Tactical breeding of the Thoroughbred began when the English discovered that their slower, sedentary horses could become more versatile and gain endurance if they cross-bred them with the faster and stronger Arabian and Turkish horses of the East. In doing so, they began the strong tradition of lineage and pedigree that has become the backbone of the racing industry. Today, there are only three remaining horses whose lines appear within the modern Thoroughbred, and all modern Thoroughbreds can be traced back to them. They are the Byerly Turk, the Godolphin Barb, and the Darley Arabian. The traditions of racing are so strong that Thoroughbreds must meet certain qualifications before they are to be entered into the "General Stud Book", the official Thoroughbred registry. To be considered a Thoroughbred, a horse's lineage must include eight or nine crosses of pure blood tracing back at least a century.

The Thoroughbred industry begins with the breeders, whose sole purpose is to mate the most talented and capable horses. Conception is followed by approximately an 11-month gestation period. Regardless of what day a foal is actually born, its birthday is always considered to be the first of January. In its second year of life, the Thoroughbred begins its training and learns how to carry a saddle. At this stage, the horse is a yearling. The breeders sell their yearling crop to potential buyers on the commercial market using auctions or other sale instruments. Yearlings undergo minimal training until they become two-year-olds, at which time they have the potential to begin racing, and thus to earn valuable purses. Horsemen consider these purses to be their return on invested capital.

The purpose of breeding is to create champion racehorses. Male Thoroughbreds, also called stallions, have the highest breeding value because they can mate up to 80 mares, or female horses, per year. When stallions retire, they are used as studs meaning that they are used only for breeding purposes in the hopes that their racing genes will be passed on to their progeny. Female Thoroughbreds are "fillies" until their fifth birthday and are known as mares thereafter.

As the Thoroughbred ages, it is critical to accurately pinpoint when it is finally ready to participate in races. The main factor that determines a Thoroughbred's level of physical maturity is its knees, which can be either open or closed depending on the level of cartilage protecting the joint. More mature horses have "open" knees, i.e., they still have cartilage protecting the joint. More mature horses have "closed" knees, or joints in which the protective cartilage has all turned to bone. Thoroughbreds are not capable of intense training and workouts until they develop closed knees, which typically occurs after they are two-years old. Only one-third of all two-year-olds make it to the tracks, so it is not uncommon to see aces filled with horses that are three-years-old and up. A horse's ability, as well as its development, is a major product of its bloodlines, thus illustrating the value of studs and the importance of breeding.