Writing a Rule Based Trading System

A stocks system is a set of rules that specify when to open and when to close trades. To come up with a complete stocks system a trader is also required to the following advanced rules that will guide his technique. These rules are also part of the stocks system but cover a wider approach of how a trader uses their stocks system when opening and closing trades.

Following things will also be included within the stocks system that a trader will come up in order to make the stocks system of a trader complete.

Mindset/Stocks Psychology

This section of the trader’s stocks system will write down the mindset that a trader will follow when setting their trades using their stocks system. Your mindset as a trader should specify that you'll only follow the trading signals generated by your stocks system and you will not open trades just because the stocks market has started to move up or move down. If a trade signal is not generated by your stocks system then you will not place any trade on the stock market. The way you will make sure that you follow only your stocks system is by using stocks psychology to control your emotions in trading.

You should be prepared to be disciplined enough when trading to follow what your stocks system is saying. You should never go against your stocks system and base your trading decisions on what the stocks market is doing. You should be objective when following the rules of your stocks system. This will be a matter of training yourself to follow your stocks system even when you make a trade that loses money you must follow your stocks system and close the trade at the specified level where your rules say the trade should be closed to avoid further losses. Close that trade and wait for another trading opportunity, there will always be another opportunity to trade tomorrow, next week or next month you do not have to stay on one trading until you lose all you money & after you miss the other trading opportunities that you would have heard.

You will also have to figure out the best method for your personality so that you are comfortable with the types of trade that you place in the stock market. For example if you can execute trades quickly then you may choose to be a scalper, if on the other hand you are the type of trader that likes to take time before making a decision then scalping may not be the best method for you, instead you should become a day trader or a swing trader & that way you can have enough time between trades to make a decision. By choosing a trade style that most fits your personality is the first thing you should do & after you have made the correct choice of the method that most suits you then you'll have the right mindset when trading & you will increase your chances of being more successful when trading the stocks market.

Set Goals To Follow When Trading

You have to know what trading goal you want to achieve when it comes to trading and executing trades with your stocks system. Your goal may be that you want to follow your stocks system all the time and never take any trade that is not indicated by your stocks system. Another goal may be that you want to be more disciplined when executing trades by being patient enough to wait for a signal to be generated by your stocks system before opening a trade and that you will not jump the gun and open a trade before the trading signal is generated. Sometimes a trader may see that a signal is about to be generated by their stocks system but it has not been generated according to the rules of the stocks system but a trader may decide to open a trade before the signal and wait for the signal while they are in the stocks market, this should not be how a trader should trade, traders should learn to be patient enough to wait for the signal to be generated before opening a trade.

Select one of the liquid Stocks Trading To Trade

Traders should also specify the stocks instruments that they will be trading with their stocks system. A trader may come up with a stocks system which has a strategy that is best suited for trading some stocks instruments only. The trader should therefore only trade with their stocks system when they are trading only these stocks price charts.

Most stocks systems will produce best results when they are applied to trading one of the most liquid stocks instruments & therefore a trader should make sure that they only trade those stocks instruments that are best suited for their stocks strategy. This is why stock traders should specify in their stocks rules and the stocks instruments that they will be trading.

Money Management Rules

For a stocks system to be very successful then a trader should make sure that they also specify the stocks money management guidelines that they will always follow when trading the stocks market.

The stocks money management method that a trader uses should have a high risk : reward ratio so as to give the trader more chances at becoming profitable when trading with their stocks strategy.

The stocks money management should specify at which level a trader will close out a losing trade: the trader should also make sure that they close all their losing trades at this point.

A trader should also never risk more than 2% of their account equity on any one single stocks trade transaction.

The trader should also determine where they will always take profit when their trade is profitable. The take profit level should be two times the stop loss level. For example is a trader is setting their stops at 25 pips then the traders should set their take profits at 50 pips. This is what is known as a high risk: reward ratio to trade with. This risk reward ratio is 2:1, which means a trader can make two times profit the amount that the set as their loss. This way by using a high risk reward ratio means that a trader will be more successful in the long run because their technique uses a high risk reward ratio that means they stand to make two times the amount that they set as their loss.

Keep a Trading Journal

Traders should always keep a trading journal & this journal will prove to be a very help-ful tool when it comes to improving their stocks system.

For example when a trader is designing their stocks system and they want to test it out on the stocks market, then the stocks journal will prove to be a very helpful tool to help them do this. This because while testing out the stocks system traders will record all their trades on this journal & after a while they can use this trading journal to review their trades, traders can find out why the losing trades made losses and determine what factors in their trade strategies are resulting in generating signals which make losses, the trader will then try to not make these same mistake while trading in the future. A trader will also try and find the patterns that help them to make profitable trades and the traders can then use these patterns to trade with in the future so that they can improve the profitability of their stocks system in the future and there help them to become more successful.