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7. A first trading strategy
Rules instead of an attractive picture
A strategy is a reproducible set of conditions for observation, entry, invalidation, management and exit. A simple practice scenario is "break out of a range and return to its boundary". This scenario is not, by itself, a proven profitable system.
For a practice test, specify the instrument, venue and intervals in advance: for example, 1h for context and 15m for observation. Define the range from closed candles before the signal. Require a close beyond the boundary and a return to it. Do not move the boundary with price to turn an unsuccessful example into a successful one.
For a long, describe which event means the zone has held, where the scenario stops being valid and where the target lies. A short requires mirrored conditions, not simply a desire to sell high. If there is no clear entry or invalidation criterion, record "observation", not "signal".
A complete practice plan
Situation. A hypothetical range of 96-100. A closed 15m candle above 100, then a return to 100. Entry is allowed only after predefined confirmation that the level has held. Practice levels: E = 100, S = 98, T = 104. These round-number prices and execution are not guaranteed in a real market.
With R = 2 before costs, q = 1. If price has already risen to 103 before entry, the old entry cannot be treated as available. A new entry of 103 with the same stop of 98 and target of 104 gives potential reward/risk of 1/5 = 0.2. It is a different plan, not "the same signal a little later".
Reasons to reject the trade include missing confirmation, stale data, unknown costs, an insufficient permitted size, a target already passed, excessive total risk or changed context. Rejection is a valid analytical outcome; it does not require inventing another trade on the same day.
Journal and review
Save the record before the outcome. A journal needs the time and time zone, instrument, contract type, entry rationale, invalidation criterion, E/S/T, q, planned risk, expected costs and a context snapshot. After exit, add fills and actual fees, then mark whether the rules were followed.
| Journal field | What to record |
|---|---|
| Hypothesis | The observable condition being tested |
| Before entry | Levels, size, costs, invalidation |
| Execution | Actual prices and quantity, or "paper practice" |
| After exit | Net P&L, result in R, deviations |
| Conclusion | A rule error, execution error or ordinary outcome |
A paper result differs from a real one: it is easy to assume unattainable fills and forget the spread. Label the source of the result. Do not merge practice records and real trades into one "return" figure.
Exercise. Write two scenarios using the same rules: one allows a paper entry and the other requires rejection. Record the decision before viewing the next candle. Do not change the initial conditions after the outcome. The exercise tests consistency, not your ability to produce an attractive win rate.