Design Your Trading System in 6 Steps

Design Your Trading System in 6 Steps

The main focus of this lesson is to guide you through the process of designing your own forex trading system.

While it doesn’t take long to come up with a system, it does take some time to extensively test it.

So be patient; in the long run, a good forex trading system can potentially make you a lot of money.

Step 1: Time Frame

The first thing you need to decide when creating your system is what kind of forex trader you are.

Do you like looking at charts every day, every week, every month, or even every year? How long do you want to hold on to your positions?

This will help determine which time frame you will use to trade. Even though you will still look at multiple time frames, this will be the main time frame you will use when looking for a trade signal.

Step 2: Find indicators that help identify a new trend.

Since one of our goals is to identify trends as early as possible, we should use indicators that can accomplish this.

Moving averages are one of the most popular indicators that traders use to help them identify a trend.

Specifically, they will use two moving averages (one slow and one fast) and wait until the fast one crosses over or under the slow one.

This is the basis for what’s known as a “moving average crossover” system.

In its simplest form, moving average crossovers are the fastest ways to identify new trends. It is also the easiest way to spot a new trend.

Of course, there are many other ways forex traders spot trends, but moving averages are one of the easiest to use.

Step 3: Find indicators that help CONFIRM the trend.

Our second goal for our system is to have the ability to avoid whipsaws, meaning that we don’t want to be caught in a “false” trend.

The way we do this is by making sure that when we see a signal for a new trend, we can confirm it by using other indicators.

There are many good technical indicators for confirming trends like MACD, Stochastic, and RSI.

As you become more familiar with various indicators, you will find ones that you prefer over others and can incorporate those into your system.

Step 4: Define Your Risk

When developing your forex trading system, it is very important that you define how much you are willing to lose on each trade.

Not many people like to talk about losing, but in actuality, a good trader thinks about what he or she could potentially lose BEFORE thinking about how much he or she can win.

The amount you are willing to lose will be different than everyone else.

You have to decide how much room is enough to give your trade some breathing space, but at the same time, not risk too much on one trade.

You’ll learn more about money management in a later lesson. Money management plays a big role in how much you should risk in a single trade.

A trader should aways think about the potential loss BEFORE thinking about potential gain.

Step 5: Define Entries & Exits

Once you define how much you are willing to lose on a trade, your next step is to find out where you will enter and exit a trade in order to get the most profit.

Entries

Some people like to enter as soon as all of their indicators match up and give a good signal, even if the candle hasn’t closed. Others like to wait until the close of the candle.

Others like to wait until the close of the candle.

One of the forex traders here in BabyPips.com, Pip Surfer, believes that it is best to wait until a candle closes before entering.

He has been in many situations where he will be in the middle of a candle and all of the indicators match up, only to find that by the close of the candle, the trade has totally reversed on him!

It’s all really just a matter of trading style. Some people are more aggressive than others and you will eventually find out what kind of trader you are.

For example, in the chart below, this trader’s entry was when the candle closed below the support line.

Exits

For exits, you have a few different options.

One way is to trail your stop, meaning that if the price moves in your favor by ‘X’ amount, you move your stop by ‘X’ amount.

Another way to exit is to have a set target, and exit when the price hits that target. How you calculate your target is up to you. For example, some traders choose support and resistance levels as their targets.

In the chart below, the exit is set at a specific price which is near the bottom of the descending channel.

Others just choose to go for the same amount of pips (fixed risk) on every trade.

However you decide to calculate your target, just make sure you stick with it. Never exit early no matter what happens.

Stick to your trading system!

After all, YOU developed it!

One more way you can exit is to have a set of criteria that, when met, would signal you to exit.

For example, you could make it a rule that if your indicators happen to reverse to a certain level, you would then exit out of the trade.

Step 6: Write down your system rules and FOLLOW IT!

This is the most important step in creating your trading system. You MUST write your trading system rules down and ALWAYS follow them.

Discipline is one of the most important characteristics a trader must have, so you must always remember to stick to your system!

No system will ever work for you if you don’t stick to the rules, so remember to be disciplined.

Oh yeah, did we mention you should ALWAYS stick to your rules?

How to Test Your Forex Trading System

The fastest way to test your system is to find a charting software package where you can go back in time and move the chart forward one candle at a time.

When you move your chart forward one candle at a time, you can follow your trading system rules and take your trades accordingly.

Record your trading record, and BE HONEST with yourself!

Record your wins, losses, average win, and average loss. If you are happy with your results then you can go on to the next stage of testing: trading live on a demo account.

Trade your new system live on a demo account for at least two months.

This will give you a feel for how you can trade your system when the market is moving. Trust us, it is very different trading live than when you’re backtesting.

After two months of trading live on a demo account, you will see if your system can truly stand its ground in the market.

If you are still getting good results, then you can choose to trade your system live on a REAL account.

At this point, you should feel very confident with your forex trading system and feel comfortable taking trades with no hesitation.

Best Forex Trading System in the World [4 Top Free Trading Systems]

If we talk about Forex trading, it is not quite an easy way to become rich quickly. It requires effort and time to become successful.

Top Pick >

Before start trading, you have to spend time getting knowledge and experience in this field with the help of free demo accounts.

Here you want to know about the forex trading system. Traders get help from trading systems about purchasing and selling currency pairs at a given time.

