Creating a Stock System: Technical Indicator Based Stock System

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

• RSI
• MACD
• Moving Averages Stocks Trading Technical Indicator

Example

Creating a Stocks System - Stocks System Trading Example

So the question is how can one create a stock systems that works & how does one write its rules? Follow the steps below:

Seven steps to creating an technical indicator based trading system

To come up with these set of trading rules for stocks instrument we use the following seven steps.

1. Choose your Stocks Time Frame

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

Chart Time Frames in MetaTrader 4 Platform - MetaTrader 4 Stocks Software

While testing your new stock trading system you may want to find out about its performance on different Stocks chart timeframes and then choose the most accurate and profitable Stocks chart timeframe for you.

2. Choose technical indicators to spot a new trend

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

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

Moving Average Crossover Technique - Stocks System

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

3. Choose additional indicators to confirm the Stocks market trend

Once we find a new stock trading trend we need to use additional stocks trading technical indicators that will confirm the Stocks entry signals & give either a green light for action or save a trader from fake-out whipsaws.

To confirm the signals we use RSI & Stochastic Oscillator.

RSI and Stochastic Oscillator Indicator Stocks 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 Stocks trade.

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

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

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

Generating Stocks Signals

Generating 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 Stocks Fibonacci Expansion Indicator or set a protective stop loss depending on the Stocks market volatility at any given time. Alternatively one can exit when the technical indicators give an opposite signal.

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

5. Calculate risks in each Stocks trade setup

In Stocks you must calculate your risk for each Stocks trade. Serious Stocks 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 significantly increase your chances of becoming profitable when trading Stocks in the long run.

The Risk-Reward Chart below shows you how:

Stock Money Management Reward Risk Chart - Stocks

In the first example of Risk-:-Reward Ratio, you can see that even if your stock system only won 50% of your open Stocks trades, you would still make a profit of $10,000. Read more on this course: Here Money Management Rules and Stock Money Management Methods.

Before opening a new Stocks trade, a trader should define the point at which he will close the open Stocks trade if it turns to be a losing one. Some traders use Stock 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 Stocks trade transaction.

6. Write down the systems stock rules & follow them

A Stocks Trade System refers to a set of stock rules that you follow to manage your Stocks trades.

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

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

Next Guide: Examples of Writing Stocks Systems Rules

7. Practice on a Stocks Demo Account

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

Once you have your stock trading system rules written, it is time to test & improve your Stocks trade system by using it on a Stocks practice trading account.

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

It is strongly recommended to begin with a demo stocks account & practice for at least for 1 or 2 months so as to gain some practice & experience how the stocks instrument works.

Once you start making some decent profit on your Stocks demo stocks account you can then try opening a live stock account & begin trading stocks instrument with real money.