How to Setup A Trading Systems
This is just an example on how to setup your forex trading system. We are going to use xtick as the software and have decided to use common forex technical indicators so you can do it even on metatrader. All trading systems have their negative and positive points, it you the trader who decides what you can apply for your own trading strategy.
A forex trading system has 4 major indicators.
- The Trend Indicator. – This tells you the general direction of the market and can be one indicator ,or a combination of indicators. Price action can also help in showing you the underlying trend.
- The Entry Signal. – An entry signal indicator basically tells you when to enter the market. It is normally advicable to have only one indicator for this so choose wisely.
- The Exit Signal – This will be either a take profit exit or exit trade in a loss. I prefer only using a maximum of 2 indicators for this. It’s just keeping it simple.
- The Money Management Plan – Otherwise known as the trading plan. Now if you don’t have this, don’t bother trading forex. It has been shown that most traders lose because they never thought of a money management plan or a trading plan. It should consist of " if .. then " statements. Make it so simple that your kid will be able to follow it at anytime.If your 6 yr old kid can not follow it ,then it is not a trading plan.
We are going to use only the following indicators in the forex trading system.
- 45 RSI –
- 10 EMA moving average
- 20 EMA moving average
- Pivot Points
- Bill Williams Fractals.
The following indicators are just make things easier for us as we are trading
- 5,0 Oscillator
Before we begin there are a few things to note. There is nothing like a perfect indicator. All indicators have their own weaknesses. The trick is to find indicators that work together. Keeping a trading plan simple is more important than anything else. I have seen so many so called fast indicators that keep on failing for traders. Unless you are a pit trader, you are not going to get an indicator that can foretell the future. All indicators are based on previous price action, whether it was 10 seconds, 1 day, 240 minute, price will happen first, then the indicator will calculate itself based on historical data. After I discovered that, I stick to my ema’s and don’t bother with the latest trading indicators any more.But if anyone has an indicator that can foretell the future, I am willing to listen.
The reason we chose the 10/20 ema crossover is because it is simple and has been used by most professional traders for a long time. So why reinvent the wheel?
So let’s start with the system. Please note that this is just a study on creating a simple forex trading system. Do not use it unless you know what it’s about. The next topic we shall discuss trend trading indicators.
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