A profitable trading strategy that meets your goals only involves 4 steps. With these four steps in your investment process you can build a strategy that will endure for years.
First, you need to pick your group. If you have a 401k your group may be chosen for you. If not, decide on what type of funds, ETFs or stocks you want to work with. A group can have just three, or 10, but preferably not more than a 100 ticker symbols.
Second, create a test trading strategy based on a type of analysis. For example relative strength momentum or alpha. Actually I like to create three or four test strategies based on different types of analysis so I can find the type that works the best with the particular group of symbols.
Third, back-test and optimize the group. Starting with the test strategy, run an optimization that tests all your parameters (rules) for trading. This means testing a wide range of settings for the analysis type, plus a range for stops, how long you desire to hold a position and other factors that could influence trading decisions.
Fourth, sort and analyze the optimization results to see which potential strategies were successful each year of the back-test. For example which potential strategy had a gain every year since 2005. Also, sort by the total return over the entire back-test time period. In addition I look at other factors like drawdown, total number of trades during the time period and what percentage of the trades made money.
With my investment software this type of process and analysis allows me to find trading strategies that meet my personal goals from amongst the thousands of back-test results.