Creating a GBPUSD Indicator Based GBPUSD Forex System

A GBPUSD Forex System refers to a set of GBPUSD trading rules that you follow to manage your GBPUSD trades. These GBPUSD trading rules will determine when you open a GBPUSD trade & when you'll exit. A GBPUSD trade system is created by combining 2 or more technical indicators.

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

• RSI
• MACD
• Moving Averages Forex Trading Technical Indicator

Example

Creating a GBPUSD Forex System - GBPUSD Forex System Trading Example

So the question is how can one come up with a GBPUSD Forex systems that works & how does one write its rules? Follow the steps below:

Seven steps to creating an technical indicator based GBPUSD Forex system

To come up with these set of trading rules for GBPUSD currency pair we use the following seven steps.

1. Choose your GBPUSD Time Frame

This first step depends on how many hours you want to dedicate to GBPUSD forex trading. Whether you prefer sitting in front of the Desktop computer constantly for several hours analyzing short GBPUSD time frames OR you prefer setting up your forex charts using bigger GBPUSD time frames once or twice a day. Choosing a charts timeframe will mainly depend on what type of GBPUSD currency trader you are.

GBPUSD Chart Time Frames on MT4 - GBPUSD MT4 Chart

While testing your new GBPUSD Forex trading system you may want to find out about its performance on different GBPUSD chart time frames and then choose the most accurate & profitable GBPUSD chart time frame for you.

2. Choose indicators to identify a new trend

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

One of the common ways to spot a new GBPUSD Forex trend as fast as possible is to use Moving Averages Indicator. A simple strategy is to use a moving average crossover system that will identify a new GBPUSD trading setup opportunity at its earliest stage.

Moving Average Crossover Technique - GBPUSD Trading System

GBPUSD Sell signal and GBPUSD Buy signal Generated by Moving Average Crossover Method

3. Choose additional indicators to confirm the GBPUSD market trend

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

To confirm the signals we use RSI & Stochastic Oscillator.

RSI & Stochastic Oscillator Indicator GBPUSD Forex System

4. Finding entry and exit points

Once indicators are chosen so that one indicator gives the signal and another confirms the signal, it is time to enter a GBPUSD trade.

A GBPUSD Forex trader should enter as soon as a signal is generated and confirmed after a candlestick closes.

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

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

Generating GBPUSD Signals

Generating Forex GBPUSD 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 GBPUSD market volatility at any given time. Alternatively one can exit when the technical indicators give an opposite signal.

When opening a new GBPUSD trade transaction it's always important to calculate in advance how much you are willing to lose if the GBPUSD transaction goes against you. Although the goal is to create the best GBPUSD Forex system in world, losses are inevitable & therefore being ready to tell where you'll give up & cut your losses before starting a GBPUSD trade transaction is very important.

5. Calculate risks in each GBPUSD trade setup

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

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

The Risk-Reward Chart below shows you how:

Forex Money Management Reward Risk Chart - GBPUSD Forex Trading

In the first examples of Risk-:-Reward Ratio, you can see that even if your GBPUSD forex trading system only won 50% of your open GBPUSD trades, you would still make a profit of $10,000. Interpret more on this course: Here Money Management Rules and Forex Trading Money Management Methods.

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

6. Write down the systems GBPUSD trading rules & follow them

A Forex Trade System refers to a set of GBPUSD trading rules that you follow to manage your GBPUSD trades.

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

The next Forex trading systems lesson shows you an example of how to use the above steps to come up with your own GBPUSD Forex online trading system:

Next Guide: Example of Writing Forex GBPUSD Trading Systems Rules

7. Practice on a GBPUSD Demo Account

Without enough GBPUSD trades, you will not be able to realize the true profitability of your GBPUSD Forex system.

Once you have your GBPUSD Forex system rules written, it's time to test & improve your GBPUSD trade system by using it on a GBPUSD practice trading account.

Open a free demo forex practice account and trade GBPUSD your system to see how well it will respond.

It is strongly recommended to begin with a practice account and practice for at least for 1 or 2 months so as to gain some practice & experience how the GBPUSD currency pair works.

Once you start making some decent profit on your GBPUSD demo account you can then try opening a live Forex account & begin trading GBPUSD currency pair with real money.