Creating a Stock Trading System: Indicator Based Stock Trading System - MetaTrader 4 Template Stock Trading System
A Stock Trading System refers to a set of stock trading rules that you follow to manage your stock trading trades. These written stock trading rules will determine when you open a stock trading trade and when you will exit. A stock trading trade system is created by combining two or more stock trading technical indicators.
For example, the Stochastic Oscillator indicator can be combined with other stock trading indicators to form a stock trading system. For this example - stochastic oscillator can be combined with the stock trading technical indicators below to come up with the following stock trading system.
- RSI indicator
- MACD indicator
- Moving Averages indicators
Example - MetaTrader 4 Template Stock Trading System Example
Creating a Stock Trading System - Stock Trading System Trading Example
So the question is how can a stock trader come up with Stock trading systems that work like the stock trading system example above and how does one write it's stock trading rules? to write the stock trading system trading rules follow the steps below.
Seven steps to creating an indicator based Stock trading system
To come up with these set of stock trading rules we use the following seven steps.
1. Choose your Stock Trading Chart Time Frame
This first step depends on how many hours you want to dedicate to stock trading. Whether you prefer sitting in front of the computer constantly for several hours analyzing short stock trading chart time frames OR you prefer setting up your stock trading charts using bigger stock trading chart time frames once or twice a day. Choosing a stock trading chart time frame will mainly depend on what type of stock trader you are.
Stock Trading Chart Time Frames on MetaTrader 4 Stock Trading Software
While testing your new Stock trading system you may want to find out about its performance on different stock trading chart time frames and then choose the most accurate and profitable stock trading chart time frame for you.
2. Choose indicators to identify a new stock trading trend
The goal of a stock trader is to get into the trade as early as possible and take maximum advantage of stock trading price moves.
One of the common ways to spot a new stock trading trend as fast as possible is to use Moving Averages Indicator. A simple stock trading strategy is to use a moving average crossover system that will identify a new trading opportunity at its earliest stage.
Moving Average Crossover Method
Sell stock trading signal and Buy stock trading signal Generated by Moving Average Crossover Stock Trading Method
3. Choose additional stock trading indicators to confirm the stock trading trend
Once we find a new stock trading trend we need to use additional indicators that will confirm the entry stock trading signals and give either a green light for action or save a stock trader from fake-outs.
To confirm the stock trading signals we use RSI indicator and Stochastic Oscillator indicator.
RSI Stock Trading Indicator and Stochastic Oscillator Stock Trading Indicator Stock Trading System
4. Finding stock trading entry and stock trading exit points
Once stock trading technical indicators are chosen so that one stock trading indicator gives the trading signal and another indicator confirms the trading signal, it is time to enter a stock trading trade.
A Stock trader should enter a stock trading trade as soon as a stock trading signal is generated and confirmed after a candlestick closes.
Aggressive stock traders enter a stock trading transaction immediately without waiting for the current stock price bar to close.
Other stock traders wait until the current stock price bar is closed and then enter the stock trading trade transaction if the trade setup has not changed and the stock trading signal remains valid. This method is more considerate and prevents additional false entries and stock trading whipsaws.
Generating Stock Trading Signals - how to Generate Stock Trading Signals.
Generating Stock Trade Signals
For exits, a stock trader can either set an amount he wants to earn per trade or use technical stock trading tools that help to set profit goals like Fibonacci expansion tool or set a protective stop loss depending on the stock trading market volatility at any given time. Alternatively a stock trading trade can exit when the stock trading indicators give an opposite trading signal.
When opening a new stock trading trade transaction it is always important to calculate in advance how much you are willing to lose if the stock trading trade transaction goes against you. Although the goal is to create the best Stock trading system in the world, losses are inevitable and therefore being ready to tell where you will give up and cut your losses before starting a stock trading trade transaction is very important.
5. Calculate risks in each stock trading trade setup
In Stock, you must calculate your risk for each stocktrade. Serious stock traders will only enter and look to open an order if the risk to reward ratio is 2:1 or more.
If you use a high risk to reward ratio like 2:1, you significantly increase your chances of becoming profitable in the long run.
The Reward to Risk Chart below shows you how:
Stock Trading Money Management Reward Risk Chart - Example Template Stock Trading System
In the first example of Risk to Reward Ratio, you can see that even if your stock trading system only won 50% of your stock trading trades, you would still make a profit of $10,000. Read more on this stock trading money management stock trading topic: Here Stock Trading Money Management Rules - MetaTrader 4 Template Stock Trading System and Stock Trading Money Management Methods - Template Stock Trading System Example.
Before opening a new stock trading trade, a stock trader should define the point at which they will close the stock trading trade if it turns to be a losing stock trading trade. Some traders use Fibonacci retracement levels tool and support and resistance levels. Other stock traders just use a pre-determined stop loss to set stop loss stock trading orders once they have opened a stock trading trade transaction.
6. Write down the stock trading systems stock trading rules and follow them
A Stock Trade System refers to a set of rules that you follow to manage your stock trading trades.
The keyword is A SET OF TRADING RULES which you must follow. If you don't follow the stock trading rules then you don't even have a stock trading system in the first place.
The next Stock trading systems lesson shows you an example of how to use the above steps to come up with your own Stock online stock trading system:
7. Practice on a Demo Account
Without enough trades, you will not be able to realize the true profitability of your Stock trading system.
Open a free demo practice account and trade your stock trading system to see how well it will respond.
It is strongly recommended to start with a demo stock trading account and practice for at least for 1 or 2 months so as to gain some practice and experience how the stock trading market works.
Once you start making some decent profit on your demo stock trading account you can then try opening a live Stock trading account and start trading with real money.