How to create / optimize a strategy to best fit your personality

There is a big probability, that if I am showing you my best trading strategy, it might not work for you. And this is not because something is wrong with my way of showing you the strategy, or your way of understanding it, but rather, it is up to each individual on how they apply what they have learned. And this is a phenomenon happening all the time with traders learning and applying new strategies.

The main reason a learned strategy does not work, is because it was developed by a certain professional trader, to best fit his personality and trading style, and not yours.
We are all different people with different individual characteristics that define each of us individually. We all have different levels of intelligence, different reaction or focusing capacity, different risks adversity, level of patience, etc.

So, I am going to explain in this post, how you can create and optimize your trading strategy, that fits your personality. This is going to be long to read and apply, but nothing is easy, so please take your time and pay attention.

We are going to start from the idea that you do not know your trading style, and you do not know what trading strategy best is suitable for you, so in order to define a trading strategy we need to establish the following:
1. Trading assets
2. Time frame
3. Indicators

1. Trading assets – You need to take as many trades as possible, that are exactly the same as the trading setup. The reason for that is that you need to have a large sample size of trades, and you need to review and eliminate what is not working. It is impossible to draw conclusions after 10 trades. The minimum recommended number of trades to start review is 50. This can come in 1 month, or 6 months, so patience is very important for you, and not only in this case but in general as a trader. Remember, that this is meant to optimize the trading strategy on your personality.
Thomas Edison said he did not fail 10.000 times before inventing the bulb, he just discovered 10.000 possibilities in which the bulb did not work. Similar to your situation, you need to discover and eliminate all that is not working, in order to find out what is working for you.
Another reason why you need to test on different instruments, is that some indicators work better with certain instruments. For example, Ichimoku works better on YEN pairs, because it is traded most of the time in the Asian session. Ichimoku is a Japanese invented indicator.

2. Time Frame - The best time frame to use as a beginner is 4 h time frame with a possible 1 hour to confirm entries. The advantage of using a 4 h timeframe, is that you tend to over-trade less, and because of that, your chances of risking wiping out your trading account are less, than if you trade a smaller time frame.
Definitely, I do not recommend scalping for beginners.

3. Indicators used – The indicators used, are what I like the most, but it is totally fine if you choose different indicators, as long as they provide the correct information.

A. Trend indicators. Do not use more trend indicators at once, use only one, because you might get different signals, and, some of them are going to have some latency between them.
- Moving Average – The best setting for MA to be used as a trend indicator is a minimum of 100. You can use different larger or smaller settings, but you need to consider that smaller settings like 9 or 24, are used more as an entry signal, than a trend indication.
- ZigZag- This indicator is not used only to show lows and highs. Every time a new line is forming, there is an indication of a new trend coming. As a trend indicator, you can use as settings, a minimum of 16 and up to 32 periods. To note that the larger the period, the larger the latency.
- Renko chart– This is my favorite trend indicator. The way bricks are forming can be used also as a trend indicator, but they can also serve as SL and TP references.

B. Oscillator indicators: These types of indicators are used to indicate the entry and confirm your bias. All 3 mentioned, are used for either oversold and overbought interpretation, or as for divergences and convergences signals.
-RSI
-Stochastic
-MACD

C. Volatility indicators
- ATR – can be used as a reference for SL. The SL size at the entry point can be 1 or 2 times ATR. It is up to each one to define this.

D. Volume indicators
-OBV – I use this for Renko, as a second confirmation for trend.
-Cumulative Delta – I search for divergences between what price is doing and the volumes.

E. Other
- Support and Resistance or trend lines– The best place to spot where you want to see some type of action happen.
- Fibonacci – Different people trade at different levels. I trade for Fibonacci extension 1.2721, 1.618, and 1.786 levels. I usually like to see the action happening between 1.272 and 1.618. The 1.786 level I use to cancel my theory. If that was touched, then the probabilities of my trades succeeding are reduced.
- Volume Profile – The Value Areas High and Low, can be used as support and resistance. The simple break of these levels can be used as entry signals.

Entry and Exit rules.
There are going to be 3 fixed rules, that should not ever be broken. Otherwise, the entire process is ruined. You never want to open or close a trade manually after the trade was open. You are simply interfering with trade statistical performance by doing that.

