Build your first algorithmic trading strategy in three steps.

The Architecture

Every strategy follows the same flow. Understand this, and you understand everything.

I spent two years trying strategies that didn't work.

RSI crossovers. 50-day SMA breakouts. Dollar-cost averaging into positions I had no real thesis for. Some of it made money. Most of it didn't. And the strategies that did work were usually the dangerous kind: leveraged plays that looked brilliant until the one time they didn't.

The Magnificent Seven rebalancing strategy was the first one I could actually defend.

The thesis was real. In 2021, I took my first intro to deep learning course. I understood, before it was obvious, what AI was going to become. NVIDIA, Google, Microsoft, Meta, Amazon, Apple, Tesla. These weren't just stocks. They were the infrastructure of the next era. Equal weight. Rebalance monthly. Stay in.

When I ran the backtest, it confirmed what I already believed. The returns were there. The Sharpe ratio held up. The drawdowns were manageable. Conviction backed by data. That was something I hadn't felt with any strategy before.

Magnificent Seven rebalancing strategy — QuickTest results: +27.6% total return, Sharpe 1.07, Sortino 1.59, Max Drawdown -17.3%.

That conviction became a strategy. And this module is about how that transformation happens: from a belief you carry in your head to a set of rules that runs without you.

Most traders have ideas. Few have rules. An idea is "I want to buy quality stocks when they're oversold." A rule is "if RSI is below 35 AND revenue grew more than 10% year-over-year AND price is below the 50-day SMA, then buy 5% of available cash." The difference between those two things is the difference between hoping and trading.

A strategy has exactly two parts: a condition and an action. The condition is a tree built from indicators. Base nodes compare two values and are combined with And/Or logic. When the tree evaluates to true, the action fires. That's all there is.

Putting It All Together

A trading strategy is just a set of rules. That's it. That's the whole secret.

After three modules of building blocks, we've arrived at the answer to the most important question: what is a trading strategy?

Watch · What is a Trading Strategy? — Putting It All Together

"A trading strategy is a set of rules for when you buy and sell stocks. It is composed of indicators, which create conditions, which execute actions."

Let's make that concrete with a real example strategy, the kind you might actually deploy:

{
  action: {
    type: "Buy",           // ActionEnum.BUY
    targetAsset: "AAPL",
    amount: {
      type: "percent of buying power",  // AllocationEnum.PERCENT_OF_BUYING_POWER
      value: 5
    }
  },
  condition: {
    type: "And",           // ConditionEnum.AndCondition
    conditions: [
      { type: "Base", lhs: "price",      comparison: "<",  rhs: "SMA(50)"       },
      { type: "Base", lhs: "RSI(14)",    comparison: "<",  rhs: 35              },
      { type: "Base", lhs: "revenueYoY", comparison: ">",  rhs: 0.10            },
      { type: "Base", lhs: "peRatio",    comparison: "<",  rhs: "sectorAvgPE"   }
    ]
  }
}

This strategy combines all four indicator types: a technical condition (price below SMA, RSI oversold), a fundamental condition (revenue growing, PE reasonable), and one buy action. Each strategy has exactly one action. If you want an exit rule, that's a separate strategy.

{
  action: {
    type: "Sell",          // ActionEnum.SELL
    targetAsset: "AAPL",
    amount: {
      type: "percent of current positions",  // AllocationEnum.PERCENT_OF_CURRENT_POSITIONS
      value: 100
    }
  },
  condition: {
    type: "Or",            // ConditionEnum.OrCondition
    conditions: [
      { type: "Base", lhs: "positionReturn", comparison: ">=", rhs: 0.20  },
      { type: "Base", lhs: "positionReturn", comparison: "<=", rhs: -0.10 }
    ]
  }
}

Two strategies. One portfolio. Each has exactly one condition and one action. Both run automatically every day. That's all it takes.

Want to try assembling one of these? Connect a Public.com brokerage account and get 3 months of NexusTrade Premium free — Aurora can build this exact strategy from plain English. The full course covers this module in an interactive video format.

Check Your Understanding

Two questions before we test your strategy.