Generally, there are many forex trading systems that are helpful to get info related to trading tools, like charts, news, analysis, and signals. The four main and best forex systems are The Sky play System, 4H Scalping Method, Hybrid Scalping System, and Ranging Double System.

These systems are helpful to get profit and become a successful trader. While adopting any system, it is essential to be aware of frauds and scams.

Don’t use any system blindly without knowing properly about it. Just try to figure out their characteristics and check out whether they suit you or not.

Let’s explore more about this post.

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Best Forex Trading Systems

Before entering this complicated world, it is essential to each and everything about it. Don’t start trading blindly. At first, try to understand all trading systems and figure out the best one to choose for trading.

Here is the list of best forex trading systems that are free but are helpful to get huge profits.

1. The Sky play System

It is the best mechanical trading system that is most workable than others. It is specially designed by using indicators like coral, true strength, MACD, Time zone, and 20 EMA. This system works technically and shows the one-hour trading time.

The system does this process by defining the entry after zooming in the charts for 5 minutes. Additionally, it will show a big amount of profit within 4 months.

If you get profit in first 4 months, it is calculated as an excellent performance. At first, when you look at the winning ratio of this system, you must think that it will not be the best system for you.

But actually, you can trade profitably if you know this system well. And a no-lose trading system does not exist.

Especially, it is awesome for the beginners if they get complete info about the above-mentioned indicators.

It may create a little difficulty for the newbie if they use indicators but soon they will be able to overcome this problem.

See also Is Forex A Pyramid Scheme? [Tips To Avoid Forex Scams]

2. 4H Scalping Method

This one is also included in the best trading systems as it deals in GBP/JPY pairs of currencies. There is no need to use indicators in this system.

Basically, it makes a time frame of 4 hours that is enough to trade successfully. The plus point of this system is that it has very simple entry points. It is easy to follow the rules of this system.

It is simple to use high and low swings as a scalp line and later you can enter these levels by breaking them below or above.

According to statistical data, this system provides approximately 60 % profit on trading. That is a handsome offer for a trader to become successful.

In the beginning, it looked good to trade with this system but when you entered deeply into it, you may feel that it is not attractive.

It has a trial period of nearly 18 months. No doubt it has a limited trading platform but you will get it beneficial when you understand it properly.

The positive point of this system is that it gives you approximately 12% in return during the testing period. Wao! That’s great for a new trader. It is easy to understand because it has no technical indicators to use in it.

Another specification of this system is that it is very subjective. It is impossible to get the same results in it as you may see in other trades.

Surprisingly, you can monitor the scalp lines charts permanently. This is what every trader wants to get.

3. Hybrid Scalping System

This is one of the forex trading systems that use indicators rarely. It is not as friendly for newcomers as the 4H Scalping Method. It has a different system of charts and very intensive strategies.

Many indicators are used in this method about whom you don’t have any idea. If you have a lot of knowledge and experience in forex trading, this method is especially for you.

This system provides a high-level profit within a month that is great for any trader. The profit ratio is nearly 50%. It is considered the best trading system because it will govern risks very well.

This system reduces the chances of risks in investment and increases the winning ratio. It is not easy for new traders because there are several unfamiliar indicators used in it. So, it may be difficult to understand because of its complexity.

There comes a while using this system as you have to become too fast if you are trading with 5 minutes charts.

No doubt, it has many drawbacks, but it is still good as it offers a big amount of money when you end up trading at the end of the day.

See also How Do You Know When To Enter A Trade In Forex? [7 Steps To Enter Forex Trade]

4. Ranging Double System

It is a different kind of system because it consists of two basic elements: breakout trade and bounce trade. The interesting point of this system is it uses only one indicator that is the envelopes indicator.

It has a testing period of one year which showed a pure profit ratio during this period. The negative side of this system is that very few win trades because of its risk tolerance.

The reason behind the failure of performed trades is the noise of the market. Positively, this system is very easy to adopt. It has very easy and simple rules to follow.

This system provides you a platform to purchase at a low price and sell at high scales. If you are a beginner and looking for something easy and different, this system is exactly for you.

The only problem you may have to face while using this system is the indicator used in it. The Envelopes Indicator can create many issues as it is not familiar to many traders.

But overall it is good to use….

FAQs

What is the safest type of trading?

Options trading is one of the safest trading platforms for investment. This platform gives you the freedom to control the capitalize of price without getting it.

What is the best forex trading System?

Many trading systems are breakout trade and profitable and helpful to trade successfully. The selection of a good trading system depends upon your personality. Always try to choose the one that suits you.

Which day is best for forex?

Generally, it is seen that in the middle of the week, the currency market shows the best trading actions. So, Tuesday, Wednesday, and Thursday are the best days for forex trading.

Conclusion

We may conclude our informative post about Best forex Trading System with the words that several trading strategies in the world give you a handsome profit.

But you can’t trade by choosing all of them. You have to select some of them about which you think is best for you.

We have discussed 4 main trading systems that help you to trade forex successfully. These are free systems and unfortunately, they have no guarantee.

But you shouldn’t ignore them as they can prove a wonderful addition to forex trading and provide you a big profit. Just follow the rules as they are recommended.

If you want to get more info, Stay connected with us….

https://www.babypips.com/learn/forex/design-your-trading-system