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 Indices trades. These 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 technical indicators.

For example, the Stochastic Oscillator can be combined with other indicators to form a stock indices trading system. For this example stochastics can be combined with the indicators below to come up with the following stock indices trading system.

• RSI
• MACD
• Moving Averages

Example

Creating a Indices Trading System - Indices Trading System Trading Example

So the question is how can one come up with a indices trading systems that works and how does one write its rules? Follow the steps below:

Seven steps to creating an indicator-based indices trading system

To come up with these set of trading rules for indices we use the following seven steps.

1. Choose your Indices Trading 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 Trading time frames OR you prefer setting up your indices charts using bigger Indices Trading time frames once or twice a day. Choosing a indices charts time frame will mainly depend on what type of Indices trader you are.

Indices Chart Time Frames on MT4 - MetaTrader 4 Indices Trading Software

While testing your new indices trading system you may want to find out about its performance on different Indices Trading chart timeframes and then choose the most accurate and profitable Indices Trading chart timeframe for you.

2. Choose indicators to identify a new trend

The goal of a Indices trader is to get into the Indices trade as early as possible and take maximum advantage of stock indices 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 strategy is to use a moving average crossover system that will identify a new stock indices trading setup opportunity at its earliest stage.

Moving Average Crossover Method - Indices Trading System

Indices Trading Sell signal and Indices Trading Buy signal Generated by Moving Average Crossover Method

3. Choose additional indicators to confirm the Indices Trading market trend

Once we find a new indices trend we need to use additional indices indicators that will confirm the Indices Trading entry signals and give either a green light for action or save a indices trader from fake-outs.

To confirm the signals we use RSI and Stochastic Oscillator.

RSI and Stochastic Oscillator Indices Indicator Trading System

4. Finding entry and exit points

Once indicators are chosen so that one indicator gives the signal and another confirms the signal, it is time to enter a Indices trade.

A Indices trader should enter as soon as a signal is generated and confirmed after a candlestick closes.

Aggressive Indices traders enter a transaction immediately without waiting for the current stock indices price bar to close.

Other Indices traders wait until the current stock indices price bar is closed and then enter the transaction if the Indices trade setup has not changed and the signal remains valid. This method is more considerate and prevents additional false entries and whipsaws.

Generating Indices Trading Signals

Generating Indices Trading Indices Trade Signals

For exits, one can either set an amount he wants to earn per trade or use technical tools that help to set profit goals like Fibonacci Expansion Indicator or set a protective stop loss depending on the Indices Trading market volatility at any given time. Alternatively one can exit when the indices technical indicators give an opposite 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 Trading 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 Trading you must calculate your risk for each Indices trade. Serious Indices traders will only enter look to open an order it 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 when trading Indices Trading in the long run.

The Reward to Risk Chart below shows you how:

Indices Trading Money Management Reward Risk Chart - Indices Trading

In the first example of Risk to Reward Ratio, you can see that even if your indices trading system only won 50% of your open Indices trades, you would still make a profit of $10,000. Read more on this topic: Here Indices Trading Money Management Guidelines and Indices Trading Money Management Methods.

Before opening a new Indices trade, a indices trader should define the point at which he will close the open Indices trade if it turns to be a losing one. Some traders use Fibonacci Retracement Levels and support and resistance levels. Others just use a pre-determined stop loss to set stop loss indices order 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 indices trading rules that you follow to manage your Indices trades.

The keyword is ASET OF Indices 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 Trading online indices trading system:

Next Lesson: Example of Writing Indices Trading Indices Trading Systems Rules

7. Practice on a Indices Trading Demo Trading Account

Without enough Indices trades, you will not be able to realize the true profitability of your stock indices trading system.

Once you have your indices trading system rules written, it is time to test and improve your Indices trade system by using it on a Indices Trading demo practice account.

Open a free demo stock indices trading practice account and trade Indices Trading your system to see how well it will respond.

It is strongly recommended to start with a demo stock indices trading account and practice for at least for 1 or 2 months so as to gain some practice and experience how the indices trading market works.

Once you start making some decent profit on your Indices Trading demo stock indices trading account you can then try opening a live stock indices trading account and start indices trading with real money.