Writing a Rule Based Trading System
A stock indexes trading system is a set of trading rules that specify when to open and when to close trades. To come up with a complete indices trading system a indices trader is also required to the following advanced rules that will guide his trading method. These rules are also part of the indices trading system but cover a wider approach of how a indices trader uses their indices trading system when opening and closing trades.
The following things will also be included within the indices trading system that a indices trader will come up in order to make the indices trading system of a indices trader complete.
Mindset/Indices Trading Psychology
This section of the indices trader’s indices trading system will write down the mindset that a indices trader will follow when setting their trades using their stock indexes trading system. Your mindset as a indices trader should specify that you will only follow the trading signals generated by your stock indexes trading system and you will not open trades just because the stock indexes trading market has started to move up or move down. If a trade signal is not generated by your indices trading system then you will not place any trade on the stock indexes trading market. The way you will make sure that you follow only your stock indexes trading system is by using indices trading psychology to control your emotions in trading.
You should be prepared to be disciplined enough when trading to follow what your stock indexes trading system is saying. You should never go against your stock indexes trading system and base your trading decisions on what the stock indexes trading market is doing. You should be objective when following the rules of your stock indexes trading system. This will be a matter of training yourself to follow your indices trading system even when you make a trade that loses money you must follow your stock indexes trading system and close the trade at the specified level where your rules say the trade should be closed to avoid further losses. Close that trade and wait for another trading opportunity, there will always be another opportunity to trade tomorrow, next week or next month you do not have to stay on one trading until you lose all you money and after you miss the other trading opportunities that you would have heard.
You will also have to determine the best trading style for your personality so that you are comfortable with the types of trade that you place in the stock indexes trading market. For example if you can execute trades quickly then you may choose to be a scalper, if on the other hand you are the type of trader that likes to take time before making a decision then scalping may not be the best trading style for you, instead you should become a day trader or a swing trader and that way you can have enough time between trades to make a decision. By choosing a trade style that most suits your personality is the first thing you should do and after you have made the correct choice of the trading style that most suits you then you will have the right mindset when trading and you will increase your chances of being more successful when trading the stock indexes trading market.
Set Goals To Follow When Trading
You have to know what goal you want to achieve when it comes to trading and executing trades with your stock indexes trading system. Your goal may be that you want to follow your indices trading system all the time and never take any trade that is not indicated by your stock indexes trading system. Another goal may be that you want to be more disciplined when executing trades by being patient enough to wait for a signal to be generated by your indices trading system before opening a trade and that you will not jump the gun and open a trade before the trading signal is generated. Sometimes a indices trader may see that a trading signal is about to be generated by their indices trading system but it has not been generated according to the rules of the indices trading system but a indices trader may decide to open a trade before the signal and wait for the signal while they are in the stock indexes trading market, this should not be how a indices trader should trade, traders should learn to be patient enough to wait for the signal to be generated before opening a trade.
Select one of the Instruments To Trade
Traders should also specify the indices trading instruments that they will be trading with their stock indexes trading system. A indices trader may come up with a indices trading system which has a trading strategy that is best suited for trading some trading instruments only. The trader should therefore only trade with their indices trading system when they are trading only these stock indexes price charts.
Most indices trading systems will produce best results when they are applied to trading liquid trading instruments and therefore a indices trader should make sure that they only trade those trading instruments that are best suited for their indices trading strategy. This is why stock indexes traders should specify in their indices trading rules the trading instruments that they will be trading.
Indices Trading Money Management Guidelines
For a stock indexes trading system to be very successful then a indices trader should make sure that they also specify the indices trading money management rules that they will always follow when trading the stock indexes trading market.
The indices trading money management method that a indices trader uses should have a high risk: reward ratio so as to give the indices trader more chances at becoming profitable when trading with their indices trading strategy.
The indices trading money management should specify at which level a indices trader will close a losing trade; the indices trader should also make sure that they close all their losing trades at this point.
A indices trader should also never risk more than 2% of their account equity on any one single indices trade transaction.
The trader should also determine where they will always take profit when their trade is profitable. The take profit level should be two times the stop loss level. For example is a indices trader is setting their stops at 25 pips then the stock indexes traders should set their take profits at 50 pips. This is what is known as a high risk: reward ratio to trade with. This risk reward ratio is 2:1, which means a indices trader can make two times profit the amount that the set as their loss. This way by using a high risk reward ratio means that a indices trader will be more successful in the long run because their trading method uses a high risk reward ratio that means they stand to make two times the amount that they set as their loss.
Keep a Trading Journal
Traders should always keep a trading journal and this journal will prove to be a very helpful tool when it comes to improving their stock indexes trading system.
For example when a indices trader is designing their stock indexes trading system and they want to test it out on the stock indexes trading market, then the indices trading journal will prove to be a very helpful tool to help them do this. This because while testing out the indices trading system traders will record all their trades on this trading journal and after a while they can use this trading journal to review their trades, traders can find out why the losing trades made losses and determine what factors in their trading strategies are resulting in generating signals which make losses, the indices trader will then try to not make these same mistake while trading in the future. A indices trader will also try and find the patterns that help them to make profitable trades and the stock indexes traders can then use these patterns to trade with in the future so that they can improve the profitability of their indices trading system in the future and there help them to become more successful.