Creating a Stock Indices System: Indicator Based Stock Indices System - MetaTrader 4 Template Stock Indices System
A Stock Indices System refers to a set of stock indices rules that you follow to manage your stock indices trades. These written stock indices rules will determine when you open a stock indices trade and when you will exit. A stock indices trade system is created by combining two or more stock indices technical indicators.
For example, the Stochastic Oscillator indicator can be combined with other stock indices indicators to form a stock indices system. For this example - stochastic oscillator can be combined with the stock indices technical indicators below to come up with the following stock indices system.
- RSI indicator
- MACD indicator
- Moving Averages indicators
Example - MetaTrader 4 Template Stock Indices System Example
Creating a Stock Indices System - Stock Indices System Trading Example
So the question is how can a stock indices trader come up with stock index trading systems that work like the stock indices system example above and how does one write it's stock indices rules? to write the stock indices system trading rules follow the steps below.
Seven steps to creating an indicator based stock index trading system
To come up with these set of stock indices rules we use the following seven steps.
1. Choose your Stock Indices Chart Time Frame
This first step depends on how many hours you want to dedicate to stock indices. Whether you prefer sitting in front of the computer constantly for several hours analyzing short stock indices chart time frames OR you prefer setting up your stock indices charts using bigger stock indices chart time frames once or twice a day. Choosing a stock indices chart time frame will mainly depend on what type of stock indices trader you are.
Stock Indices Chart Time Frames on MetaTrader 4 Stock Indices Software
While testing your new stock index trading system you may want to find out about its performance on different stock indices chart time frames and then choose the most accurate and profitable stock indices chart time frame for you.
2. Choose indicators to identify a new stock indices trend
The goal of a stock indices trader is to get into the trade as early as possible and take maximum advantage of stock indices price moves.
One of the common ways to spot a new stock indices trend as fast as possible is to use Moving Averages Indicator. A simple stock indices strategy is to use a moving average crossover system that will identify a new trading opportunity at its earliest stage.
Moving Average Crossover Method
Sell stock indices signal and Buy stock indices signal Generated by Moving Average Crossover Stock Indices Method
3. Choose additional stock indices indicators to confirm the stock indices trend
Once we find a new stock indices trend we need to use additional indicators that will confirm the entry stock indices signals and give either a green light for action or save a stock indices trader from fake-outs.
To confirm the stock indices signals we use RSI indicator and Stochastic Oscillator indicator.
RSI Stock Indices Indicator and Stochastic Oscillator Stock Indices Indicator Stock Indices System
4. Finding stock indices entry and stock indices exit points
Once stock indices technical indicators are chosen so that one stock indices indicator gives the trading signal and another indicator confirms the trading signal, it is time to enter a stock indices trade.
A Stock Indices trader should enter a stock indices trade as soon as a stock indices signal is generated and confirmed after a candlestick closes.
Aggressive stock indices traders enter a stock indices transaction immediately without waiting for the current stock indices trading price bar to close.
Other stock indices traders wait until the current stock indices trading price bar is closed and then enter the stock indices trade transaction if the trade setup has not changed and the stock indices signal remains valid. This method is more considerate and prevents additional false entries and stock indices whipsaws.
Generating Stock Indices Signals - how to Generate Stock Indices Signals.
Generating Stock Indices Trade Signals
For exits, a stock indices trader can either set an amount he wants to earn per trade or use technical stock indices tools that help to set profit goals like Fibonacci expansion tool or set a protective stop loss depending on the stock indices market volatility at any given time. Alternatively a stock indices trade can exit when the stock indices indicators give an opposite trading signal.
When opening a new stock indices trade transaction it is always important to calculate in advance how much you are willing to lose if the stock indices trade transaction goes against you. Although the goal is to create the best stock index trading system in the world, losses are inevitable and therefore being ready to tell where you will give up and cut your losses before starting a stock indices trade transaction is very important.
5. Calculate risks in each stock indices trade setup
In Stock Indices, you must calculate your risk for each stock indices trade. Serious stock indices traders will only enter and look to open an order if the risk to reward ratio is 2:1 or more.
If you use a high risk to reward ratio like 2:1, you significantly increase your chances of becoming profitable in the long run.
The Reward to Risk Chart below shows you how:
Stock Indices Money Management Reward Risk Chart - Example Template Stock Indices System
In the first example of Risk to Reward Ratio, you can see that even if your stock indices system only won 50% of your stock indices trades, you would still make a profit of $10,000. Read more on this stock indices money management stock indices topic: Here Stock Indices Money Management Rules - MetaTrader 4 Template Stock Indices System and Stock Indices Money Management Strategies - Template Stock Indices System Example.
Before opening a new stock indices trade, a stock indices trader should define the point at which they will close the stock indices trade if it turns to be a losing stock indices trade. Some traders use Fibonacci retracement levels tool and support and resistance levels. Other stock indices traders just use a pre-determined stop loss to set stop loss stock indices orders once they have opened a stock indices trade transaction.
6. Write down the stock indices systems stock indices rules and follow them
A Stock Indices Trade System refers to a set of rules that you follow to manage your stock indices trades.
The keyword is A SET OF TRADING RULES which you must follow. If you don't follow the stock indices rules then you don't even have a stock indices system in the first place.
The next stock index trading systems lesson shows you an example of how to use the above steps to come up with your own Stock Indices Trading online stock indices system:
7. Practice on a Demo Account
Without enough trades, you will not be able to realize the true profitability of your stock index trading system.
Open a free demo practice account and trade your stock indices system to see how well it will respond.
It is strongly recommended to start with a demo stock indices account and practice for at least for 1 or 2 months so as to gain some practice and experience how the stock indices market works.
Once you start making some decent profit on your demo stock indices account you can then try opening a live stock index trading account and start trading with real money.