What is a trading strategy?
A trading strategy is a written plan with four parts: what you trade, when you enter (the setup), where you exit (stop and target) and how much you risk. If any part is left to mood on the day, it is a hunch rather than a strategy.
This site documents one example, TLR-001, on the strategy modules page, with a checklist that every journal entry is scored against.
What are the main types of trading strategies?
| Style | Idea | Typical holding time | Weak spot |
|---|---|---|---|
| Trend following | Join an existing trend and hold until it shows signs of ending | Days to months | Many small losses in sideways markets |
| Breakout | Enter when price closes beyond a range or level | Minutes to days | False breakouts and sweeps |
| Mean reversion | Fade a stretched move back toward an average | Minutes to days | A trend can keep going and hurt large |
| Momentum | Trade strong, fast moves, often with high volume | Minutes to weeks | Sharp reversals |
| Swing trading | Capture a swing within a larger trend | Days to weeks | Overnight gaps |
| Scalping | Many very short trades for small moves | Seconds to minutes | Costs and slippage dominate |
How do breakout and mean-reversion ideas differ?
Take a market moving in a range. A breakout trader waits for price to close beyond the edge and treats that as the start of a move. A mean-reversion trader looks for rejection at the edge and expects price to return to the middle. Both can be valid, and both fail when the market does the other thing.
The liquidity guide describes why some apparent breakouts reverse (sweeps), and price action covers the candles traders use at the edges.
How do you choose a style?
- Time: can you watch the screen all day, or only check once a day?
- Temperament: can you sit through a drawdown while a trend develops, or do you prefer quick feedback?
- Costs: short-term styles pay brokerage, taxes and spread more often.
- Capital and risk: choose a risk per trade you can stick to (see risk management).
How do you test a strategy without fooling yourself?
Backtesting applies the rules to historical data. It is useful, and easy to get wrong:
- Overfitting: too many tweaks fit noise. Keep rules few and test on data you did not tune on.
- Look-ahead bias: the test uses information (like a candle’s final close) that was not available when the decision would have been made.
- Survivorship bias: testing only instruments that still exist ignores those that failed.
- Ignoring costs: brokerage, taxes and slippage can erase a small edge.
After a backtest, run a forward test on paper or with very small size and keep a record of every trade.
How do you know a strategy is working?
Look at the average result per trade in R (expectancy), the maximum drawdown and how often you followed your own rules. Compare live results with the test; large gaps are a warning. A trading journal with a checklist makes this comparison possible.
Common strategy mistakes
- Switching strategy after a few losses, before you have enough trades to judge.
- Combining many unrelated indicators until they “agree”.
- Ignoring the market condition: trend strategies in ranges, range strategies in trends.
- Copying someone else’s setup without understanding its risk.
Educational content only. Strategies described here are general concepts, not recommendations. Past performance, including backtests, does not guarantee future results.
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