Creating a Stock Index Trade System - Trade Strategies

When creating your own stock index system, it is essential to identify a trading system that can detect trends early and simultaneously avoid false signals. This indicates that your system should incorporate additional indicators for confirming a trend.

The trick for you as a trader is to find a balance between entering a trading signal too early that you get fake out and entering a signal too late when the trend has already moved quite some pips such that the trade is not as productive as it would have been if you had caught the trend move earlier.

After identifying a discernible xauusd price action pattern on the chart, a trader can then employ the analysis derived from various xauusd gold price action studies to forecast the subsequent market direction.

Your system rules should then be written down in your stock index trading plan. If you do not know what a stock index plan is - Stock Index Trading Plan Example. Once you come up with your trading system you can then practice generating trading signals with the system on a practice demo trading account.

To come up with your own system you will need to follow the guidelines and steps explained:

an illustration of a stock index trading system

How to Create a Stock Index Trading System Example Template

Strategy for Constructing a Stock Index Trading System to Generate Both Buy and Sell Signals

Trading System Sample Template

Goals

1. Identify a new trend

The moving average crossover method helps you spot the market trend - up or down - by using two moving averages.

2. Confirm the new trend

Use RSI and MACD indicators together to confirm the trend.

The trade signals generated should be in the same direction as that of the 50 and 100 SMA, as an extra confirmation of the overall market trend.

Indicator based Trading System

Creating a personalized trading system involves combining two or three indicators to generate trading signals. Design a strategy based on clearly defined rules tailored to your trading objectives.

There are various goals which a trading system should achieve:

Finding entry points as early as possible within a trend.
Finding exit points and securing the maximum gains.
Avoiding fake(whipsaw) entry and exit signals.
Implement Proper Money Management Rules and Guidelines

The system example shown below will use the Moving Average, RSI and MACD indicators. These indicator use different technical analysis methods and calculations to generate the buy and sell trading signals. The topic of how to generate trading signals is explained in the next lesson (on the side bar navigation menu learn indices lessons - under key concepts tutorials).

In the next learning lesson for beginner traders located on the sidebar navigation - learn indices tutorial courses menu below the key concepts will explain to you how to create a system like the one below, write it's trading rules and how to back test it on a practice practice account before using it on a live trading account.

Stock Index Trade System

Moving Averages
RSI
MACD

an illustration of a stock index trading system

Making Stock Indices Trade System - Stock Indices Trade Strategy Example

System Development for Stock Index Trading to Generate Buy and Sell Alerts

Stock Index Trading System Example

This Stock Indices system rules are specified as follows:

Chart Timeframe

1 hour chart

Indicators which identify a new trend

Moving Average Cross-over

Indicators which confirm the trend

RSI

MACD

50 and 100 SMA

Buy Signal - Long Entry

1. Both Moving Averages are moving up

2. RSI is above 50

3. MACD Above Centerline

4. Price Above 50 and 100 SMA

Sell Signal - Short Entry

1. Both Moving Averages heading down

2. RSI below 50

3. MACD Below Centerline

4. Price Below 50 and 100 SMA

Exit

1. MA generates a signal in the opposite market direction

2. RSI generates signal in the opposite direction

Risk Management

Stop Loss - 25 pips

Take Profit - 50 pips

Reward : Risk Ratio - 2:1

Check Out Extra Guides and Lessons:

Trade Stock Indices