Creating a Stock System: Technical Indicator Based Stocks System

A Stocks System refers to a set of stocks rules that you follow to manage your stock trades. These written stocks rules will determine when you open a stocks trade and when you will exit. A stocks trade system is created by combining two or more stocks trading technical trading indicators.

For example, the Stochastic Oscillator indicator can be combined with other stocks indicators to form a stocks system. For this example - stochastic oscillator can be combined with the stocks technical indicators below to come up with the following  stocks system.

• RSI indicator
• MACD indicator
• Moving Averages indicators

Example - MetaTrader 4 Template Stocks System Example

Creating a Stocks System - Stocks System Trading Example

So the question is how can a stocks trader come up with stock trading systems that work like the stocks system example above and how does one write it's stocks rules? to write the stocks system trading rules follow the steps below.

Seven steps to creating an indicator based stock trading system

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

1. Choose your Stock Chart Time Frame

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

Stock Chart Time Frames on 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 indicators to identify a new stocks trend

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

One of the common ways to spot a new stocks trend as fast as possible is to use Moving Averages Stock Indicator. A simple stocks 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 stocks signal and Buy stocks signal Generated by Moving Average Crossover Stocks Method

3. Choose additional stocks indicators to confirm the stocks trend

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

To confirm the stocks signals we use RSI indicator and Stochastic Oscillator indicator.

RSI Stock Indicator and Stochastic Oscillator Indicator Stocks System

4. Finding stocks entry and stocks exit points

Once stocks technical indicators are chosen so that one stocks indicator gives the trading signal and another indicator confirms the trading signal, it is time to enter a stocks trade.

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

Aggressive stocks traders enter a stocks 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 stocks trade transaction if the trade setup has not changed and the stocks signal remains valid. This method is more considerate and prevents additional false entries and stocks whipsaws.

Generating Stocks Signals - how to Generate Stocks Signals.

Generating Stocks Trade Signals

For exits, a stocks trader can either set an amount he wants to earn per trade or use technical stocks tools that help to set profit goals like Fibonacci expansion tool or set a protective stop loss depending on the stocks market volatility at any given time. Alternatively a stocks trade can exit when the stocks indicators give an opposite trading 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 trade transaction goes against you. Although the goal is to create the best stock 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 stocks trade transaction 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 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 Money Management Reward Risk Chart - Example Template Stocks System

In the first example of Risk to Reward Ratio, you can see that even if your stocks system only won 50% of your stocks trades, you would still make a profit of $10,000. Read more on this stocks money management stocks topic: Here Stock Money Management Rules - MetaTrader 4 Template Stocks System and Stock Money Management Methods - Template Stocks System Example.

Before opening a new stocks trade, a stocks trader should define the point at which they will close the stocks trade if it turns to be a losing stocks trade. Some traders use Fibonacci retracement levels tool and support and resistance levels. Other stocks traders just use a pre-determined stop loss to set stop loss orders once they have opened a stocks trade transaction.

6. Write down the stocks systems stocks rules and follow them

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

The keyword is ASET OF TRADING RULES which you must follow. If you don't follow the stocks 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 Trading online stocks system:

Next Lesson: Example of Writing Stocks Trade Systems Rules

7. Practice on a Demo Account

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

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

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

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

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