Writing a Rule Based System

A stock system is a set of trade rules that specify when to open and when to close out trade positions. To come up with a complete system a stock index trader is also required to adhere and follow advanced rules that will guide his method. The trading rules are also part of the trading system but also cover a much wider approach of how one uses their system when opening & closing trade transactions.

Following things will also be included within the system which a indices trader will come up so as to make the trading system of a index trader complete.

Mindset/Indices Trade Psychology

This section of the trader'strade system will write the mindset which a indices trader will follow when setting their trades using their trade strategy. Your mindset as a stock index trader should specify that you will only follow the signals generated by your stock system & you'll not open trade transactions just because the market has started to move up or move down. If a trade signal isn't generated by your system then you will not place any trade on the market. The way you'll make sure that you follow only your stock system is by using indices psychology to control your emotions in trading.

You should be prepared to be disciplined enough when trading to follow what your stock trading system is saying. You should never go against your stock system & base your decisions on what the market is doing. You should be objective when following the rules of your system. This will be a matter of training yourself to follow your system even when you make a trade position that loses money you as a trader must follow your stock system and close-out the trade transaction at the specified level where your trading rules say the trade transaction should be closed to avoid further losses. Close that trade & wait for another opportunity, there'll always be another opportunity to open a trade tomorrow, next week or next month you do not have to stay in 1 trade until you lose all you trading funds and after you miss out on the other trading opportunities that you'd have had.

You'll also have to identify the best style method for your personality so that you're comfortable with the types of trade that you place in the market. For example if you as a trader can execute trade positions quickly then you may select and choose to be a scalper, if on the other hand you're the type of trader that likes to take time before making decisions then scalping might not be the best style method for you, instead you should become a day trader or a swing trader and that way you as a trader can have enough time between trades to make a decision. By selecting and 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 method that most fits you then you will have the right mindset when trading and you'll increase your chances of being more successful when trading the market.

Set Goals To Follow When Trading

You have to know what goal you want to achieve when it comes to & executing trade transactions with your trading system. Your goal may be that you as a trader want to follow your system all the time and never take any trade that isn't indicated by your system. Another goal may be that you as a trader want to be more disciplined when executing trade transactions by being disciplined and patient enough to wait for a trading signal to be derived & generated by your system before opening a trade & that you will not jump the gun and open a trade before the signal is generated. Sometimes a trader may see that a trading signal is about to be derived & generated by their trading strategy but it hasn't been generated in accordance to the rules of the trading system but a stock index trader might decide to open a trade before the signal & wait for the signal while they are in the market, this shouldn't be how a indices trader should trade, traders should learn & know how to be patient and disciplined enough to wait for the signal to be derived and generated before opening a trade position.

Select one of the Instruments To Trade

Traders should also specify the instruments which they will be trading with their system. A trader might develop a system which has got a trading strategy that is best fitted for trading some instruments only. The trader should therefore only trade with their trading strategy when they are trading only these trading price charts.

Most systems will produce best results when they are applied to trading liquid instruments and hence a stock index trader should make sure that they only trade those trading instruments which are best fitted for their strategy. This is why traders should specify in their indices rules the instruments that they will be trading.

Stock Money Management Rules

For a stock system to be very successful then a indices trader should make sure that they also specify the money management rules/guidelines that they'll always follow when trading the market.

The equity money management strategy that a stock index trader uses should have a high risk to reward ratio so that to give the trader more chances at becoming profitable when trading with their trade strategy.

The equity management should outline and specify at what level a indices trader will close out a losing position: the trader should also ensure that they close-out all their losing trade transactions at this point.

A trader should also never risk more than 2% of their equity on any 1 single trade transaction.

The trader should also determine where they'll always takeprofit when their trade is profitable. The take profit order level should be 2 times the stop loss level. For example is a stock index trader is setting their stops at 25 pips then the traders should set their take-profit orders at 50 pips. This is what is referred to as a high risk to reward ratio to trade with. This risk reward ratio is 2:1, which means a indices trader can make 2 times profit the amount which they set as their loss. This way by using a high risk reward ratio means that a trader will be more successful in the long run because their method uses a high risk reward ratio that means they stand to make 2 times the amount that they set as their loss.

Keep a Trading Journal

Traders should always keep a journal & this journal will prove to be a very useful trading tool when it comes to improving their system.

For example when a trader is designing their stock trading system and they want to test it out on the market, then the trading journal will prove to be a very helpful and useful tool to help them do this. This because while testing out the system traders will record all their trades on this journal & after a while they can use this journal to review their trades, traders can find out why the losing trade positions made losses and determine what factors & aspects in their trading strategies are resulting in generating signals which accrue losses, the trader will then try to not make the same mistake while trading in the future. One also will try and find the patterns which help them to earn profitable trade positions & the traders can then use these pattern setups to trade with in the future so that they can improve the profitability of their trading strategy in the future & there help them to become more successful.

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