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Building Your First Trading Strategy Book - Step-by-Step Guide

· 8 min read
Karthik
Karthik
Founder, TradeLyser

Most traders fail because they don't have a strategy.

They have:

  • Tips from Twitter
  • Indicators from YouTube
  • Patterns from books
  • Emotions from losses

But not a documented, testable, reproducible strategy.

Today, you'll learn how to build a Strategy Book—the foundation of professional trading.

What Is a Strategy Book?​

A Strategy Book is your trading playbook containing:

📖 Documented strategies - Every setup you trade
📊 Entry/exit criteria - Exact rules, no guesswork
🎯 Risk parameters - Position size, stops, targets
📈 Performance data - What works, what doesn't
🔄 Continuous improvement - Regular updates based on results

Think of it as a cookbook for trading. Each strategy is a recipe you can follow repeatedly.

Why You Need a Strategy Book​

Without a Strategy Book:​

  • ❌ Trading based on mood
  • ❌ Can't identify what works
  • ❌ Repeat same mistakes
  • ❌ No way to improve systematically
  • ❌ Emotional decision-making

With a Strategy Book:​

  • ✅ Clear rules to follow
  • ✅ Data-driven decisions
  • ✅ Identify best setups
  • ✅ Systematic improvement
  • ✅ Emotional control

The 5 Core Components of Every Strategy​

Every strategy in your book should document:

1. Strategy Overview​

Name: Pullback Entry in Uptrends
Type: Swing trading
Timeframe: Daily charts
Markets: NIFTY stocks, liquid mid-caps
Best conditions: Trending markets

2. Entry Criteria​

All conditions must be met:

  • Stock in clear uptrend (above 50 SMA)
  • Pullback to 20 EMA
  • RSI between 40-50 (not oversold)
  • Volume contraction during pullback
  • Price creates bullish reversal candle at EMA
  • Entry: Break above reversal candle high

3. Exit Criteria​

Stop Loss:

  • Below the pullback low
  • Or 2% below entry (whichever is closer)

Profit Targets:

  • Target 1: Recent swing high (book 50%)
  • Target 2: Extension to new high (let 50% run)

Time Stop:

  • Exit if no progress in 5 days

4. Position Sizing​

  • Risk per trade: 1.5%
  • Position size calculated based on stop distance
  • Maximum 3 positions in same sector

5. Performance Tracking​

  • Win rate: 64% (32 trades)
  • Avg win: ₹4,200
  • Avg loss: ₹1,800
  • Profit factor: 2.4
  • Best market: Trending up
  • Worst market: Choppy/ranging

Building Your First Strategy: Step by Step​

Step 1: Identify a Pattern You've Seen Work​

Think back to your winning trades.

What do they have in common?

  • Similar entry pattern?
  • Same market conditions?
  • Specific timeframe?

Example:

"I notice I do well when I buy breakouts above consolidation in uptrending stocks during morning sessions."

That's your starting point.

Step 2: Define Exact Entry Rules​

Vague: "Buy breakouts"
Specific: "Buy when price breaks above 5-day consolidation range with volume 1.5x average, only if stock is above 50 SMA"

Make it so specific that:

  • A 10-year-old could follow it
  • A computer could automate it
  • There's no room for interpretation

Entry Checklist Example:

□ Stock above 50 SMA (uptrend confirmed)
□ Consolidation range: 5+ days, less than 3% range
□ Volume during consolidation: Below average
□ Breakout candle: Close above range high
□ Volume on breakout: 1.5x average or higher
□ Market context: NIFTY bullish or neutral
□ Time: Between 9:45 AM - 2:00 PM
□ Entry: 0.5% above consolidation high

Step 3: Define Exact Exit Rules​

Never enter a trade without knowing your exits.

