Entry, stop, and target rules — writing a strategy on paper

A strategy that lives only in your head isn't a strategy. It changes with your mood, your last trade, and whatever you read this morning — and it can't be tested, because it's never the same twice. Writing your strategy on paper forces every vague idea to become a specific rule. It's the single step that separates traders who can improve from traders who just keep trading.

What you'll learn

• The three qualities of a good trading rule
• Every decision a complete strategy must cover
• How to turn vague rules into precise ones
• The "stranger test" for checking your rules
• A complete, written example strategy you can use as a template

1. What makes a good rule

A good rule is:

From vague to precise

2. Every decision a strategy must cover

1. Market(s): which instruments, exactly
2. Timeframes: direction, setup, entry (see Timeframes and multi-timeframe basics)
3. Sessions / hours: when you trade and when you don't
4. Regime filter: conditions when the strategy is allowed
5. Setup: what must be true before you look for an entry
6. Trigger: the specific event that says "enter now"
7. Order type: market, limit, or stop (see Market, limit, stop, stop-limit orders)
8. Stop-loss: exact placement rule
9. Target / exit: exact rules, including partials and trailing
10. Trade management: break-even rules, time-based exits, what you never do
11. Position sizing: risk % and formula
12. No-trade conditions: news, loss limits, spreads, weekends

If any item is missing, you'll fill it in with emotion at exactly the wrong moment.

3. The stranger test

Give your written rules to someone who's never seen your trading, along with a chart. Ask them to mark every trade the rules would have taken over the last month.

• If their trades match yours, the rules are clear.
• If they don't, find each disagreement — it points to an ambiguous rule. Rewrite it.

You can do a version of this yourself: apply your rules to a chart you haven't looked at before, and note every moment you hesitated. Each hesitation is a rule that needs tightening.

4. A complete written example

(An illustrative strategy for learning purposes — not a recommendation. Its rules must be tested before being traded.)

"Trend pullback to zone" — EUR/USD, GBP/USD

1. Markets: EUR/USD, GBP/USD.

2. Timeframes: D1 direction · H4 setup and entry.

3. Sessions: new entries only between 07:00 and 17:00 GMT (London and the London–New York overlap).

4. Regime filter:

• Long only if the D1 close is above a rising 200 SMA and the last two D1 swing lows are rising.
• Short only if the mirror conditions hold.
• Otherwise, no trades.

5. Setup:

• Price has pulled back into a support zone (for longs) marked on D1 or H4 before the pullback started.
• The pullback has retraced at least 38.2% of the last H4 impulse.

6. Trigger: an H4 candle closes inside the zone as either:

• a bullish engulfing (body fully covers the prior candle's body), or
• a bullish pin bar (lower wick ≥ two-thirds of the candle's range, body in the upper third).

7. Order type: market order at the open of the next H4 candle.

8. Stop-loss: 0.3 × H4 ATR(14) below the lower of the trigger candle's low or the zone's lower edge. If the stop is less than 1.5 × H4 ATR from entry, widen it to 1.5 × ATR.

9. Targets:

• Close 50% at 2R, then move the stop to break-even.
• Trail the remainder below each new H4 swing low (2-left, 2-right rule).
• If the next D1 resistance is less than 2R away, skip the trade.

10. Management:

• Never widen the stop.
• If the trade hasn't reached 1R within 10 H4 candles, close at market.

11. Position sizing: risk 1% of balance per trade, sized with the correct pip value (see Pips, lots, and pip value across pairs).

12. No-trade conditions:

• Within 30 minutes before a high-impact release for either currency in the pair
• After two losing trades in a day, or after a 3% daily or 6% weekly drawdown
• Friday after 15:00 GMT (no new trades into the weekend)
• If the current spread is more than twice its typical level
• Never hold both pairs in the same direction against USD at full risk — maximum 1.5% combined

Notice that nothing here requires judgement in the moment. Every question has an answer written down in advance.

5. Keep version control

Your rules will change as you test and learn. When they do:

• Give the strategy a version number (v1.0, v1.1…)
• Write down what changed and why
• Keep results for each version separate — mixing results from different rule sets makes the statistics meaningless

Common beginner mistakes

• Rules that require judgement ("strong candle", "good level", "looks overextended").
• Missing decisions — especially exits, management, and no-trade conditions.
• Keeping the strategy in your head.
• Changing rules mid-trade or after single losses.
• Mixing results from different versions of the rules.

Key terms

Practice

1. Take the first-draft rules you wrote in the previous lesson and rewrite them into all 12 sections.
2. Replace every vague word ("strong", "good", "clear", "near") with a measurable condition.
3. Apply your rules to one month of charts you haven't studied. Note every hesitation and fix the rule behind it.
4. Save the result as Strategy v1.0, with two screenshots: an ideal setup and a "close but skip".

Quick recap

• Good rules are unambiguous, complete, and testable.
• A complete strategy covers 12 decisions, from market to no-trade conditions.
• Replace vague words with measurable conditions.
• Use the stranger test to find ambiguity.
• Version your rules and keep each version's results separate.