A strategy is not a pattern, an indicator or a feeling. It is a written set of rules complete enough that two people following it would take the same trades.
The five parts
- Context. What conditions must be true before you even look for a trade? Market, timeframe, session, trend direction, news filters.
- Setup. The specific pattern you trade. For example, "price pulls back to a higher-timeframe support zone in an uptrend".
- Trigger. The exact event that tells you to enter. For example, "a one-hour candle closes above the most recent lower high".
- Risk. Where the stop goes, how the size is calculated, where you take profit or trail, and your daily and weekly limits.
- Review. How you record each trade and when you evaluate the whole system.
An example, written as rules
This is an illustration of the format, not a strategy to trade:
> Context: daily chart in an uptrend (last swing low above the previous one); no high-impact news in the next two hours. > Setup: one-hour price pulls back into a marked daily support zone. > Trigger: a one-hour candle closes above the most recent lower high within the zone. > Risk: stop below the swing low that formed in the zone; size so that the stop costs 1% of the account; target at the previous swing high; stop for the day after two losses. > Review: log every trade in R, with whether the plan was followed; evaluate after fifty trades.
What good rules have in common
They are specific enough to be tested, simple enough to follow under pressure, and clear about when not to trade.
Why write it down
If you cannot write your strategy as rules, you cannot test it, you cannot tell whether you followed it, and you cannot improve it. Vague strategies cannot fail, which is exactly why they cannot be trusted.