Creating a trading strategy based on data from scratch

21.08.2025

Education

A positive trading strategy is the main expense tool of a prop trader. You can't spare it. A trading pattern should be regularly scanned by the X-ray of statistics. If its value drops significantly, you need to have a good backup option at hand.

Of course, everyone dreams of finding an eternal strategy. But sometimes the market changes. A prop trader should know about this. Have a few more positive trading patterns to replace them. Or at least know how to find and check them.

There are a lot of search directions. There are already open paths. Levels, indicators, volumes. And there are still unexplored territories. For example, statistical series. When the trading pattern is not the graphic pattern itself, but the deviation of its series around the normal value.

Searching for patterns is a high flight of thought through the sieve of ruthless statistics. It is important not to fall in love with your ideas. Especially negative ones. The main thing is the current result. While it is positive, the pattern is in the clip. As soon as it stops bringing profit, it is transferred to standby mode. And from there the strategy may never return.

Pattern example

For demonstration, we can take the following example:

search direction — trend levels
idea of the found pattern — 5th touch of the trend channel
entry point for purchase - from trend support, for sale - from trend resistance
take profit for purchase - resistance line above the purchase point, for sale - support line below the sale point
stop loss — half of take profit
moving stop loss to breakeven when passing 2/3 to take profit

These are the main parameters. The tested pattern implies not just random five touches, but a precise sequence. When the price from the beginning of the channel makes clear hits from support to resistance, then again to support and to resistance. And already on the fifth hit, in the case of a growing channel this is a hit on support, a buy is opened. The target is the vertical to resistance. Stop — half of this vertical down.

For the initial check, at least 10 transactions in a row are required. In our case, the EURUSD pair was taken on the H-1 time frame. Rewinding back, we got 10 suitable situations in the period from August 2024 to June 2025. Of the 10 transactions, 6 were positive. One closed at zero. And 3 in the minus. The total result is 4650 points of profit on a five-digit quote (example - 1.14000).

The pattern showed a positive result at the initial stage. But it generates too few entry points. There were only 10 of them on one instrument over 9 months. We tried to switch to a smaller time frame. But the clarity of the pattern is blurred there. We need to go further.

Where to look?

It took a little over an hour to find and check the pattern - "5 touches of the trend". It is not difficult. Very exciting. How to look for gold. Every experienced trader will tell you about dozens of such adventures. But none of them will show the point on the map where they found their gold mine. It costs money.

Fortunately, it is not difficult to find a positive pattern. The main directions have already been described in books, articles, interviews. You just need to choose. There was already an example of working with trend levels. There are also horizontal, moving levels.

Often they are combined with trading volume readings. Strong level - large volume. Weak level - small volume. You can look for a rebound from a strong level. And near a weak level - a breakout.

In addition to levels, indicators are actively used. There are hundreds of them. You can dig endlessly. The most famous:

—Moving Average - popular strategies for crossing two averages or fixing the price above or below this level. This indicator was very popular with the "king of futures" Richard Dennis. He proved that simple trading strategies can make millions of dollars.

— MACD, RSI - popular in counter-trend trading strategies. Selling from the extreme overbought zone. And buying from the extreme oversold zone.

The best results come when traders experiment with indicator settings. The main thing is not to complicate things. A strong pattern is usually simple. Like Albert Einstein's formula E=mc^2.

Valuable tips can be provided by studying the trading strategy of Bill Williams. A novice trader should be interested in following how his ideas about the market, they are described in the book "Trading Chaos", turn into specific patterns. With significant amendments, it is still possible to trade Williams' ideas. But it is more useful to understand the course of his thoughts. And find something of your own.

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