1. Entry rules: You need to apply the ‘If, then’ rule. IF that even happens, then I am expecting the other event to happen, and then I am opening the trade. I recommend for entries, to place limit orders. Or IF you have the time, it is OK to watch every 4 hours for example, and see how the market has developed and open manually. But always stay with the entry rules. Remember this: A missed bad trade, has a potential winning factor.

2. Exit rules SL: You can use 1 or 2 ATR size, or Renko brick size ( even if you do not use Renko, the bricks are forming with every 500 or 1000 pips, depending on the traded instrument and time frame). You can also use the classical way, and use the preview lowest or highest candle as a reference.

3. Exit rules TP: In the testing and optimization period, you need to keep it as simple as possible. There is no point in scaling in or out, or in moving a trade on break even. I recommend starting with a 1:1RR, and then, with every new sample size trading lot (explained down), you can increase at 1:2RR and so on.


Do not change the indicators to a certain setup, until you have reached a decent sample size lot, that is needed to be analyzed. Markets are changing, and if a certain setup was performing badly, that might have been just a draw-down period and not the overall strategy performance. If there are things to be changed, they need to be done after a decent number of trades.


What to expect and what to change after a sample size trading lot has finished.
1. You need to review ALL the trades from the sample size trading lot. If you thought that trading is easy, you are wrong. There is only 1% of people willing to do hard work in trading, in order to succeed. So you can also decide after this optimization process is finished, if trading is for you or not.
2. Notice what trading indicators performed for the positive outcome of the trade and what didn’t.
3. Eliminate and replace certain indicators that did not perform positively, and create a new setup.
4. Start a new simple-size trading lot.
5. Start with number one again.



Useful Definitions:
A. Risk to Reward – the amount of money willing to risk for a potential reward. A one-dollar l risk for a two-dollar gain is a 1:2 RR ratio.

B. Winning percentage ratio – Number of wins divided by total number of trades multiplied with 100.
A decent trading strategy needs to have a minimum 40% win rate and a 1:2RR. These 2 are strongly correlated between them because, but for example, a win rate of 30% is still profitable with a 1:3RR.

C. Profit factor – Realized Profit divided by Realized loss. If for example in a series of 10 trades, there are 4 winning and 6 losings, then the profit factor will be 4/6=0.66

D. Simple size trading lot - A simple trading journal of a recorded number of trades, with the purpose of reviewing and optimizing.

Side note: You might notice that I am using a dark theme for my charts. Some of you might like it, some of you might not. But the reason I use a dark template is that my eyes start to get tired very fast, because of the light and bright colors. So when choosing your template colors, try to stick with something that will not stress your eyes that much. You don’t want to have head pains after 30 minutes in front of the PC.

Steps on how to create a trading strategy.
1. Establish the time frame
The 4H time frame for overall trend analysis and directional expectation of it
The 1H time frame to spot entry signals. You have better chances of catching an early move in a smaller time frame. The negative side is that you might catch also more false moves, but the 4H should eliminate as much as possible the false signals from a lower time frame.
2. Establish the indicators used for spotting the trend direction. In the above example, I am using Renko.
3. Add an extra trend confirmation indicator. That can be a Moving Average, or OBV as in the example above, or any other as for your preferences.
4. Add an ‘ action area’ identification indicator. I am referring here that the price must be at certain levels on the 4H chart, which is going to be confirmed by the trend indicator. On this chart, I identify support and resistance and draw Fib ratios. I also keep an ATR for establishing the SL size.
5. Establish entry rules. Add one or two indicators to indicate when the entry should happen. In the 1H chart example, I have MA 9 and 24 cross, and RSI that is used as oversold and overbought levels, or for divergences.
6. Establish exit rules. In the example above, I am using for SL a 1.5 x ATR size from the 4H chart. If you are not happy with where the SL is ending then you might wait for a better entry.
As for TP, I am just using a 1:2 RR, and some resistance or support level as references. Usually, the chances that the price going thru a resistance or support level, are probable but lower, so it will decrease your chances of having TP hit.

In the above given example, there are 4 out of 5 conditions meet, in order to open the trade. The number 5, is a MA 9 and 24 on 1H chart crossover, that will trigger the open of the trade.



A piece of honest advice. Do not use more indicators than your brain can handle. As I said, we all have different intelligence or focus and patience levels, so using more indicators needed will only cause stress when reviewing it, and will be also a problem in decision making. You can get trapped in what is known as - Analysis Paralysis.

Don’t stumble trading. Trade Safe!