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 signals 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's for you.
A good technique of how to practice generating signals with trading systems is to open a free practice demo account & test out your trading signals on this practice account risk-free without investing your money, then once you've tested your strategies & they are profitable on the practice demo trade account you then can use these signals on a live/real account.
The technique and method of how to practice generating these signals and also how to back test the trading signals on the demo account using the MetaTrader 4 software is discussed below:
So, How Can One Generate Signals?
Best method of generating trading signals is through systems, You can Learn how to come up with systems from the tutorial how to create Systems on the right navigation menu under the lessons Key Concepts.
A system is a combination of 1 or 2 or more trading indicators with written trading rules of how these 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/derived when there's a cross-over 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 Cross-over Strategy
The trading system example below shows a trading strategy using the above moving average MA strategy combined with RSI & MACD technical indicators to generate buy & sell trades.
Example of Generating MT4 Free Signals - Forex MT4 Signal Indicator Strategy
In generating buy & sell signals, traders should use simple systems to generate these trading signals.
Generating MT4 Free Signals - Buy and Sell Signals Strategy
FX Systems - MT4 Indicators
An illustration of a Forex system which works, is one that's a combination of:
- Moving Average(MA) cross-over 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 above 50
- MACD above centerline
Sell Signal is Generated when:
- Both moving averages MAs going downward
- RSI below 50
- MACD below center-line
Generating Buy & Sell Trades - Example Illustration of a Strategy
Exit Signal
Exit signal is derived/generated when MA Moving Average, RSI & MACD give a signal in the opposite direction.
The chart time frame to use is H1 chart time frame or 15 minutes chart time frame depending on what type of trader you are.
For a beginner the above written down trading rules will give good buy & sell signals, the only thing which a forex trader needs and requires to do is to have the discipline to follow the written signals rules exactly the way they are, and wait for a buy/sell trade to be indicated by your strategy & trade after the signals have been generated, not before they're 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 can attempt to determine the direction of price trend with a good level of accuracy, and with a little back testing on practice account so as to continuously 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 system involves setting your system on the trading charts, then take the trading chart back to a particular given date, 3 months back e.g., & then using this chart history to figure out where your trading strategy would have generated buy, sell & exit signals. Write down these points & the profit per trade on a piece of paper & then calculate the total profit after you've recorded a good number of trade positions like 50 paper trades transactions & determine if your technique 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 & plot the charts manually (Imagine plotting/drawing the charts on your platform manually each day every hour, would you be ready to do that? doubt it!) Those investors & traders 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 trading technique and method examples, just a sample data of 50 trades is all we need.
A good tool to use to backtest your system is known as the MT4 Step-by-Step Tool. Found in MT4 charts tool-bar of MT4 software, If you want to find the charts tool-bar on the MetaTrader 4 platform software it is at the top of MT4 software. If it is not: Press View (next to file, top left corner of MT4)>>> Tool Bar >>> Charts. Then click Customize button >>> Choose Step-by-Step >>> Click Insert >>> Close.
MetaTrader 4 Software Chart Tool Bars - How to Trade for Beginner Traders
MT4 Chart Tool Bars - Step by Step Button for Back Testing Forex Systems Explained
Once you get this MT4 tool you as a trader can move your trading chart backwards, and use this MT4 tool to move the charts step-by-step while at the same time testing out when your system would have derived and generated either a buy or sell transaction, where you would have exited the trade transaction, then writedown the amount of profit/loss per trade and out of a sample number of trade transactions you'd 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 system.
Maintain a Journal to keep a record of profitable trades, and determine why these trade positions were profitable. And also maintain a log of all losing trades, determine why these trade positions 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 and a win ratio of above 70% is a good ratio, with good money management even a strategy with a win ratio of even 30 % i.e. Less than half of your trade positions make profit you can still make a profit. You might want to read this tutorial to know what the table/illustration below is talking about: Risk Reward Ratio.
Risk Reward Ratio Chart of Money Management Trading Method - Trade Strategies Described
Read Capital Management Methods Guide Lesson
A manual trading system is still the best way to generate signals in-comparison to automated trading systems, a manual strategy is a better method & 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 which offers you with various techniques & methods of buy & sell technical analysis using a number of diverse trading methods, navigate to the Learn Strategies Section.
More Topics:
- Pips Value For SPAIN35 Indices
- How to Buy in an Upwards Trend Strategies
- How Can You Find MT4 NASDAQ100 Index Chart?
- Website for New XAUUSD Trader Wanting to Start XAUUSD Online
- How Can I Trade NIKKEI225 Course to NIKKEI 225 Index?
- What is McClellan Histogram Indicator?
- Tools of Money Management Trading Strategies
- Best Time for Trading/Transacting XAU USD EST
- How to Calculate Leverage in 1:200 and 1:100 FX Leverage
