Building a fundamental trading strategy, step by step
Eight decisions, and the order is the point: each one narrows what the next can be. Answer them out of order and you will keep reopening the ones behind you.
Lesson 12 of 12.
What a strategy is
The source opens with a definition worth keeping: a strategy is a response to the trends that have appeared in the market — not a reaction to the market, but an action taken alongside it.
The distinction is not wordplay. A reaction is decided after the market has moved, which means it is decided under pressure and by the market. An action taken alongside it is decided in advance, in conditions where the decision can be a good one.
Everything below is decided before a position exists.
Steps one and two — what you will trade
First, the type of instrument. CFD, ETF or option. These are not interchangeable: an option has an expiry and a premium that decays, an ETF is owned outright and settled on an exchange, a CFD is financed nightly and settled against your broker. Lesson two set out what each one actually is.
Second, the market and the instrument in it — commodity, forex or stock, and then which specific one. The source gives four criteria for choosing a currency pair and they are better than the usual advice:
- The fundamental knowledge you have about that pair. Two economies, two calendars, two central banks — that is real study, and it does not transfer to the next pair.
- Previous experience trading it. Knowing what is normal for an instrument is not something you can read.
- Whether it connects to your work and your life. An instrument whose news you would follow anyway is one you will keep up with when you are busy.
- The swap. What it costs to hold overnight, which decides whether the pair is viable for the timeframe you are about to choose.
Step three — the timeframe, decided by your life
The source frames this by asking how much time you can actually give it: full time or part time, and what place trading occupies in your life.
This is the step most often skipped and it invalidates everything after it. A part-time trader running a strategy that needs continuous attention will miss the entries and see only the losses — not because the strategy is wrong, but because they are running the half of it that happens while they are watching.
It also feeds back into step two. A pair with a heavy negative swap is not viable for a position held for weeks, and a pair that only moves during a session you are asleep for is not viable at all.
Step four — the bias, and where it comes from
Lesson three introduced this and the source repeats it here because it is the hinge of the whole process: without a bias toward the market, trading is essentially without an aim.
Three tools form it, in order of how long the answer lasts: living with one pair rather than switching constantly, fundamental analysis, and long-term technical tools for confirmation.
Everything in lessons four to eleven is the second of those. This is where it arrives: the calendar, the growth data, the dollar index, the rates, the curve, the four release families and the positioning all produce one output, and it is a direction.
Step five — size, which is liquidity management
The source calls this managing liquidity rather than managing risk, and the word is better. The question is not "how much might I lose" but "how much of my account is committed, and what is left to act with".
Leverage is the item it names first, and it belongs with the measurement from lesson three: over the same two months EUR/USD moved 500 pips and gold moved 3,400. The same lot size on those two is not the same position, and carrying one size across instruments is the most common way a correct view still empties an account.
Size belongs to the instrument, not to the account. The daily-range figures on the instrument specifications page are where it comes from.
Steps six and seven — the hedge, and when to put it on
Hedging is holding an offsetting position so that being wrong about direction is survivable. The source is clear about what it is for: if you have been wrong about the market bias, this is the tool that means the mistake is not terminal.
Then it asks the harder question — when do you start? — and gives two answers.
Aggressive: hedge from the beginning of the trade. Appropriate when you hold a bias but the conviction behind it is not strong. It costs from the first minute and it protects from the first minute.
Later: hedge from the point where, if the market keeps moving against your bias, the portfolio would be weakened. Cheaper to carry, and it accepts the first part of the damage in exchange.
Both are defensible. What is not defensible is deciding which one you are using after the position is already losing — at which point it is not a strategy, it is a rescue.
Step eight — whether a second instrument is needed
The last decision is whether to hold a second instrument alongside the first. The source's reasoning is partly illegible in the deck, but the case it makes is that a second instrument earns its place when the first one is quiet — when the primary pair is not producing enough movement to justify the attention being paid to it.
Two cautions belong with it, and lesson six supplies both. A second instrument that is correlated with the first is not a second position — it is the first one at double size, and long gold with short dollar index is the standard example. And a second instrument doubles the fundamental work: two economies, two calendars, two central banks, which is exactly the study step two said does not transfer.
The dashboard, and what it is for
The source ends with several trading dashboards — one for the Australian dollar, one for EUR/GBP, one for gold, and one for reading the overall direction of the market.
What a dashboard is for is holding the eight decisions in one place so they can be checked rather than remembered. The specific layout matters much less than the fact that it exists, and building your own is more useful than copying one, because the act of deciding what goes on it is the strategy.
A workable one carries, for each instrument you trade: the next three calendar entries and their forecasts; the current rate and the market-implied odds of the next move; the ten-year yield spread against the other side of the pair; the current positioning reading; your bias and the date you last revisited it; and your size, hedge and the level at which the hedge goes on.
Every one of those is a lesson in this branch. Which is the point of ending here — the twelve lessons are not twelve topics, they are the twelve inputs to one page you look at before you trade.
What to take from this one
Three things:
- A strategy is decided before the market moves. Anything decided afterwards is a reaction, and reactions are made under exactly the conditions that produce bad decisions.
- The order of the eight is the content. Timeframe constrains the instrument, bias constrains the direction, size belongs to the instrument, and the hedge timing has to be chosen while the position is still profitable.
- Put them on one page. The dashboard is where the other eleven lessons stop being reading and start being a process.
That is the twelve
You have the whole branch: what moves a price, what to trade it on, the calendar, growth, the dollar, rates, the curve, the releases, the crowd, and the strategy that holds them together.