Making a XAUUSD System: Indicator Based XAUUSD System

A System refers to a set of xauusd rules that you follow to manage your XAUUSD trades. These xauusd rules will determine when you open a trade and when you will exit. A XAUUSD trade system is created by combining two or more indicators.

For example, the Stochastic Oscillator can be combined with other indicators to form a trade system. For this example stochastics can be combined with the indicators below to come up with the following system.

• RSI
• MACD
• MAs Indicator

Example

Creating a XAUUSD System - System Example

So the question is how can a trader create a systems that works and how does one write its rules? Follow the steps below:

Seven steps to creating an technical indicator-based xauusd system

To come up with these set of rules for xauusd instrument we use the following seven steps.

1. Choose your XAUUSD Time Frame

The first step depends on the number of hours you as a trader want to set a side to gold trading. Whether you prefer sitting in front of the Desktop computer constantly for several hours interpreting short XAUUSD time frames OR you prefer setting up your charts using bigger XAUUSD time frames once or twice a day. Choosing a charts time frame will mainly depend on what type of XAUUSD trader you are.

Chart Time Frames on MT4 - MT4 Software

While testing out your new system you might want to find out about its performance on different time frames & then select the most accurate & profitable time frame for you.

2. Select indicators to identify a new trend

The goal of a trader is to get into the trade as early as possible & take maximum advantage of price moves.

One of the common ways to identify a new trend as fast as possible is to use MAs Indicator. A simple system is to use a moving average cross-over system that will identify a new gold setup opportunity at its earliest stage.

MA Crossover Strategy Method - System

XAUUSD Sell signal and XAUUSD Buy signal Generated by MA Crossover Strategy Method

3. Choose additional indicators to confirm the market trend

Once we find a new trend we need to use additional technical indicators that will confirm the Gold entry signals & give either a green light for action or save a trader from fake outs.

To confirm the signals we use RSI and Stochastic Oscillator.

RSI and Stochastic Oscillator Indicator System

4. Finding entry & exit points

Once indicators are chosen so that one indicator gives the signal & another confirms the signal, it's time to enter a trade.

A trader should enter as soon as a signal gets generated & confirmed after a candlestick closes.

Aggressive traders enter a transaction immediately without waiting for the current price bar to close.

Other traders wait until the current price bar is closed and then enter the transaction if the trade setup has not changed and the signal remains valid. This method is more considerate & prevents additional false entries & whipsaws.

Generating Signals

Generating Trade Signals

For exits, one can either set an amount he wants to earn per trade or use technical tools that help to set profit goals like Fibonacci Expansion Indicator or set a protective stop loss depending on the market volatility at any one specific time. Alternatively one can exit when the indicators give an opposite signal.

When opening a new trade transaction it is always important to calculate in advance how much you're willing to lose if the XAUUSD transaction goes against you. Although the objective is to come up with the best system in the globe, losses are inevitable & therefore being ready to tell where you will give up & cut your losses before starting a trade is very important.

5. Calculate risks in each trading setup

In XAUUSD you must calculate your risk for each trade. Serious traders will only enter look to open an order it the risk to reward is 2:1 or more.

If you use a high risk : reward ratio like 2:1, you greatly increase your chances of becoming profitable when trading XAUUSD in the long run.

The Risk to Reward Chart below shows you how:

Gold Money Management Reward Risk Chart - XAUUSD

In the first example of Risk to Reward Ratio, you can see that even if your xauusd system only won 50% of your open trades, you would still make profit of $10,000. Interpret more on this topic: Here Gold Equity Management Guide-lines and XAUUSD Equity Management Methods.

Before opening a new trade, a trader should define the point at which he will close the open trade if it turns to be a losing one. Some traders use Gold Fib Retracement Levels and support and resistance zones. Others just use a pre-determined stop loss to set stop loss order once they have opened a trade transaction.

6. Write down the systems xauusd rules & follow them

A Trade System refers to a set of xauusd rules that you follow to manage your XAUUSD trades.

The keyword is A SET OF XAUUSD TRADING RULES which you must follow. If you don't follow the instrument rules then you do not even have a xauusd system in the first place.

The next systems guide shows you an example of how to use above steps to come up with your own XAUUSD online xauusd system:

Next Guide: Examples of Writing XAUUSD Systems Rules

7. Practice on a Demo Trading Account

Without enough trade transactions, you won't be able to realize the true profitability of your system.

Once you as a trader have your xauusd system rules written, it is time to test & improve your trade system by using it on a XAUUSD demo account.

Open a free practice practice account & trade XAUUSD your system to see how well it will respond.

It is strongly recommended to begin with a demo xauusd account & practice for at-least for 1 or 2 months so as to gain some practice & experience how the instrument works.

Once you start making some decent profit on your demo xauusd account you can then try opening a live account & begin xauusd instrument with real money.