How to Generate Trade Signals with Indices Strategies
Signals MetaTrader 4 Indicator Strategy
The only method of trading is through signals, It is best to learn how to generate these signals for yourself, this way you do not have to rely on other traders to generate them for you.
Generating trading signals is not easy & requires you to have a lot of stock technical analysis knowledge and experience, but the earlier you start practicing how to generate these signals for yourself the better it is for you.
A good method of how to practice generating signals with systems is to open a free practice Indices demo account and test your signals on this practice account risk free without risking your money, then once you have tested your strategies & they are profitable on the demo practice account you can the use these signals on a live account.
The technique of how to practice generating these signals as well as how to back test the signals on the demo account using MetaTrader 4 platform is discussed below:
So, How Can a Trader Generate Trade Signals?
The best strategy of generating signals is through systems, You can Learn how to develop indices systems from the lesson how to create Systems on the right navigation menu under the topics Key Concepts.
A stock system is a combination of one or two or more technical indicators with written trading guide-lines of how these indicators will generate these stock signals.
Take an example of the simplest system or strategy known as MA cross-over method. A buy signal or sell signal gets generated when there is a crossover of the 2 moving averages: either a buy signal for an upward MA cross-over or a sell signal for downward trend.
Stock MetaTrader 4 Signal Indicator - Trade Signals MetaTrader 4 Indicator Strategy Moving Average Crossover Strategy
The system example explained and illustrated below shows a system using the above moving average strategy combined with the RSI and MACD indicators to generate buy and sell trades.
Example of Generating Stock MT4 Free Signals - Trade Signals MetaTrader 4 Indicator Strategy
When it comes to generating buy and sell signals, stock traders should use simple systems to generate these stock signals.
Stock MetaTrader 4 Signal Indicator - Trade Signals MetaTrader 4 Indicator Strategy - Buy & Sell Signals
Signals MetaTrader 4 Indicator Strategy
An example of a indices system that works, is one that's a combination of:
- Moving average cross-over strategy
- RSI
- MACD
The written rules are:
Generating Indices Signals Strategy - Trading System Examples
Trade Rules:
Buy Trade Signal is Generated when:
- Both Moving averages going up
- RSI value above 50
- MACD above centerline
Sell Trade Signal is Generated when:
- Both Moving averages going down
- RSI value below 50
- MACD below center-line
Generating Buy and Sell Trades - Examples of a Method
Exit Trade Signal
Exit signal gets generated when MA, RSI & MACD indicator give a signal in opposite trend direction.
The chart timeframe to use is 1 hour chart timeframe or 15 minutes chart timeframe depending on what type of trader you are.
For a beginner trader the above written rules will give good buy and sell signals, the only thing that a trader needs to do is to have the discipline to follow the written signals rules the exact way they are, and wait for a buy or sell trade transaction to be indicated by your strategy & trade after the signals have been generated, not before they are generated.
Back Testing
Generating Signals with a system is one of the easiest method to trade indices, it is the best way that a beginner can attempt to determine the direction of the market trend with a good level of accuracy, and with a little back testing on practice account so as to gradually increase the level of accuracy of this signals strategy
Best way to backtest a strategy is by following these two steps:
- Paper Trade
- Stock Demo Trade
Indices Paper Trading - This method of testing a system involves setting your system on the charts, then take the chart back to a particular date, 3 months back for example, and then using this chart history to determine where your strategy would have given buy, sell and exit signals. Write down these points and the profit per trade transaction on a piece of paper and then calculate the total profit after you have recorded a good number of stock trades such as 50 paper trades indices transactions and determine if your method is overall profitable, the win ratio, the loss ratio and the risk:reward.
This is an ancient strategy of testing systems which was used by traditional traders when there was no online markets or computers for that matter, the trader would use tools like A3 or A2 paper, graph format paper and draw the charts manually (Imagine plotting the charts on your platform software manually each day each hour, would you be ready to do that? I doubt) Those investors were hardworking than most, some were so used that they still continue to paper trade the online market & draw the charts on paper, anyway for our paper technique example, just a sample data of 50 trade transactions is all we need.
A good tool to use to back-test your stock system is known as the MT4 Indices Step-by-Step Tool. Found on Meta Trader 4 charts toolbar of MT4 platform, If you want to find the charts toolbar on the MetaTrader 4 platform it is at the top of the MetaTrader 4 platform. If it is not: Click View (next to file, top-left corner of MetaTrader 4)>>> Tool Bar >>> Charts. Then click Customize button >>> Select Indices Step-by-Step >>> Click Insert >>> Close.
Meta Trader 4 Platform Chart ToolBars - How to Trade for New Traders
Indices Step by Step Button for Back Testing Systems Discussed
Once you get this Meta Trader 4 tool you can move your stock chart backwards, & use this Meta Trader 4 tool to move the charts trading step-by-step while at the same time testing out when your system would have generated either a buy or sell transaction, and where you would have exited the trade, then write down the amount of profit/loss per trade transaction & out of a sample number of transactions you would then calculate the overall profits/losses generated by the strategy.
If your strategy is profitable on paper then, it is time to demo trade and testing if the it is profitable on real market as it's on paper method. This is the process of testing or back-testing a system.
Maintain a Journal to keep record of profitable trade transactions, and determine why these trade transactions were profitable. And also keep a log of all losing trades, determine why these trades made a loss and the avoid making these same mistakes the next time you trade using your strategy.
Tweak your indices system until you get a good risk:reward ratio, with signals that you generate. Aim for a good risk: reward of 3:1 and a win ratio of above 70% is a good ratio, with good money management even a strategy with a win ratio of even 30% i.e. Less than half of your transactions make profit you can still make a profit. You might want to read this topic to know what the table below is all about: Risk : Reward Ratio.
Risk to Reward Ratio Chart of Money Management Strategy - Trade Strategies Methods Explained
Read Equity Management Strategies Methods Tutorial
A manual system is still the best way to generate signals in-comparison to automated systems, a manual strategy is a better technique and is also much simpler to implement.
However, other traders prefer automated systems & for those then they can check the information on this page MQL5 EAs and automated systems.
You can also view our extensive list of indices strategies topics that provides you with various methods of buy and sell analysis using a number of diverse technical methods, navigate to the Indices Strategies Section.
