Building Your First Automated Strategy

Everyone wants to automate their trading. Fewer people finish. It's not because automation is impossibly hard—it's because most people don't have a clear path from "I have an idea" to "it's running and making money."

This guide is that path. We'll take you from a rough concept to a live, automated strategy. No fluff, just the steps that work.

Start With a Clear Hypothesis

Before you write a single line of code or set a single alert, you need a hypothesis. Not "I want to make money." Something specific:

• "ES tends to mean-revert after large moves in the first hour of trading"
• "NQ breaks out in the direction of the first 15-minute candle 60% of the time"
• "When RSI crosses below 30 on crude oil, the next 5 candles are profitable 70% of the time"

Your hypothesis doesn't have to be right. It just needs to be testable. If you can't test it, you can't improve it.

Validate Before You Automate

Open TradingView (or your charting platform of choice) and look at your hypothesis manually. Scroll back through a few months of data. Does it hold up visually?

You're not doing rigorous backtesting yet—you're sanity checking. If your hypothesis falls apart the moment you look at real charts, save yourself the trouble of building it out.

Look for:

• Does the pattern occur often enough to be tradeable?
• When it works, how much does it make?
• When it fails, how much does it lose?
• Are there obvious conditions where it doesn't work?

If it passes the eyeball test, proceed.

Define Your Rules Precisely

Automation doesn't tolerate ambiguity. "Buy when the market looks strong" won't work. You need exact rules:

Entry rules:

• What exact condition triggers a buy/sell signal?
• What timeframe are you using?
• Do you enter at market or use limits?

Exit rules:

• Where's your stop loss? (Exact points, ticks, or percentage)
• Where's your profit target?
• Do you use trailing stops?
• Is there a time-based exit?

Position rules:

• How many contracts/shares per trade?
• Are you allowed to add to positions?
• What's your max position size?

Write these down. Be painfully specific. If another person couldn't execute your strategy from your rules alone, they're not clear enough.

Build and Backtest

Now you can start building. Depending on your approach:

• TradingView: Use Pine Script to create an indicator that shows your signals, then set up alerts
• Dedicated platforms: NinjaTrader, TradeStation, or similar for more complex logic
• Custom code: Python with a backtesting library if you're technical

Run your strategy against historical data. Pay attention to:

• Win rate: What percentage of trades are profitable?
• Average win vs. average loss: Is your R:R acceptable?
• Max drawdown: What's the worst losing streak?
• Profit factor: Total gains divided by total losses (above 1.5 is decent)

Remember: your backtest will overestimate performance. Apply the 30% rule mentally.

Paper Trade Religiously

This is where strategies go to get real. Set up your automation to execute on a paper account. Let it run for at least 30-50 trades.

Watch for:

• Execution gaps: Did you get the fills your backtest assumed?
• Timing issues: Any problems with signal timing or alert delivery?
• Edge cases: Situations your backtest didn't account for

Keep a log. Note every trade, every fill, every deviation from expected behavior.

Go Live Small

When paper trading results match your expectations (within reason), it's time for real money. But start at minimum size:

• If you planned to trade 4 contracts, start with 1
• If you planned $10,000 per position, start with $2,000

Run at this size for another 30-50 trades. This is where you discover:

• Emotional response: How do you feel watching real money move?
• Real slippage: Paper accounts don't fully simulate liquidity
• Tech reliability: Does everything work under actual market conditions?

Scale Thoughtfully

Only after your live small-size results match expectations should you increase size. And do it gradually:

• Week 1-2: 25% of target size
• Week 3-4: 50% of target size
• Week 5+: 75-100% of target size

If performance degrades significantly at any stage, stop. Investigate. Don't push through and hope it gets better.

The Ongoing Work

A live strategy isn't "done." Markets change. What worked in 2024 might not work in 2025. Plan for:

• Regular review: Look at performance weekly. Significant changes need investigation.
• Condition monitoring: Is your strategy performing differently in certain market conditions?
• Iteration: As you learn, you'll find improvements. Test them properly before deploying.

What Actually Matters

Most strategies fail not because the idea was bad, but because the execution was sloppy. Traders skip paper trading, size up too fast, don't track results, and give up when the first drawdown hits.

The process above isn't sexy. It takes months, not days. But it's how strategies survive contact with real markets.

Your first automated strategy probably won't be your best one. But if you build it properly, you'll learn things you can't learn any other way. That education is worth more than the P&L of any single strategy.

Start today. Your future automated self will thank you.