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Posts Tagged ‘trading systems’

Often people ask if is possible to become a day trader, and day trade for a living.. The answer is:: “ Absolutely yes, you can!” However, you must receive professional day trading training or you will most likely fail.

There are many really good sites like Become a Day Trader that offer great information about training. Just type “day trading” into the Google search engine.

How much do you need to take in day trading weekly to begin to day trade for a living? What would you need to replace what you make from your current job?

People tend to not to quantify exactly what they need to earn in order to day trade full time.You must know what you need to earn each week and plan accordingly.

Let’s use an example and say you need to make 100,000 dollars a year to leave your current employment. Let’s look at whatyou must do to earn this six figure trading.

100,000 dollars a year is about 8,000 dollars each month, or 2,000 dollars week. We are considering that you take a couple weeks off,naturally.

It takes is knowing what you are doing. You learn this by getting yourself trained by  a professional that is successful.

Sound like you heard this before? Is this not the case in becoming successful in any field?

Once you learn a professional trading method, you must practice. Practice on a simulated account until you have complete confidence in your chosen trading strategy, and more importantly in yourself.

Assuming you choose to trade the S&P 500 Emini and your goal is to make just a single point each day. It would be required to trade 10 contracts on each trade. The margin requirement is around 1000 dollars for each contract. Do this and you will reach your objective.

Reaching your goal is the way to day trading success. Most importantly, you must have a sound trading strategy, and it must work effectively in the market or markets you trade.

It is imperative to master your day trading method and follow your money management rules.There are no well guarded. Becoming a professional trader requires dedication to your education as a trader, and commitment to honing your skills.

trading system

Creating a winning trading system suitable to your needs, that can react to the situation of any market means you are able to take your trading to the next level. Here are some pointers that have been invaluable during my time trading . . .

You have to keep the best trading systems– really super simple. Those same traders often complicate the best trading systems so much that they become nearly impossible to trade. This is usually accomplished through over optimization, adding far too many indicators. Instead, keep your plan your best trading systems as streamlined as possible. That way, it will be robust enough to trade across many market conditions. Through testing, I have found that over optimizing a plan will make it perform better on historical data. However, these plans usually trade worse in real time, thus taking away the goal to having the best trading systems.

This next strategy is over-looked by almost every trader. However, it is one of the most critical points to your success. You should back test your system. Back testing a system involves applying the rules and conditions of the best trading systems to historical data. With back testing you can determine how profitable your system can be, and predict its win/loss ratio. These numbers will not be 100% accurate, as price movements in the past are never repeated perfectly. However, you can assume that similar patterns and trends will occur over time, giving you invaluable insight into how the best trading systems will perform.

Of course, you should also employ excellent money management rules. Despite it`s importance, money management still remains relatively unknown by many traders and investors around the world. In fact, Dr. Van K. Tharp, a world-renowned leader in professional trading coaches and consultants says: “Perhaps the greatest secret to top trading and investing success is appropriate money management.”

You should look at trading as a business. To do this you need to learn some valuable statistics about your system. It`s the only way you can improve performance. How can you expect to improve something unless you know what it is you are looking to improve? You need to know your R multiples, win to loss ratios, expectancy, and other similar statistics. You can learn more about these and other vital statistics by reading Trade Your Way to Financial Freedom by Dr. Van Tharp.

With a back tested, robust and  best trading systems you can possibly have in your hands, and a good understanding of money management and the market, you will maximize your trading potential. Once you`ve applied these techniques, you will be surprised at how profitable the best trading systems you designed will become. Enjoy your success.

trading system

Do you want to discover why it is so important to have a trading system? Here’s a great opportunity to assess where you are with your current trading plan.

All top traders have an effective trading system. So many different kinds of trading systems exist. Certain ones get you to buy on weakness and sell on strength and others do things the other way round.

Some investors succeed as value investors , a la Warren Buffet ; others make their millions in momentum trading . I have even heard of an astrologist who uses the stars to trade profitably. Although, there are a variety of methods, the point I am trying to illustrate here is this: there are many ways to profit from the markets, but you ultimately must devise a trading system that is your own, because the personalization will act as a motivational discipline to stick with the plan.

The fact is there is no perfect system. Successful investors succeed because they choose a system that they feel comfortable with, not one that claims to be the current trend. A cool, disciplined trader will make money with an “average” system, while a nervous, arbitrary trader will wreck a “brilliant” system.

Think of answers to these quandries:

1. How much money can I work with?

2. What annual rate of return do I want? (Note: the higher the return, usually the higher the risk).

Decisions such as these will have the largest impact on the style of your trading system.

Entries and exits must be precise and must follow a strict set of rules.

Styles range from aggressive day traders looking to scalp few point gains to investors looking to capitalize on long-term macro economic trends. In between, there are a whole host of possible combinations including swing traders, position traders, aggressive growth investors, value investors and contrarians.

Moreover, your style will depend on your level of commitment and experience. Day traders are likely to pursue an aggressive style with high activity levels. The goals would focus on quick trades, small profits and very tight stop-loss levels. For this, the trader uses intraday charts to provide timely entry and exit points. A high level of commitment, focus and energy would be required.

With this in mind, be sure to define your trading objectives as best as you can. Unless your trading system matches your own criteria, you will never make big profits. You need to ask yourself the simple question: “I am trading in the market because I want to __________”…

Answer this and you are well on your way to setting your portfolio objectives.

trading system

I`m going to guide you through the process I use to design a trading system using MetaStock. I’ll cover the four major components that every successful trading system has in common, and then I’ll show you how to code these components into the MetaStock program. Please note that this is by no means investment advice and any information I cover is purely for illustrative purposes.

