Many traders are looking for a simple trading system. Simple trading system in the meaning that it is simple to use in order to make a trading decision, but it does not imply that this system would not require investing a lot of time into learning and developing. If there was a simple trading system in the meaning of developing, then everyone would start making money on the market. If this would be easy then everyone would be a winner and this is impossible.
The simple trading system could be developed, however the process of the building could be very complex, time consuming and may require even some investments. As a rule, the simpler the trading system looks at the end, the more complex and more difficult could be the process of developing this system.
There are a lot of simple trading indicators and many of them work. At first sight, the offered trading system for using these indicators may look simple and attractive. However, a trader who starts to apply them for personal investing may discover that most likely there is research, testing and adjusting before any system starts making real money.
By taking a look at a trading system based on the popular technical indicators you may find out that they really look simple. For instance:
- Buy when RSI is below 30 (indication of an oversold market) and sell when RSI is above 70 (indication of overbought market).
- Buy when Stochastics is below 20 (indication of an oversold market) and sell when Stochastics is above 80 (indication of overbought market).
- Buy when SBV declines below 20% and sell when SBV advances above -20%. See example at
http://www.marketvolume.com/content/products/rs/trading_system.asp
- A big number of others…
Despite the fact that the systems above look very simple, when it come to the part of applying these systems to the real market, many traders would find out that this is a much more complex process. There are a lot of questions that need to be answered and some of them are very important: what chart setting should be used, what stock to select, what timeframe to trade, how much money to invest, what stop-loss strategy to use…One of the most important question could be how to define the market stage when the selected technical indicator generates fake signals and how to control losses.
As a rule, building a trading system could be split into several stages:
1. Stock Market Research – selecting the market for trading (stock market, options, futures, Forex…), defining the type of trading (intraday scalping, one trade a month or long-term trading), looking for technical indicators that work in the selected market and for selected type of trading;
2. Learning – a trader must learn the selected indicators, markets, selected securities. Find out the best chart settings, define the moments when indicators do not work, find out what is profit could be achieved and what losses could be expected... A trader has to return back to stage #1, if at the end of studying he/she sees that it simply does not work (it could happened).
3. System Developing – based on the knowledge and experience gained in the second stage a trade develops the trading system, which then is monitored and adjusted. On this stage additional rules could be added to the trading system, stop-loss strategy could be set as well as money management strategy could be defined. Many traders create several modifications to the system for Bull and Bear markets.
4. System Testing – one of the most important stages where a trader may see how the developed system works in the real market situation. Very often this stage is used to spot the mistakes and make system adjustments. It may save time in developing trading system if the stage of the development is tied with testing stage (stage #3) that a trader develops, tests and adjusts a system at the same time.
The building of a simple trading system is not an as easy as many of traders would like to see it, and there is no 100% guarantee that the created simple trading system will be successful. After all efforts, a trader may find out that the created simple trading system is a failure.
Article Source: http://www.orbitaloc.com/
For more information visit QQQQ and SPY Options Trading Signals to see trading systems based on MV technical analysis.
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