How did you establish your own foreign exchange trading system?

A successful foreign exchange trading system requires two important goals:

Determine the truth as early as possible.

Avoid false signals.

If your trading system can achieve both of these goals, we can guarantee your success! But in reality, these two goals are mutually exclusive.If your goal in investing in a system is to detect trends as early as possible, you will definitely be confused by false signals. On the other hand, if your goal in investing in a system is to avoid false signals as much as possible, you will definitely miss many trading opportunities.

When building your investment system, what you need to do is to find a balance between two goals, namely, to identify trends early and avoid false signals as much as possible.

Six Steps to Create Your Own Trading System

Let's talk about how to build a trading system.

The first step: the time period

The first step in creating a system is to determine which type of trader you are, day trading or volatility trading? Do you prefer to look at charts every day, weekly, monthly, or even annually? How long do you typically hold your positions?

Answering these questions will help you choose the right trading time period. Of course, in actual trading, you must refer to multiple time periods. But here is the main time period you use to choose trading signals.

Step 2: Find signals that can identify new trends

Since one of our main goals is to identify new facts as early as possible, we need indicator signals that can help us accomplish this task. Moving averages are one of the most commonly used indicators and are relatively simple to use. Just wait for the fast moving average to cross the slow moving average. This is the most basic "moving average" trading system.

The moving average is one of the easiest indicators to use.

Step 3: Find the signals that confirm the trend

Another main goal of our trading system is to filter out the interference of false signals, which can be achieved with the help of other indicator signals.

There are many Forex indicator signals that can help us identify trends, here we recommend MACD, oscillators and RSI. As you become familiar with more and more indicator signals, you will find some that suit you and integrate them into your trading system.

Step 4: Define your risk

A crucial step in building a trading system is to determine the risk you are willing to pay on each trade. Many people don't like to discuss losses, but in reality, a good trader must think through possible losses before making money.

You must provide a floating space for your trades, but not too large. Later in the course, we will continue to introduce you to money management strategies in foreign exchange trading.

Step 5: Define entry and exit points

After identifying the risks, the next step is to determine the specific entry and exit points to maximize profits!

Some people trade immediately after the indicator gives a trading signal, regardless of whether the candle of the current cycle has closed; others wait until the candle closes before trading.

In my experience, it is better to wait until the candle is closed before deciding whether to open a position. I have experienced more than once that when the candle is not closed, all my indicators are pointing in the same direction; but when the candle is closed, most of the indicators are reversed!

For departure points, you have several options:

Moving Stop Loss: If the market moves X points in the direction of your position, then move the stop loss X points in that direction.

Fixed target: Set a fixed price target and wait for the market to reach that target after the position squaring. There are also many ways to calculate the target price, some people use support and resistance levels as targets; others use fixed income, such as 50 pips per trade as a target. No matter how you ultimately choose to calculate the target price, just stick to it!

Conditional Win: Set a series of judgment conditions, and when all are met, position squaring. For example, position squaring when your indicator returns to a certain level.

Step 6: Write down your system and adhere to it!

This is the most important part of building a trading system, you must write down your system rules and strictly enforce them. Self-discipline is an essential trader's character, and you must strictly abide by your trading system rules. No matter how good the system is, if it is not implemented effectively, it is difficult to generate profits.

How to test a trading system

The easiest way is to find a trading software that provides historical price charts and test your trading system on historical charts. Record the profits and losses of each demo trade and calculate the average profit and average loss. If you find that the results are good, then you can move on to the next step: use a demo account to make real trades.

Trading with a demo account lasts at least two months, which helps you get a feel for the market. When you do, you will find that real trading is completely different from the historical chart test mentioned earlier.

If after two months of simulated trading, your system can continue to make profits. Then congratulations! You can consider opening a real account for real trading and earn real money!!

Let me give you an example.

Undergraduate, let's use a simple trading system as an example to explain in detail what a trading system is.

basic configuration

Trading on the daily chart

Use 5-cycle and 10-cycle EMAs

Oscillator (10, 3, 3)

RSI (14)

Trading rules

Stop Loss 30 pips

Admission rules

multi-order warehouse rules

The EMA (5) crosses the EMA (10) upwards, and the oscillator is in the uplink state (no position is opened if the oscillator is already overbought)

RSI > 50

Empty order opening rules

The EMA (5) crosses the EMA (10) downward, and the oscillator is in the downstream state (if the oscillator is already oversold, no position will be opened)

RSI < 50

exit rules

The EMA (5) crosses the EMA (10) in the opposite direction, or the RSI crosses the 50 in the opposite direction.

summary

There are many excellent investment systems available on the market, but the key is to see if the people who use the system can adhere to the rules strictly; if not, losses are inevitable.

Your investment system should follow two goals:

Identify a new trend as early as possible.

Avoid false signals and identify the correct trend.

If your system is profitable in the historical data test, then you can switch to a demo trading account for 2 months of real-time trading testing. This can help you build a feeling of following the pulse of the market, unlike historical data testing.

If after 2 months of demo trading tests, you are still profitable, then congratulations! You can already participate in live account trading. Remember to strictly abide by the rules of your trading system.