I am a technical analyst by trade. It is my belief that all fundamental and economic influences on a stock price are taken into consideration by the market. Therefore, I focus my attention on price action. All my trading systems are based on this understanding of the market, and the rules of my systems are built to respond to price actions. In this article, I’ll cover the basic rules of trading:

- Entry rules (when you get into a position)

- Exit rules (when you get out of one)

- Money Management rules (how much do you put in a trade?)

- Back – Testing (does the system work historically?)

These four components make up a proven formula for designing profitable trading systems in MetaStock. Let’s start with the first part.

A stock passing through a precise set of conditions creates entry signals before you will enter a trade on that security. I believe the rules set to signal an entry into a position should leave no room for individual judgment. I follow the KISS principal – that is they should Keep It Simple Simon.

Remember, there is no Holy Grail of entry systems. There is no MetaStock formula that will get you in at exactly the right time, everytime. With this in mind, it’s your goal to construct a simple, yet robust entry system.

Even though I always say that the entry is the least important component of any trading system, you still must have some way to enter a trade. Here are the points that I think are important to consider when identifying possible entry points.

PRICE: It is important to set price maximums/minimums because a stock’s price can determine its attributes. For example, speculative stocks tend to be cheaper, and blue chip shares tend to be more expensive.

LIDUIDITY: This is a measure of how much money the stock trades at. You need to set minimum levels of liquidity to keep you out of stocks that simply don’t trade enough. You can risk being trapped in stocks where the market is moving against you if they have a low liquidity.

VOLATILITY: This measurement tells you how much a stock moves. It is important to trade stocks that move enough for you to make a profit, yet aren’t so erratic that you can’t sleep at night.

TREND: This is the cornerstone of technical analysis. Remember that “the trend is your friend” and that you always want to trade with it, not against it. You will need a way to measure trend in your system.

TRIGGER: This is the point that will indicate it is time to enter a trade. The trigger condition occurs only at one point in time and doesn’t hold “true” over extended periods of time, such as with a moving average cross over.

When combined, these components are going to make up your entry rules. But, before we even begin coding this into MetaStock, you need to determine one of the most critical elements of any system. What time frame are you going to trade?

+ Short-term, such as a reversal trader

or

+ Long-term, such as a trend follower

Generally, I steer my clients, particularly those who are just starting out, to a longer-term trend following trading system. It takes less time, less money, there is less risk and it is easier to do than short-term trading. In addition, trend following systems tend to have a higher win to loss ratios and are psychologically easier to follow because of this.

By utilizing the back test, trading systems avoid sightless guessing with no data or analysis. With back testing, you will no longer be trading blindly and give you the chance to prove yourself. Don’t be the easily-fooled trader who crashes and burns, losing lots of money. By using all of the tools at your disposal, you can avoid many mistakes in the minefield of the market. Like I have said previously, one of my favorite aspects of trading is that you can test your plan or system without fronting any money. Back testing makes this possible.

The back test as an methodology that is not given much importance by most traders. The psychological importance and management of money has been highlighted by me and many other trading coaches.  All you have to do is look around on the web to see the vast array of information that’s available. The additional attention has, however, been at the expense of the back test, and consequently, the least appreciated and unstated area of trading is now back testing.

Using the back testing process is vital, because it influences your entries, exits, money management, and psychology in these ways:

– Back testing allows you to test your whole system operation with historical information, which allows you to alter it as needed to get the reaction you want.

– It allows you to see which system works best for you it is possible to try back testing on your money management models.

– As pointed out earlier, knowing the positive and negative aspects of your system, even if they are only theoretical, will boost your confidence, which will, in turn, increase your performance when you really trade.

No matter what technical routine you use (moving averages, volatility breakouts, or any other trading scheme) you will need to evaluate it fully to be confident in it.

Traders often question the effectiveness of their systems if they don’t run test before actually completing the task. Due to problems in their trading structure, many get lured into using other models which prove to be either the latest fad or totally ineffective. Spinning their wheels in chat forums, traders will wind up either making no decision or one that’s simply awful.

Things which look good on the service, but are actually not really any good will attract a trader who is dissatisfied with the trading system. For this reason, back testing should be the thing implemented so that there is a level of confidence by the trader.  Otherwise, the trader will not obtain the required self-assurance and self-belief to successfully trade the system.

The back test makes sure you get a good idea of trading, and how successful the system can be.

What are forex trading systems?

A Forex trading system is basically a group of indicators applied on your chart also including the rules that tell us when to enter a trade, how many positions (or lots) will you enter for each trade, when to exit a part or all of the positions on the trade etc. Also, each system will have its own money management rules and a particular time frame on which it is meant to work the best. As mentioned in this article, selecting the right Trading system is highly important, because it is the system which defines your entire method and mindset towards the market.

How do I select a system that is ideal for me?

To choose the right system, you should take some quality time learning on various systems that you can get for free on the net, by learning in detail how they perform, and by trading them on a demo account for a few days to get familiar with each one of them. Then, you’ll probably be capable of finding which one works better than the rest.

Things to be clear about prior to finding a trading system are :-

• Am I needing a system to scalp, for intra day trading or long term?

• Does it give me a sound risk/reward ratio as well as sound accuracy?

Once you shortlist some systems that you think would work for you, research the laws of every one of them well and test every one of them by trading on a demo account for a few days. While testing, be sure that you obey the rules strictly and do not make changes in it whenever you think fit. Keep tracking your results and compare them, and you must obviously realise which of them is the ideal system for you. Once you figured that out, follow it with patience.

Where will I get the free systems?

You can get tons of free systems that actually work, on the net. Check out some good trading systems in this page. There are plenty of systems to choose from, so give some good time to select your trading system, as it decides your entire trading method and to some level your success rate.

Article contributed by Learn-FX. For more forex tips, please visit Learn-FX.