Creating a Indices Trading System: Indicator Based Indices Trading System
A Indices Trading System refers to a set of indices trading rules that you follow to manage your stock indexes trades. These written indices trading rules will determine when you open a indices trade and when you will exit. A indices trade system is created by combining two or more indices technical indicators.
For example, the Stochastic Oscillator indicator can be combined with other indices indicators to form a stock indexes trading system. For this example - stochastic oscillator can be combined with the indices technical indicators below to come up with the following stock indexes trading system.
- RSI indicator
- MACD indicator
- Moving Averages indicators
Example - MT4 Template Indices Trading System Example
Creating a Indices Trading System - Indices Trading System Trading Example
So the question is how can a indices trader come up with indices trading systems that work like the stock indexes trading system example above and how does one write it's indices trading rules? to write the indices trading system trading rules follow the steps below.
Seven steps to creating an indicator based indices trading system
To come up with these set of indices trading rules we use the following seven steps.
1. Choose your Indices Trading Chart Time Frame
This first step depends on how many hours you want to dedicate to indices trading. Whether you prefer sitting in front of the computer constantly for several hours analyzing short indices chart time frames OR you prefer setting up your indices charts using bigger indices chart time frames once or twice a day. Choosing a indices chart time frame will mainly depend on what type of indices trader you are.
Indices Trading Chart Time Frames on MT4 Indices Trading Software
While testing your new indices trading system you may want to find out about its performance on different indices chart time frames and then choose the most accurate and profitable indices chart time frame for you.
2. Choose indicators to identify a new indices trend
The goal of a indices trader is to get into the trade as early as possible and take maximum advantage of stock indexes price moves.
One of the common ways to spot a new indices trend as fast as possible is to use Moving Averages Indicator. A simple indices trading 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 stock indices signal and Buy stock indices signal Generated by Moving Average Crossover Indices Trading Method
3. Choose additional indices indicators to confirm the indices trend
Once we find a new indices trend we need to use additional indicators that will confirm the entry stock indices signals and give either a green light for action or save a indices trader from fake-outs.
To confirm the indices trading signals we use RSI indicator and Stochastic Oscillator indicator.
RSI Stock Indexes Indicator and Stochastic Oscillator Indicator Indices Trading System
4. Finding indices entry and indices trading exit points
Once indices technical indicators are chosen so that one stock indices indicator gives the trading signal and another indicator confirms the trading signal, it is time to enter a indices trade.
A Indices trader should enter a indices trade as soon as a stock indices signal is generated and confirmed after a candlestick closes.
Aggressive indices traders enter a indices trading transaction immediately without waiting for the current stock indexes price bar to close.
Other indices traders wait until the current stock indexes price bar is closed and then enter the indices trade transaction if the trade setup has not changed and the stock indices signal remains valid. This method is more considerate and prevents additional false entries and indices trading whipsaws.
Generating Indices Trading Signals - how to Generate Indices Trading Signals.
Generating Indices Trade Signals
For exits, a indices trader can either set an amount he wants to earn per trade or use technical indices trading tools that help to set profit goals like Fibonacci expansion tool or set a protective stop loss depending on the indices market volatility at any given time. Alternatively a indices trade can exit when the indices indicators give an opposite trading signal.
When opening a new indices trade transaction it is always important to calculate in advance how much you are willing to lose if the indices trade transaction goes against you. Although the goal is to create the best indices 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 indices trade transaction is very important.
5. Calculate risks in each indices trade setup
In Indices, you must calculate your risk for each indices trade. Serious indices 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:
Indices Trading Money Management Reward Risk Chart - Example Template Indices Trading System
In the first example of Risk to Reward Ratio, you can see that even if your indices trading system only won 50% of your indices trades, you would still make a profit of $10,000. Read more on this indices trading money management indices trading topic: Here Indices Trading Money Management Guidelines - MT4 Template Indices Trading System and Indices Trading Money Management Methods - Template Indices Trading System Example.
Before opening a new indices trade, a indices trader should define the point at which they will close the indices trade if it turns to be a losing indices trade. Some traders use Fibonacci retracement levels tool and support and resistance levels. Other indices traders just use a pre-determined stop loss to set stop loss indices orders once they have opened a indices trade transaction.
6. Write down the systems indices trading rules and follow them
A Indices Trade System refers to a set of rules that you follow to manage your stock indexes trades.
The keyword is ASET OF TRADING RULES which you must follow. If you don't follow the indices trading rules then you don't even have a indices trading system in the first place.
The next indices trading systems lesson shows you an example of how to use the above steps to come up with your own Indices online indices trading system:
7. Practice on a Demo Account
Without enough trades, you will not be able to realize the true profitability of your stock indexes trading system.
Open a free demo practice account and trade your indices trading system to see how well it will respond.
It is strongly recommended to start with a demo stock indexes trading account and practice for at least for 1 or 2 months so as to gain some practice and experience how the stock indexes trading market works.
Once you start making some decent profit on your demo stock indexes trading account you can then try opening a live stock indexes trading account and start trading with real money.