Creating a XAUUSD Indicator Based XAUUSD Forex System

A XAUUSD Forex System refers to a set of XAUUSD trading rules that you follow to manage your XAUUSD trades. These XAUUSD trading rules will determine when you open a XAUUSD trade & when you'll exit. A XAUUSD 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 XAUUSD forex trading system. For this example stochastics can be combined with the indicators below to come up with the following XAUUSD trading system.

• RSI
• MACD
• Moving Averages FX Trading Technical Indicator

Example

Creating a XAUUSD Forex System - XAUUSD Forex System Trading Example

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

Seven steps to creating an technical indicator based XAUUSD Forex system

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

1. Choose your XAUUSD Time Frame

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

XAUUSD Chart Time Frames in MetaTrader 4 - XAUUSD MT4 Chart

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

2. Choose indicators to identify a new trend

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

One of the common ways to spot a new XAUUSD 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 XAUUSD trading setup opportunity at its earliest stage.

Moving Average Crossover Technique - XAUUSD Trading System

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

3. Choose additional indicators to confirm the XAUUSD market trend

Once we find a new XAUUSD trend we need to use additional indicators that will confirm the XAUUSD 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 XAUUSD 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 XAUUSD trade.

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

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

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

Generating XAUUSD Signals

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

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

5. Calculate risks in each XAUUSD trade setup

In Forex you must calculate your risk for each XAUUSD trade. Serious XAUUSD 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 XAUUSD in the long run.

The Risk-Reward Chart below shows you how:

Forex Money Management Reward Risk Chart - XAUUSD Forex Trading

In the first examples of Risk-:-Reward Ratio, you can see that even if your XAUUSD forex trading system only won 50% of your open XAUUSD 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 XAUUSD trade, a trader should define the point at which he will close the open XAUUSD 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 XAUUSD trade transaction.

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

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

The keyword is A SET OF XAUUSD TRADING RULES which you must follow. If you do not follow the XAUUSD 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 XAUUSD Forex online trading system:

Next Guide: Example of Writing Forex XAUUSD Trading Systems Rules

7. Practice on a XAUUSD Demo Account

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

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

Open a free demo forex practice account and trade XAUUSD 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 XAUUSD currency pair works.

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