How to Generate Trade Signals with Systems Strategies
Generating MT4 Free Signals - MT4 Signal Indicators
The only method of trading currencies is through trading signals, It is best to learn how to generate these trading signals for yourself, this way you do not have to rely on other traders to generate them for you.
Generating signals isn't easy and requires you to have a lot of fx analysis knowledge and experience, but the earlier you begin practicing how to generate these trading signals for yourself the better it is for you.
A good technique of how to practice generating signals with trading systems is to open a free practice practice account & test your trading signals on this practice account risk-free without risking your money, then once you have tested your strategies & they are profitable on the demo practice trade account you then can use these trading signals on a live account.
The technique of how to practice generating these trading signals as well as how to back test the trading signals on the demo account using the MetaTrader 4 software is discussed below:
So, How Can a Trader Generate Trade Signals?
The best method of generating trading signals is through systems, You can Learn how to come up with systems from the tutorial how to create Trading Systems on the right navigation menu under the lessons Key Concepts.
A system is a combination of one or two or more trading indicators with written trading rules of how these trading indicators will generate these trade signals.
Take an example of the simplest system or strategy known as MA cross over method. A buy signal or sell signal is generated when there is a crossover of the 2 moving averages: either a buy signal for an upward MA cross over or a sell signal for down-wards trend.
Generating MT4 Free Signals - Signals MT4 Indicator Strategy Moving Average Crossover Strategy Method
The trading system example below shows a system using the above moving average strategy combined with the RSI and MACD indicators to generate buy & sell trades.
Example of Generating MT4 Free Signals - Forex MT4 Signal Indicator Strategy
In generating buy and sell signals, traders should use simple systems to generate these trading signals.
Generating MT4 Free Signals - Buy and Sell Signals Strategy
Forex Systems - MT4 Indicators
An example of a Forex system that works, is one that's a combination of:
- Moving average crossover trading strategy
- RSI
- MACD
The written trading rules are:
Generating Signals Strategy System Example
Trade Rules:
Buy Trading Signal is Generated when:
- Both Moving averages going up
- RSI value above 50
- MACD above centerline
Sell Trade Signal is Generated when:
- Both Moving averages going down
- RSI value below 50
- MACD below center line
Generating Buy & Sell Trades - Example of a Strategy
Exit Signal
Exit signal is generated when MA, RSI and MACD indicator give a signal in the opposite trend direction.
The chart time frame to use is 1 hour chart time frame or 15 minutes chart time frame depending on what type of trader you are.
For a beginner trader the above written rules will give good buy & sell signals, the only thing which a forex trader needs to do is to have the discipline to follow the written signals rules the exact way they are, and wait for a buy/sell trade to be indicated by your trading strategy and trade after the signals have been generated, not before they are generated.
Back Testing
Generating Signals with a trading system is one of the easiest method to trade forex, it's the best way that a beginner trader can attempt to determine the direction of the price trend with a good level of accuracy, and with a little back testing on practice trading account so as to gradually increase the level of accuracy of this trading signals strategy
The best way to backtest a trading strategy is by following these 2 steps:
- Paper Trade
- Demo Trade
Forex Paper Trading - This method of testing a trading system involves setting your system on the trading charts, then take the chart back to a particular date, 3 months back for example, & then using this chart history to determine where your trading strategy would have given buy, sell & exit signals. Write down these points and the profit per trade transaction on a piece of paper and then calculate the total profit after you have recorded a good number of trades such as 50 paper trades transactions and determine if your method is overall profitable, the win ratio, the loss ratio and the risk:reward.
This is an ancient method of testing systems which was used by traditional traders when there was no online currency exchange markets or desktop computers for that matter, the trader would use tools like A3 or A2 paper, graph format paper and plot the charts manually (Imagine plotting the charts on your platform manually each day every hour, would you be ready to do that? I doubt) Those investors were hardworking than most, some were so used that they still continue to paper trade the online market and plot the charts on paper, anyway for our paper technique examples, just a sample data of 50 trades is all we need.
A good trading tool to use to backtest your system is known as the MetaTrader 4 Step-by-Step Tool. Found in MT4 charts tool bar of MetaTrader 4 platform, If you want to find the charts toolbar on the MT4 platform it is at the top of MT4 software. If it is not: Press View (next to file, top left corner of MetaTrader 4)>>> Tool-Bar >>> Charts. Then click Customize button >>> Choose Step-by-Step >>> Click Insert >>> Close.
MT4 Platform Chart Tool Bars - How to Trade for Beginners
MT4 Chart Tool-Bars - Step by Step Button for Back Testing Forex Systems Explained
Once you get this MT4 tool you can move your chart backwards, & use this MT4 tool to move the charts step-by-step while at the same time testing out when your system would have generated either a buy or sell transaction, and where you'd have exited the trade, then write down the amount of profit/loss per trade & out of a sample number of transactions you would then calculate the overall profits/losses generated by the trading strategy.
If your strategy is profitable on paper trading method then, its time to demo FX trade & testing if the it's profitable on the live market as it is on the paper method. This is the process of testing or back-testing a trading system.
Maintain a Journal to keep record of profitable trades, and determine why these trades were profitable. And also maintain a log of all losing trades, determine why these trades made a loss and then avoid making the same mistakes the next time you trade using your strategy.
Tweak your forex system until you get a good risk reward ratio, with trading signals which you generate. Aim for a good risk: reward of 3:1 & a win ratio of above 70% is a good ratio, with good money management even a trading strategy with a win ratio of even 30 % i.e. Less than half of your trades make profit you can still make a profit. You might want to read this tutorial to know what the table below is all about: Risk to Reward Ratio.
Risk to Reward Ratio Chart of Money Management Strategy - Trade Strategies Described
Read Capital Management Methods Guide
A manual system is still the best way to generate signals in-comparison to automated trading systems, a manual strategy is a better method and is also much simpler to implement.
However, other traders prefer automatedtrade systems and for those then they can check the information on this page MQL5 Automated EAs & automatedtrade systems.
You also can view our extensive listing of forex strategies topics that provides you with various methods of buy and sell technical analysis using a number of diverse trading methods, navigate to the Learn Strategies Section.
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