What is a Trading Strategy?
A trading strategy is a structured framework that defines how a trader identifies, enters, manages, and exits a trade. It is based on objective rules and observations rather than emotional decisions or guesses. Without a strategy, trading becomes random — influenced by emotions rather than logic. A good strategy helps maintain consistency and manage risk.
Every successful trader — whether short-term or long-term — uses some form of a strategy, even if they don’t explicitly define it.
A trading strategy is not just about when to buy or sell — it’s about why to act, how to manage risk, and what to expect under different scenarios.
What is a Trading Setup?
A trading setup is a specific technical condition or chart formation that matches the rules of a strategy and signals a potential trade. It serves as the trigger point for a trader to take action. While the strategy defines the overall system — including risk rules, market condition, and trade management — the setup is the entry opportunity that fits within that strategy.
Examples of setups:
- Bullish engulfing candle near support with RSI < 30
- Breakout above resistance with volume spike
- Pullback to moving average in a trending market
A good trading setup:
- Matches the strategy’s conditions
- Is clear and repeatable
- Helps maintain consistency and reduce emotion
Strategy vs. Setup vs. Style
Understanding the distinction between strategy, setup, and style is critical:
| Term | Definition |
| Strategy | The complete trading system — includes entry, exit, risk rules, filters, logic |
| Setup | The specific technical condition that triggers a trade |
| Style | The time-based approach (e.g., swing, intraday, scalping) — excluded here |