting is one of the most important stages of developing a trading strategy.

It means applying your strategy rules to historical market data as though you were trading at that time.

The objective is to learn how the strategy behaves.

You can begin to discover:

how often setups appear
how often they win
how often they lose
typical losing streaks
typical winning streaks
average Risk / Reward
which sessions perform best
which market conditions cause problems
how much drawdown the strategy has historically experienced

This information can give you much more realistic expectations before entering a live market.

Key Takeaway

Backtesting cannot guarantee future results, but it can replace guesswork with evidence about how your rules have behaved historically.

Backtesting Builds Confidence

Trading live can feel very different from looking at a finished chart.

When real money is involved, fear and doubt can appear quickly.

Backtesting can help because you have already seen the strategy experience:

winning trades
losing trades
missed targets
losing streaks
strong periods
difficult periods

Imagine your backtesting shows that your strategy has occasionally lost four trades in a row before later recovering.

If you experience three consecutive losses in live trading, you may be less likely to panic and immediately abandon the strategy.

You have historical evidence showing that losing streaks can be part of its normal behaviour.

This does not mean you should ignore genuine deterioration in performance.

It means you can make decisions from evidence rather than emotion.

Key Takeaway

Backtesting can help you stay calmer in live markets because you already understand what normal strategy behaviour can look like.

Backtest More Than the Winning Trades

Record every valid setup
Include losses
Include trades you would rather forget
Do not skip difficult market periods
Avoid selecting only charts that make the strategy look good

One of the easiest ways to fool yourself during backtesting is to cherry-pick.

If you only record attractive setups that resulted in large moves, almost any strategy can appear profitable.

The test should include every setup that genuinely met your rules.

If a valid setup loses, record it.

If a valid setup only achieves a small reward, record it.

If several setups fail consecutively, record them all.

The purpose of backtesting is not to prove that your strategy works.

The purpose is to discover whether it works well enough to deserve further testing.

Key Takeaway

A useful backtest includes the trades you would have preferred not to see.

How Many Trades Should You Backtest?

A handful of historical examples is not enough to understand a strategy properly.

Ten trades may look excellent simply through chance.

The more valid examples you collect, the clearer the picture can become.

Rather than deciding:

“This strategy works because the last five trades won.”

look for a much larger sample across:

different months
different market conditions
winning periods
losing periods
higher and lower volatility

There is no single sample size that guarantees reliability, but more representative data is generally more informative than a tiny sample.

Key Takeaway

Do not build confidence from a few winning examples. Build it from repeated testing across many different conditions.

Keep Records While Backtesting

Useful information might include:

date
market
session
Buy or Sell
entry
Stop Loss
Take Profit
Risk / Reward
result
setup type
whether every rule was followed
notes about market conditions

After enough trades, patterns may become visible.

For example:

London setups perform better than late New York setups.

Or:

The strategy struggles when price is ranging.

Or:

1:2 targets are reached much more consistently than 1:3 targets.

Without records, these observations can easily become guesses.

Key Takeaway

Backtesting becomes far more useful when the results are recorded rather than remembered.

Do Not Constantly Change the Rules

Give the strategy enough trades to be evaluated
Avoid changing rules after every loss
Test one meaningful change at a time
Compare the results

Suppose your strategy loses three trades.

You change the entry rule.

It then loses twice.

You change the Stop Loss.

Another loss occurs.

You add two indicators.

At this point, you are no longer testing one strategy.

You are continually creating new ones.

If a change appears genuinely useful, define it clearly and test the revised version separately.

Key Takeaway

A strategy cannot be evaluated properly if its rules change every few trades.

Forward Testing

Comes after historical backtesting
Uses current markets without necessarily risking real money
Tests whether you can follow the rules in real time
Removes the benefit of knowing what happened next

Historical charts have one major advantage:

The future has already happened.

Even when using replay tools, hindsight can influence decisions.

Forward testing means following the strategy as current price develops.

This may be done on a demo account or through simulated trading before moving to a personal live or prop firm account.

Forward testing helps answer another important question:

Can you actually execute the strategy when you do not know what the next candle will do?

Key Takeaway

Backtesting tests the strategy. Forward testing also begins to test the trader.

Moving From Testing to Live Trading

A strong historical backtest does not mean you must immediately begin risking significant money.

A more controlled progression could be:

Research → Backtest → Review → Refine → Backtest Again → Forward Test → Small Live Risk

Moving gradually gives you more opportunities to identify problems before they become expensive.

When live trading begins, using smaller risk can also help you adjust to the psychological difference between simulated and real money.

Key Takeaway

Testing is designed to reduce uncertainty before meaningful capital is exposed.

Example: Trend Pullback Strategy

A simple educational trend strategy might contain rules such as:

identify a clear trend
wait for price to pull back
avoid entering after price has already moved too far
wait for evidence that the trend may be resuming
place the Stop Loss where the trade idea becomes invalid
define a realistic Take Profit
risk a predetermined amount
record the result

The exact entry rules would need to be defined before the strategy could be properly backtested.

