The trading plan and trading system are different. A trading system is part of the trading plan together with the risk management strategy and all the other strategies in CFD trading. Although you won’t have to spend so much time creating a trading system, the testing part will take a lot of time. But a disciplined trader also needs to be patient because, in the long run, you reap its benefits.
Steps To Create a Trading System
Step #1: Choose Your Time Frame
Before you create a trading system, you have to decide the type of trader that you want to become. Do you want to become a day trader where you can open and close a trade within the trading day? Or maybe you want to become a swing trader where you can let an open position last for a day or two. Are you okay with looking at charts every year, every month, every week, or every day? Decide how long you want to hold the open position that you have. Answering these questions will help you know the right time frame for you.
Step #2: Look For Indicators That Will Provide Help in Identify New Trends
One of the major goals of every trader is to identify the trend as early as possible, the trend so you will know the right time to enter a trading position. To do this, you have to use indicators such as moving averages.
Moving averages is a popular indicator being used by different traders nowadays. It helps in identifying trends in its early stage. Traders utilize 2 moving averages – one fast and one slow. Then they wait for the fast one to cross over or go under the slow one. This is known as the “moving average crossover” system.
Step #3: Look For Indicators That Can Confirm The Trend
After using the indicator that identifies the trend, it is time to look for indicators that will confirm the trend. In this case, you can use the RSI, Stochastic, and the MACD. These indicators will help you avoid ‘false’ trends.
Step #4: Identify Your Risk Tolerance
When you develop a trading system, you also have to define your risk tolerance and the amount you are willing to lose every time you open a trade. No matter how hard it is to talk about this topic, losing is part of trading. You must decide how much you can allocate as a breathing space while not risking too much on a single trade.
Step #5: Know Your Entry and Exit Points
Entry and exit points – these are very important because your profit lies on them. Both entry and exit play a significant role in your success. Make sure you carefully plan these points.
Step #6: Create a Journal of Your Trading System
How can you follow a trading system if you do not know each one of them? Since you cannot easily memorize every content of your trading system, it will be better to write it down. Most importantly, you must strictly follow your system in CFD trading.
