Six step development of trading system

The focus of this article is to guide you through the steps of developing a trading system.

Developing a system does not take too long, but you need to take some time to fully test the system. Therefore, be patient.

From a long-term perspective, a good trading system may help you earn a lot of money.

step1: Time frame

You are? The daily closing trader or Band traders?

Do you read charts daily, weekly, monthly, or annually? How long do you want to keep your position?

This will help you determine the time frame for your transaction. Even if you look at charts with multiple time frames, this will determine the time frame you primarily use to determine trading signals. Time frame

step2: Find indicators to help you identify new trends

Since your goal is to identify trends as early as possible, we need indicators that can achieve this goal. The moving average is one of the most popular indicators used by traders to determine trends.

Using two moving averages(Fast and slow)Then start waiting until the faster one intersects with the slower one or moves below the slower moving average. This is the foundation of the 'intersection of moving averages' system.

The simplest form of a moving average intersection system is the fastest way to identify new trends. It is also the simplest way to discover new trends.

Of course, traders also have many methods to identify trends, but the moving average is one of the easiest tools to use.

step3Find the indicator that helps you determine this trend

The second goal of our trading system is to avoid double losses, which means we don't want to be trapped in the wrong trend. Our method of avoiding double losses is to use other indicators to confirm whether a new trend signal is true or false when we discover it.

There are many indicators that can be used to confirm trends, but we prefer smooth moving averages, random exponents, and relative strength indicators.

As you become more familiar with various indicators, you can find what you like and integrate it into your system.

step4: Clarify your risks

When creating a trading system, it is important to determine the amount of loss you can bear for each transaction. Not many people are willing to discuss the issue of losses, but in fact, good traders are considering him/Before she can earn much money, she will think about him/How much loss is she willing to bear.

The amount of loss you are willing to bear will be different from others. You need to determine how much breathing space your trading needs, while not taking too much risk on a single transaction. In future courses, you will learn how to manage funds. Fund management has a huge impact on how much risk you take in each transaction.

Before considering potential gains, traders should consider potential losses.

step5: Clear entry and exit

After determining the amount of loss you are willing to bear in the transaction, the next step is to find out where to enter the market/Departure can yield the most benefits.

Some people like to enter trading immediately when their indicators match each other and give a good signal, even if the candle line has not yet closed. And other traders will wait until the candle line closes before entering the market for trading.

A trader stated that he believes waiting until the candle line closes before entering is the best option. He entered multiple times before the candleline had closed and all indicators met, but ultimately found that the trading was completely opposite to his expectations at the close.

This is just a matter of trading style. Some traders will be more dominant, and eventually you will find out what kind of trader you are.

Speaking of leaving the venue.

You have several options. You can move your stop loss if the price moves in a favorable direction for youXClick to move your stop loss settingXPoints.

Another method is to set a fixed target and leave the market once the price reaches the target. How to calculate your target point depends on yourself. Some people choose to prioritize support and resistance levels as their goals.

Some people also set the same number of points for each transaction. No matter how you calculate your goal, make sure you stick to it. No matter what happens, don't leave first. Stick to your system! After all, you created it.

Another way to leave is to have a set of standards, and when they are met, you leave. For example, if your indicator retracts to a certain level, you leave the field.

In the chart below, the exit is set at a specific price near the bottom of the descent channel.

System Exit

Others choose to use the same number ofpip(Fixed risk)。

No matter how you calculate your goals, just make sure you stick to them. No matter what happens, never leave early.

Adhere to your trading system!

After all, you invented it!

Another way you can exit is to have a set of standards that will allow you to exit when you encounter them.

For example, you can make it a rule that if your metrics are exactly the opposite, you will exit the transaction.

step6Write down the rules of your trading system and follow them

This is the most important step when creating a trading system. You need to write down the rules in your trading system and follow them.

Adhering to principles is a necessary trait for traders, therefore, you must act according to the trading system.

If you don't follow the rules, your trading system will be useless, so remember to stick to the principles.

Did we mention that you need to stick to your principles?

How to test your trading system

Record your trading system and be honest with yourself! Record your gains, losses, average returns, and average losses. If you are satisfied with the results, you can start the next round of testing: conducting real-time transactions using a simulated account.

Use your system to trade in simulated accounts at least2A period of months.

This will allow you to understand how you should utilize your system for trading when the market changes. Believe us, there is a big difference between real-time trading and backtesting.

After trading with a simulated account for two months, you will know if your system can stand up in the market. If you still get good results, you can choose to start trading with your actual account.

However, you need to have great confidence in your trading system and be able to trade without hesitation.