Stop Loss:

  • Technical level (below consolidation low)
  • Or percentage-based (2% max)
  • Whichever is closer

Profit Targets:

  • Conservative: 1.5x risk
  • Aggressive: 3x risk
  • Trailing: Move stop to breakeven at +1R

Example:

Entry: ₹1,000
Stop: ₹980 (below consolidation at ₹982)
Target 1: ₹1,030 (1.5R - book 50%)
Target 2: ₹1,060 (3R - let it run with trailing stop)

Step 4: Set Position Size Rules​

Based on your risk management:

Account: ₹5,00,000
Risk per trade: 2% = ₹10,000
Stop distance: ₹20

Position size = ₹10,000 / ₹20 = 500 shares

Document this in your strategy.

Step 5: Add Context & Conditions​

When does this strategy work best?

  • Market conditions: Trending, ranging, volatile?
  • Time of day: Morning, afternoon, doesn't matter?
  • Market phase: Bull, bear, sideways?
  • Avoid: News days, results, high VIX?

Example:

Best: Trending markets, morning sessions
Worst: High VIX (>20), range-bound markets
Avoid: Result days, major news events

Step 6: Create a Strategy Sheet​

Template:

# Strategy Name: Morning Breakout

## Overview
- Type: Intraday
- Timeframe: 5-min chart
- Markets: NIFTY, Bank NIFTY
- Best conditions: Trending, moderate volume

## Entry Criteria
1. [ ] Market opened above/below previous day close
2. [ ] First 30-min range identified (9:15-9:45 AM)
3. [ ] Breakout of 30-min high/low
4. [ ] Volume confirmation (>1.5x avg)
5. [ ] Entry: 5 points beyond breakout

## Exit Criteria
**Stop Loss:** Opposite end of 30-min range

**Targets:**
- Target 1: Range size x1.5
- Target 2: Range size x2.5

**Time Stop:** Exit by 2:30 PM

## Position Sizing
- Risk: 1% per trade
- Max positions: 2 simultaneously
- No pyramiding

## Performance (Last 30 Trades)
- Win Rate: 57%
- Avg Win: ₹3,200
- Avg Loss: ₹1,400
- Profit Factor: 2.0
- Best month: December (9W-3L)
- Worst month: August (4W-8L, choppy markets)

## Notes
- Works best in strong trending days
- Avoid in choppy/news-heavy days
- False breakouts common after 2 PM

Building Multiple Strategies​

Don't put all eggs in one basket.

Create 3-5 strategies for:

Different Market Conditions​

Strategy A: Trending markets (breakouts)
Strategy B: Ranging markets (mean reversion)
Strategy C: High volatility (wait and watch)

Different Timeframes​

Strategy A: Intraday (5-min chart)
Strategy B: Swing (daily chart)
Strategy C: Position (weekly chart)

Different Instruments​

Strategy A: Equity long
Strategy B: Options buying
Strategy C: Options selling

Result: A strategy for every situation.

Real Example: Complete Strategy​

"The EMA Bounce"​

Overview:

  • Type: Swing trading
  • Timeframe: Daily
  • Markets: NIFTY 50 stocks
  • Duration: 3-10 days per trade

Entry Criteria:

  1. Stock in uptrend (price > 50 EMA)
  2. Pullback to 20 EMA
  3. Bullish candle at/near 20 EMA (within 2%)
  4. RSI 40-60 (not oversold)
  5. Volume: Lower during pullback, higher on reversal day
  6. Entry: Next day above reversal candle high

Exit Criteria:

  • Stop: Below the pullback low
  • Target 1: Previous swing high (book 50%)
  • Target 2: Measured move (let 50% run)
  • Trailing Stop: Move to breakeven after +2R

Position Sizing:

  • Risk: 1.5% per trade
  • Max positions: 4 (different sectors)

Performance (45 trades):

  • Win rate: 62%
  • Avg win: ₹4,500
  • Avg loss: ₹1,900
  • Profit factor: 2.6
  • Expectancy: +₹1,800 per trade

Best Conditions:

  • NIFTY trending up
  • Sector showing strength
  • Clean EMA bounces (not choppy)

Avoid:

  • Range-bound markets
  • High VIX (>18)
  • Result weeks
  • Stocks down >15% from highs

Testing Your Strategy​

Paper Trading (2-4 weeks)​

  • Trade it on paper
  • Follow rules exactly
  • Document every trade
  • Collect minimum 20 trades

Small Position (1-2 months)​

  • Trade with 0.5% risk (half normal)
  • Build confidence
  • Refine rules
  • Track performance

Full Position (ongoing)​

  • Trade with full size (1-2% risk)
  • Continue tracking
  • Review monthly
  • Adjust as needed

Minimum sample size: 30 trades before judging strategy.

Optimizing Your Strategies​

Monthly Review Questions:

  1. What's working?

    • Which strategies have positive expectancy?
    • Which market conditions favor me?

  2. What's not working?

    • Which strategies are losing?
    • When do I perform worst?

  3. What patterns emerge?

    • Time of day effects?
    • Day of week patterns?
    • Market condition correlations?

  4. What adjustments needed?

    • Tighter entry criteria?
    • Better exits?
    • Different position sizing?

Example Optimization:

Before:

  • Entry: Any breakout
  • Win rate: 48%

After Analysis: Win rate much higher with volume confirmation

After Optimization:

  • Entry: Breakout + 1.5x volume
  • New win rate: 61%

Small tweaks = big improvements.

Common Strategy Building Mistakes​

❌ Mistake #1: Too Complex​

Wrong: 15 conditions, 3 indicators, 5 filters
Right: 3-5 clear, objective criteria

Remember: Complexity ≠ Profitability

❌ Mistake #2: Too Vague​

Wrong: "Buy when it looks good"
Right: "Buy when price closes above 20 EMA with RSI >50 and volume >avg"

❌ Mistake #3: Curve Fitting​

Wrong: Optimizing to fit past data perfectly
Right: Simple rules that work across time periods

❌ Mistake #4: No Risk Management​

Wrong: Just entry/exit, no position sizing
Right: Complete with stops, targets, sizing

❌ Mistake #5: Never Testing​

Wrong: Created strategy, never traded it
Right: Paper trade → Small size → Full size

Strategy Book Organization​

Organize by:

Category​

  • Breakout strategies
  • Pullback strategies
  • Mean reversion strategies
  • Momentum strategies

Status​

  • Active (currently trading)
  • Testing (paper/small size)
  • Inactive (not current market fit)
  • Retired (stopped working)

Performance​

  • Stars (best performers)
  • Solid (consistent profits)
  • Watch (break-even)
  • Fix or kill (losing money)

TradeLyser Strategy Book Features​

TradeLyser makes strategy building easy:

✅ Strategy Templates - Pre-built frameworks
✅ Performance Tracking - Auto-calculated metrics
✅ Strategy Comparison - Side-by-side analysis
✅ Rule Automation - Alerts for setups
✅ AI Insights - Elysia finds patterns
✅ Backtesting - Historical performance

Result: Professional strategy book in minutes, not months.

Your Action Plan​

This Week:​

  1. Identify your best trade pattern
  2. Document it with specific rules
  3. Create your first strategy sheet

This Month:​

  1. Paper trade your strategy (20+ trades)
  2. Track all results
  3. Refine based on data

This Quarter:​

  1. Build 3-5 strategies
  2. Test each thoroughly
  3. Compare performance
  4. Keep the winners

The Bottom Line​

Trading without documented strategies = gambling.

Your Strategy Book is:

  • Your trading Bible
  • Your decision-making guide
  • Your improvement roadmap
  • Your edge in the market

Build it once. Profit from it forever.

Take Action Now​

👉 Create Your Strategy Book in TradeLyser
👉 Download: Strategy Template
👉 Next: Overcoming FOMO in Trading

What's your primary trading strategy? Share your approach in the comments.