Creating a System: Trading Indicator Based System

A System refers to a set of rules that you follow to manage your trades. These written rules will determine when you open a trade & when you'll exit. A trade system is created by combining two or more indicators.

For example, the Stochastic Oscillator indicator can be combined with other indicators to form a system. For this example - stochastic oscillator can be combined with the trade indicators below to come up with the following  xagusd system.

• RSI indicator
• MACD indicator
• Moving Averages indicators

Example - MT4 Template System Example

Creating a Trading System - System Template Examples

So the question is how can a trader come up with systems that work like the system example above and how does one write it's rules? to write the system rules follow the steps below.

Seven steps to creating an indicator based system

To come up with these set of rules we use the following seven steps.

1. Choose your Chart Time Frame

This first step depends on how many hours you want to dedicate to trading. Whether you prefer sitting in front of the Desktop computer constantly for several hours interpreting short chart time frames OR you prefer setting up your charts using bigger chart time frames once or twice a day. Choosing a chart time frame will mainly depend on what type of trader you are.

Silver Chart Time Frames on Meta Trader 4 Software

While testing your new system you may want to find out about its performance on different chart time frames and then choose the most accurate & profitable chart time frame for you.

2. Choose indicators to identify a new trend

The goal of a trader is to get into the trade as early as possible and take maximum advantage of price moves.

One of the common ways to identify a new trend as fast as possible is to use MAs Indicator. A simple strategy is to use a moving average crossover system that will identify a new opportunity at its earliest stage.

MA Crossover Strategy

Sell silver signal and Buy signal Generated by Moving Average Crossover Trading Method

3. Choose additional indicators to confirm the trend

Once we find a new trend we need to use additional indicators that will confirm the entry signals and give either a green light for action or save a trader from fake-outs.

To confirm the signals we use RSI indicator and Stochastic Oscillator indicator.

RSI Indicator and Stochastic Indicator System

4. Finding xagusd entry and xagusd trading exit points

Once trading technical indicators are chosen so that one indicator gives the signal & another indicator confirms the signal, it's time to enter a trade transaction.

A trader should enter a trade as soon as a signal is generated & confirmed after a candlestick closes.

Aggressive traders enter a trade transaction immediately without waiting for the current price bar to close.

Other traders wait until the current price bar is closed and then enter the trade transaction if the trade setup has not changed and the signal remains valid. This method is more considerate and prevents additional false entries and silver whipsaws.

Generating Signals - how to Generate Signals.

Generating Trade Signals

For exits, a trader can either set an amount the wants to earn per trade or use technical tools that help to set profit goals like Fibonacci expansion tool or set a protective stop loss depending on the market volatility at any given time. Alternatively a trader can exit when the indicators give an opposite signal.

When opening a new trade transaction it is always important to calculate in advance how much you are willing to lose if the trade goes against you. Although the goal is to create the best system in the globe, losses are inevitable and therefore being ready to tell where you will give up and cut your losses before starting a trade is very important.

5. Calculate risks in each XAGUSD trade setup

In Silver, you must calculate your risk for each trade. Serious traders will only enter & look to open an order if the risk to reward ratio is 2:1 or more.

If you use a high risk : reward ratio like 2:1, you significantly increase your chances of becoming profitable in the long run.

The Risk-Reward Chart below displays you how:

Silver Money Management Reward Risk Chart - Example Template Trading System

In the first examples of Risk-:-Reward Ratio, you can see that even if your trading system only won 50% of your trades, you would still make a profit of $10,000. Interpret more on this money management silver topic: Here Silver Trading Money Management Rules - MT4 Template Trading System and Silver Money Management Strategies Methods - Template System Example.

Before opening a new trade, a trader should define the point at which they will close the trade if it turns to be a losing trade. Some traders use Fibonacci retracement levels tool and support & resistance zones. Other traders just use a pre-determined stop loss to set stop loss silver orders once they have opened a trade transaction.

6. Write down the systems silver rules and follow them

A Trade System refers to a set of rules that you follow to manage your trades.

The keyword is A SET OF TRADING RULES which you must follow. If you don't follow the rules then you don't even have a system in the first place.

The next systems lesson shows you an example of how to use above steps to come up with your own online system:

Next Lesson: Examples of Writing Trade Systems Rules

7. Practice on a Practice Account

Without enough trades, you won't be able to realize the true profitability of your system.

Once you have your silver system rules written, it is time to test and improve your trade system by using it on a demo practice account.

Open a free practice account & trade your system to see how well it will respond.

It is strongly recommended to start with a practice account & practice for at least for 1 or 2 months so as to gain some practice and experience how the market works.

Once you start making some decent profit on your demo account you can then try opening a live account and begin trading with real money.