How To Build a Simple Trading System

Are you tired of subscribing to signal services and stock picking websites that only do a so-so job of delivering the goods? If so, maybe now is the time to consider building your own trading system based on what you’ve learned about stocks, forex, and other asset classes and markets. Luckily, you don’t need to be an IT guru to develop a simple, rules-based system that includes most or all of your favorite indicators and parameters.

The main chore is to walk through a short list of guidelines, paying close attention to including all the features that you deem necessary. After that, it’s just a matter of using your broker’s template for a custom-made set of rules that you can put into place right on the website. What’s the best way to get started? Here are some critical checklist points that can help.

Build a Simple Trading System

Choose Parameters

Every worthwhile platform for technical analysis, for example TradingView, will let you include standard indicators as you construct your customized program. That is very good news because it means you can just click on a given indicator, like moving averages, to add it to your personal system’s menu. What else should you consider including? Most who reach the point of building a trading program of their own prefer to experiment with indicators like candlestick patterns, support and resistance, Bollinger Bands, momentum measurements, and MACD (moving average convergence divergence).

Do Some Back-Testing

Attempt to apply your new method to historical data. Fortunately, there are free online resources for digging up years of prior data on forex pairs, stock prices, and other asset classes. Decide which sectors and price levels will be your most common choices. Many attempt to build a trading system that can do everything. Avoid that temptation and stick with the asset classes and securities prices that you’re accustomed to buying and selling.

Test the System in Demo Mode

Caution is the watchword, which is why it’s imperative to use your broker’s demo mode for at least a week to test the new technique. The goal is to make everyday trading in the demo as realistic as possible. Stick to your usual markets and position amounts. Avoid making unrealistic transactions unless you do so only to test one or another feature of your custom-made creation.

Keep Detailed Records

During the demo testing phase, be sure to keep detailed records, so you’ll know how well your new arrangement is performing. Also, be aware that final profit or loss results are not the only thing to observe. Pay careful attention to ongoing drawdown levels. It might be the case that you’ve designed an application that wins in the long run but suffers significant account losses along the way. This phenomenon is called excessive drawdown, and it’s wise to be aware of your system’s behavior in this regard.

Choose Take Profit and Stop Loss Levels

No matter what instruments or asset classes you trade, it can be helpful to set some universal take-profit and stop-loss parameters as you design your system’s structure. This is particularly true for forex traders, who often prefer to preset every transaction with a percentage or fixed-rate stop-loss and take-profit target.

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