How to Generate Trade Signals With Trading Systems

Generating Forex MetaTrader 4 Free Signals - Forex MetaTrader 4 Signal Indicators

The only method of trading currencies is through signals, It is best to learn how to generate these signals for yourself, this way you do not have to rely on other traders to generate them for you.

Generating signals is not easy and requires you to have a lot of forex analysis knowledge and experience, but the earlier you start practicing how to generate these signals for yourself the better it is for you.

A good method of how to practice generating signals with systems is to open a free practice practice account and test your signals on this practice account risk free without risking your money, then once you have tested your strategies & they are profitable on the demo practice account you can then use these signals on a live account.

The technique of how to practice generating these signals as well as how to back test the signals on the demo account using the MetaTrader 4 forex platform is discussed below:

So, How Can a Trader Generate Trade Signals?

The best method of generating signals is through systems, You can Learn how to come up with Forex systems from the lesson how to create Trading Systems on the right navigation menu under the tutorials Forex Key Concepts.

A Forex system is a combination of one or 2 or more technical indicators with written rules of how these indicators will generate these trade signals.

Take an example of the simplest trading system or strategy known as MA cross over method. A buy signal or sell signal is generated when there is a crossover of the 2 moving averages: either a buy signal for an upward moving average cross over or a sell signal for downwards trend.

Generating Forex MetaTrader 4 Free Signals - Signals MetaTrader 4 Indicator Strategy Moving Average Crossover Method

The system example below shows a system using the above moving average strategy combined with the RSI and MACD indicators to generate buy and sell trades.

Example of Generating Forex MetaTrader 4 Free Signals - Forex MetaTrader 4 Signal Indicator Method

When it comes to generating buy and sell signals, forex traders should use simple systems to generate these trade signals.

Generating Forex MetaTrader 4 Free Signals - Buy & Sell Signals Strategy Method

Trading Systems - MetaTrader 4 Indicators

An example of a simple Forex system that works, is one that is a combination of:

• Moving average cross over strategy
• RSI
• MACD

The written rules are:

Generating Signals Strategy - Trading System Examples

Trade Rules:

Buy Signal is Generated when:

• Both Moving averages going up
• RSI value above 50
• MACD above center line

Sell Signal is Generated when:

• Both Moving averages going down
• RSI value below 50
• MACD below center-line

Generating Buy & Sell Trades - Examples of a Trading Method

Exit Signal

Exit signal is generated when MA, RSI & MACD indicator give a signal in opposite direction.

The chart time frame to use is 1 hour chart time frame or 15 minutes chart time frame depending on what type of trader you are.

For a beginner the above written rules will give good buy and sell trade signals, the only thing which a trader needs to do is to have the discipline to follow the written signals rules the exact way they are, and wait for a buy or sell trade transaction to be indicated by your strategy & trade after the signals have been generated, not before they are generated.

Back Testing

Generating Signals with a trading system is one of the easiest method to trade forex, it is the best way that a forex beginner can attempt to determine the direction of the market trend with a good level of accuracy, and with a little back testing on practice account so as to gradually increase the level of accuracy of this signals strategy

The best way to back test a forex strategy is by following these 2 steps:

1. Paper Trade
2. Demo Trade

Forex Paper Trading - This method of testing a trading system involves placing your system on the charts, then take the chart back to a particular date, 3 months back for example, and then using this chart history to determine where your strategy would have given buy, sell and exit signals. Write down these points and the profit per trade transaction on a piece of paper and then calculate the total profit after you have recorded a good number of trades such as 50 paper trades transactions and determine if your method is overall profitable, the win ratio, the loss ratio and the risk:reward.

This is an ancient method of testing forex systems which was used by traditional investors when there was no online currency exchange markets or computers for that matter, the trader would use something like the A3 or A2 paper, graph format paper and plot the charts manually (Imagine plotting the charts on your platform by hand every day or every hour, would you be ready to do that? I doubt) Those investors were hardworking than most, some were so used that they still continue to paper trade the online market and plot the charts on paper, anyway for our paper technique example, just a sample data of 50 trade transactions is all we need.

A good tool to use to back-test your system is known as the MT4 Step by Step Tool. Found in MT4 charts tool-bar of MT4 forex software, If you want to find the charts toolbar on the MT4 platform it is at the top of the MT4 software. If it is not: Click View (next to file, top-left corner of MetaTrader 4)>>> Tool Bar >>> Charts. Then click Customize button key >>> Select Step by Step >>> Click Insert >>> Close.

MT4 Platform Chart Tool Bars - How to Trade Forex For Beginner Traders

MT4 Chart Tool-Bars - Step by Step Button for Back Testing Systems Discussed

Once you get this MT4 tool you can move your chart backwards, and use this MetaTrader 4 tool to move the charts step by step while at the same time testing when your system would have generated either a buy or sell trade transaction, & where you would have exited the trade, then write down the amount of profit/loss per trade transaction & out of a sample number of transactions you would then calculate the overall profits/losses generated by the strategy.

If your strategy is profitable on the paper then, its time to demo trade and testing if the it is profitable on real market as it's on paper method. This is the process of testing or back-testing a trading system.

Forex Journal Tutorial

Maintain a Forex Journal to keep track of profitable trades, & determine why these trades were profitable. And also keep a log of all losing trades, determine why these trades made a loss and the avoid making these same mistakes the next time you trade using your strategy.

Tweak your system until you get a good risk to reward ratio, with the signals that you generate. Aim for a good risk: reward of 3:1 and a win ratio of above 70% is a good ratio, with good money management even a strategy with a win ratio of even 30% i.e. Less than half of your transactions make profit you can still make a profit. You might want to read this topic to know what the table below is all about: Risk : Reward Ratio.

Risk-:-Reward Ratio Chart of Money Management Strategy - Trade Strategies Explained

Read Money Management Strategies Guide

A manual system is still the best way to generate signals compared to automated systems, a manual strategy is a better method and is also much simpler to implement.

However, other traders prefer automated systems and for those then they can check the information on this page MQL5 EAs & automated systems.

You can also view our extensive list of trading strategies topics that provides you with various methods of buy and sell analysis using a number of diverse technical methods, navigate to the Learn Strategies Section.