The important point is the process:

Trend → Pullback → Confirmation → Entry → Risk → Target

A trader could then review many historical examples to see whether that process produces useful results.

Key Takeaway

A simple strategy with clear rules is easier to test than a complicated strategy with unclear rules.

Example: Session Liquidity Sweep and Reversal

Another strategy concept may build on the Sessions & Liquidity lesson.

For example:

mark a previous session high and low
wait for the next active session
observe whether price trades beyond one of those levels
watch whether price returns back through the level
look for additional confirmation
define the Stop Loss
define the target
calculate the Risk / Reward
record the result

This is only the beginning of a strategy.

You would still need to define exactly:

which sessions are allowed
how far price can sweep
what confirmation is required
how quickly price must return
where the Stop Loss belongs
how the target is chosen

Then the rules can be backtested.

Key Takeaway

The idea is only the starting point. Backtesting tells you whether the detailed rules deserve further attention.

Support and Resistance Strategies

Support and resistance strategies look for areas where price has previously reacted.

A trader might watch for:

repeated reactions from a price level
rejection from support or resistance
a breakout through a level
a retest after a breakout

Again, the concept itself is not enough.

You would need to define what qualifies as:

valid support
valid resistance
a breakout
a retest
an entry
an invalid setup

Those definitions should then be tested on historical charts.

Key Takeaway

Common trading concepts only become strategies when their rules are specific enough to test.

Strategy, Risk and Position Size

Even a profitable strategy can be damaged by poor risk management.

A strategy may historically perform well but still experience losing streaks.

If each trade risks too much, a normal losing period can cause serious account damage.

This applies to both:

personal live accounts
prop firm accounts

Risk per trade should therefore be considered alongside the strategy’s historical drawdown and losing streaks.

Key Takeaway

A strategy tells you when to trade. Risk management helps determine whether you survive when that strategy loses.

Strategies on Prop Firm Accounts

A strategy that works on a personal live account may still need to fit within the rules of a prop firm account.

Considerations may include:

daily-loss limits
maximum-loss limits
trading times
holding restrictions
news restrictions
position size
the frequency of trades

A strategy that regularly experiences several losses in one session may require lower risk when used under strict daily-loss rules.

Backtesting can help reveal these characteristics before the strategy is applied to the account.

Key Takeaway

A strategy should fit the rules and risk limits of the account it is being traded on.

Strategy Hopping

Constantly searching for a new strategy prevents proper evaluation
A few losses do not automatically mean a strategy has failed
Every real strategy experiences difficult periods
Testing helps create realistic expectations

Strategy hopping happens when traders continually move from one method to another.

A trader may use one approach until it experiences several losses, then immediately begin searching for something new.

The new strategy wins for a short period, then loses.

Another strategy is found.

This cycle can continue indefinitely.

Backtesting helps reduce this behaviour because you already have an idea of the strategy’s expected losing periods before trading it live.

Key Takeaway

Confidence should come from understanding your strategy through testing, not constantly searching for something that never loses.

Avoid Overfitting

A strategy can also become too complicated.

You might keep adding rules until the historical results look almost perfect.

For example:

indicator one must agree
indicator two must agree
only one particular candle is allowed
only trade during an extremely narrow time
several additional filters must align

Eventually, the strategy may describe the historical data extremely well but perform poorly when market conditions change.

This is sometimes called overfitting.

Simple, logical rules that work reasonably across different periods can be more robust than rules designed to perfectly explain the past.

Key Takeaway

Do not build a strategy whose only purpose is to make historical results look perfect.

Backtesting and Trading Psychology

Backtesting is not only about statistics.

It can also strengthen trading psychology.

If you have tested hundreds of historical setups, the live setup becomes more familiar.

You have already seen:

similar entries
similar losses
similar winners
similar failed breakouts
similar liquidity sweeps
similar pullbacks

This experience can make it easier to follow your rules without reacting emotionally to every candle.

It does not remove fear or uncertainty completely.

But it gives your confidence a foundation:

evidence from repeated practice.

Key Takeaway

Confidence built from testing is more useful than confidence built from hope.

Common Strategy Mistakes

Trading a strategy without testing it
Choosing a strategy because somebody else claims it is profitable
Backtesting only successful examples
Using too few trades
Changing rules after every loss
Adding too many indicators
Overfitting historical data
Ignoring spread, commission or slippage
Using unrealistic Take Profit targets
risking too much
strategy hopping
expecting a strategy never to lose
moving to live trading before understanding the strategy

A strategy does not need to win every trade.

It needs clear rules, controlled risk and enough evidence for the trader to understand how it behaves.

Key Takeaway

The objective is not to find a strategy that cannot lose. It is to find a repeatable approach that you understand well enough to execute consistently.