| What it covers | Example | |
|---|---|---|
| Setup | The conditions that have to be true before you look at a trade | Stock above its 50-day average, IV rank over 30 |
| Strategy | The setup, plus what you trade and when you get out | That setup, traded as a 16Δ put spread, $5 wide, closed at half |
| System | The strategy, plus how much and how many at once | That strategy, at 2% of the account per trade, ten open at most |
When a run of trades goes badly, these three words are the diagnosis.
Almost every argument about whether something “works” is two people talking about different layers.
As usually described, none of them — it is a sequence of positions with no numbers attached. See why the wheel is not a strategy yet.
Easily. The same correct read on a stock can be expressed as a trade that pays well or one that pays terribly, and the difference is structure and exit.
The one you have not written down. In practice that is usually sizing, because it is the layer nobody publishes and the one that decides whether a bad month is an annoyance or the end.
You have all three whether you write them down or not. The only question is whether you chose them.
Every test article on this site names the strategy layer in full and says which system-level numbers it can and cannot report.
No result is published yet. When one is, the drawdown and the capacity will be reported next to the per-trade numbers, because a strategy that cannot be held at size is a different proposition from one that can.
