A Strategy Building Guide!

Hi folks,

I just wanted to cover a topic that I get asked a lot about, "Where do I get started with building my own strategy?" I figured I could share some valuable insight into the topic since I have created a variety of trading strategies and easily identifiable, repeatable technical setups over my 25+ years of trading!

Lets review the basics:

The first rule to building a viable strategy is simplicity. Simply keep it simple!

Its easy to get caught up with a variety of different indicator, trendlines, and very specifically met conditions. A chart like that might look something like this:

A perfect example of over complication!

The second rule is sort of an addition to the first rule. Reduce the noise!

Noise could mean many things. Too many indicators on a single chart is noise. Why is it noise you might ask? Indicators can often give mixed signals if too many are being utilized on a single chart or as a signal for a single strategy. This can produce false positives and more often than not just more stress and over trading. You want to reduce that.

A second example of noise is a noisy news feed or X feed.

Is part of your daily trading routine scrolling news and X feeds looking for the next hot trade or the next hot headline to hit the tape? This isn't necessarily a bad thing paired with a strongly developed strategy but often this isn't the case. A noisy news feed can cause traders to chase trades they wouldn't necessarily take if they hadn't come across it in their feed. Whether its boredom or a fear of missing out reaction (FOMO), it usually just results in bad habits forming, over trading or trading just to trade.

The third rule is stop watching so many stocks all at once!

You don't need a watchlist of 40+ stocks that you're watching at any given time. A big watchlist is another recipe for overtrading, over burden, too much stress and too many signals! Curate a list of top performing stocks and focus on those. It will allow you to consistently narrow in on top quality trading setups and reduce the urge to over trade.

Rule number four is a rule that is all about you!

There is an art to trading! Every trader has their own unique set of skills and abilities that fit within the way they trade. Are you a good swing trader but have a difficult time scalp trading or momentum trading? What makes you tick as a trader? The most important point of this rule to understand is that you should put your time and effort into the trades that you consistently get right, feel confident with, and execute on without hesitation. Skilled traders build upon what they're naturally good at. Don't try to be an all terrain vehicle. You only really need 2 - 3 repeatable setups backed by a little discipline, compressed within a playbook to be consistently successful.

The fifth rule is understanding timeframes and what it means for your strategy!

A weekly time frame chart helps see the bigger picture, longer timeframe trends, areas of support and resistance. This timeframe and longer timeframes (Monthly - Yearly) are generally used for long term trading or investment strategies.

A daily time frame chart usually pertains to a swing trading strategy where you plan to hold the stock for multiple days - 1 week or more. This is the timeframe where you measure risk, gauge reward and develop the trading plan around it. Some traders might zoom into a 120 - 60 minute chart for a more precise look at the technical setup.

A 5 - 15 minute time frame chart can be used for day trading strategies where the holding period could be 30minutes - 4 hours or less.

A 1 - 3 minute time frame chart can be used for scalp trading strategies, this is where you're looking for a stock to quickly bounce or move off of a certain price level. These types of trades might be held for 5 - 30 minutes or less.

The sixth rule is your strategy will work in some markets but not all markets!

As you develop and learn from your strategy there will be markets that the strategy performs well in and markets that it does not. With time those markets will show themselves and when it isn't your time for your strategy you get out of the way of those markets instead of trying to force trade after trade in markets that it doesn't traditionally produce results in!

One single strategy should not try to be forced into a one size fits all, works in every market type system. A strategy that has a strong focus on a certain market attribute, trend or condition should produce consistent, repeatable results far more regularly than a strategy that tries to be a jack of all trades but a master of none.

Here is the summary of the rules for trade setups and strategy building:

1. Keep it simple!

2. Reduce the noise!

3. Simplify your watchlist!

4. Identify your skillsets in the market!

5. Understand timeframes!

6. Don't force trades in markets that don't work for you!

   
   
   
   

Now that we have a set of rules what are the next steps?

A solid strategy takes core ideas that are consistently and easily repeatable and extracts an edge out of those core concepts. Think of my Power Earnings Gap strategy that I developed 15+ years ago. It continues to be repeatable to this day. You wait for strong stocks to report earnings, then you wait to see how the stock acts the next day after the earnings report. Simple, repeatable, low stress!

You identify 3 key metrics using a daily timeframe chart:

1. Did the Power Earnings Gap hold?

2. Did the stock gap up in the morning and trend higher closing near the high?

3. Was the strong gap and strong close supported by strong volume?

   
   

If those 3 SIMPLE metrics were met you have a PEG stock candidate. This is the core strategy. Next comes the trading setups that you apply to the PEG stocks.

This is how I identify the technical setups within the PEG strategy:

1. I add the PEG to a PEG watchlist

2. I patiently wait for a technical pattern to emerge

3. I identify the strength and type of the technical pattern (Bull flag/ pennant)

4. I use the technical pattern setup type to determine my risk and reward

5. I execute upon the technical pattern if risk vs reward is favorable

5 SIMPLE repeatable steps that are easy to execute upon over and over again!

Typically I just have RSI, Volume and MACD on my charts. Just as we discussed earlier in the post. A clean chart with 2 - 3 indicators and no distractions. Clean trendlines and headings!

Now, one single strategy usually isn't enough and one strategy shouldn't be designed as a "one size fits all" or "works in every market" approach. That in itself isn't a realistic concept as market conditions can widely vary on a regular basis. You want 3 or 4 easy to deploy strategies built around different market conditions and timeframes, this way you can pivot with the market as the market cycles around you. Personally I run about 3 strategies and rotate through them depending on how market conditions favor each strategy. My core strategy is my PEG methodology which focuses on swing trading where I hold a stock for multiple days or sometimes a week or more.

In more volatile environments I deploy an Avalanche Trade setup where I focus on strong trending stocks that are getting sharply sold down early in the day due to an increase in volatility from something like a Deepseek or tariff news headlines. This strategy is a day trading strategy using a 5 minute timeframe chart looking for strong up trending stocks that have sold down 5% - 7% or more before 11am.

During market pullbacks I closely monitor NYMO and NAMO levels and closely watch for positive RSI and MACD divergences to emerge. This can set up powerful reversals in indexes and can be a opportune time to focus on 3x leveraged ETFs such as TQQQ or SPXL to take advantage of these quick bounces. This setup just depends on a NYMO and NAMO "oversold" condition. Nothing extravagant or complicated. Simple!

The Power Earnings Gap Red to Green setup is a consistent day trading strategy to promote cash flow into the core account and can be a fantastic supplement to the core PEG swing trading strategy while I wait for PEG setups to develop in technical swing trading setups! This strategy just needs a strong PEG stock that opens red on day two and then quickly reverse back green preferably within the first 30 - 60 minutes of the trading day. Another very repeatable and simple strategy. It doesn't rely on indicators just tried and true price action!

As you can see developing technical trading setups that can be deployed over a variety of different market conditions can be beneficial to your strategy. Think of your strategy as a variety of tools that you can deploy depending on what you're faced with in the market. Keep 3, 4 or at most 5 of these "tools" readily available. The tools are your technical trading setups and market conditions that make up your core strategy unique to you!

Use this guide to help develop your own strategies following the ruleset and ideas provided. Your strategy is and should be unique to you. You want to be the master of it and this is what will eventually evolve into your own unique edge! Keep it close!

Develop your own strategies and more with the Art of Trading!

Cheers and Happy Trading!