Advanced · Lesson 3 of 9 · 7 min read

Building your own strategy

A strategy is a set of rules you can follow the same way every time. Here is how to turn an idea into clear rules, test it fairly and avoid fooling yourself.

Clear rulesFair testingOver-fittingKeep it simple

From idea to rules

“Buy pullbacks in an uptrend” is an idea. It becomes a strategy when you could hand the rules to someone else and they would take exactly the same trades as you.

Rule	Question it answers	Example
Market and timeframe	Where do you trade?	EURUSD and gold, 1-hour chart
Conditions	When are you allowed to trade?	Price above the 50 EMA on the 4-hour chart
Setup	What are you waiting for?	A pullback into a support zone
Trigger	What is the exact moment to enter?	A bullish engulfing candle closes
Stop	Where is the idea wrong?	Just below the swing low
Exit	Where do you get out?	2R target, half off at 1R and stop to entry
Risk	How much per trade?	1% or less

Key idea

If a rule needs your mood to decide it, it is not a rule yet. Make every rule a clear yes or no.

Testing it fairly

Write the rules down before you start.
Test in Replay on at least 100 trades, across trending and sideways months and more than one market.
Count spreads and other costs.
Keep a few months of history untouched, then test on them at the end to check the results hold on prices you have not seen.
Change one thing at a time, and retest.

Beware of over-fitting

Over-fitting means adding rules and tweaking settings until past results look perfect. The warning signs are lots of filters, very exact settings, and results that fall apart on another market or another few months. Simple rules that work reasonably well almost everywhere beat complex rules that work brilliantly in one place.

Worked example

A trader tests the pullback strategy over 120 Replay trades: 42% win, average win 2.1R, average loss 1R. That is about +0.3R per trade before costs.

Adding “only on Tuesdays and Wednesdays” lifts the win rate, but leaves just 25 trades: a sign of over-fitting. They keep the simple version, test it on three months they had not used, get about +0.2R after costs, and move on to a demo account.

Common mistakes

Avoid these

Keeping the rules in your head.
Changing the rules halfway through a test.
Piling on indicators and filters.
Testing on one market in one good month.

Check yourself

1. When does an idea become a strategy?

When someone else could follow your rules and take exactly the same trades.

2. What is over-fitting?

Tweaking rules until past results look perfect, so they fail on new prices.

3. Why keep some history untouched?

To test at the end on prices the rules were not built on.

Try it on BTM

Charts and ReplayTest your rules candle by candle.Your trading planWhere your finished rules belong.JournalLog every test trade and see the stats.

For education only, not financial advice. Trading carries a high risk of losing money, especially with leverage. Only trade with money you can afford to lose.

For educational purposes only. Nothing here is financial advice. Past performance does not guarantee future results, and trading carries a high risk of losing money, so only trade with money you can afford to lose. Read the risk warning.