Identify Market Conditions
One of initial steps in developing a trading strategy is identifying the conditions of the market you want to trade or are already trading. There are three main types of market conditions: trending, sideways, and volatile. Usually, a market will primarily exhibit one type of behavior. There may be times when any market type will exhibit the characteristics of more than one.
Each type of market is characterized by distinct chart patterns that indicate the shift of market action. Different criteria are useful for capturing profits from these different markets; what works well in a trending market may not work well in a sideways or volatile market. The key to writing a strategy is to develop it so that it captures profits in the market conditions for which you designed it and it minimizes losses in other market conditions.
Before you start developing your strategy, study the markets you want to trade, or are trading, and determine what type of markets they are. Or, decide what type of market you want to trade and then build criteria into the strategy to pinpoint that type of market.