Building a Trading System - Step By Step Guide -

[eggzactly]

Hi all,

 

This is a thread where i´m going post the most important steps, at least in my opinion and more then 18 years trading experience, to build a trading system.

 

Because no building is built by the roof, and the foundations defines the strength of the building.

 

I will not share any specific trading system, i will not give you the holy grail ( there´s no such thing ) - what i will do is step by step help you build your own trading system.

 

You are Welcome to post comments, ideas, what you think will contribute for a better thread.

 

"Some parts of the thread i may copy from books and mine/other traders experience"

 

Regards,

Edited May 15, 2011 by eggzactly

[eggzactly]

Before getting into actual trading strategies, let's examine the psychological aspects of the trading game. I realize this is a subject that bores some traders to death; however, the psychological aspects of trading are what ultimately determine your success or failure. My perspective on the psychology of trading is a bit different from those found in conventional books or foruns, etc.... Most traders just don't get it. Trading is a profession, and, like any profession, it takes years and years of learning and hands-on experience to master.

Everyone is looking for shortcuts. They think they can become full-time traders simply by purchasing the latest and greatest software packages, attending the overhyped trading seminars, or being trained by trading experts, or lately buying the "holy grail" EA that transform millions overnight - This will not happen.

 

So is better every one that want become a trader understand - Trading is a Profession, is a long journey - ARE YOU READY FOR THE RIDE ?

 

For sure you have put the question, which chart is best ? should i go for a minute(s) chart, or tick charts ? To turn choice even more complicated, trader have at disposal renko bars, range bars, volume bars, three line break, point&figure, etc... In my own opinion, and what suits my trading style best are renko bars. This doesn´t mean you will now change to renko bars because i trade with, this only means that i know what i am as a trader, i know what i want from indicators, and renko bars suits best my trading system & style.

 

To easy your choice just do a simple question to you : Which type of trader I am ? a scalper, a momentum trader, a swing/position trader - don´t choose be a scalper with the idea that you will make millions overnight, try to analyse you risk profile ( if you handle 100 pips Stop Loss for instance ) but do this calculations based on your inner self, don´t make calculations of - well 1 lot x 100 pips is 1000 usd, too big loss, this is really a big error and can lead to you belong to a "class" of traders wich you don´t belong at all.

 

Just think, well can i stand in front of computer 8/10 hours a day to try scalp a few points ? Can i put a set&forget order and handle 100 pips loss to achieve a tgt of 200 pips ?

There´s no scientific test that i can give you and after x questions you know for sure that your personality is scalper, momentum trader, etc... this must come from your inner self, and well thinked.

 

To end this first part, and to really shortcut your trading journey, remove from your dreams that trading holy grail exists and when you find it you will be at the beach, always making money. I thought this too, i even made plans of when i get my first Million, but all vanish when i saw the real market life.

 

See you all...

Edited May 15, 2011 by eggzactly

[vladv]

That's a very good idea to share here,how to learn to build corectly a trading system for winning the market(I mean ANY market)!

[eggzactly]

For me a Trading System must be as simple as possible. Sometimes i see charts that i don´t know how a trader can decide to enter based on the 100´s indicators on it. You don´t need more then 2 indicators, or even none indicator on chart to have a profitable trading system.

 

Trading System should have a TREND DIRECTOR, TRADE ACTIVATOR & MONEY MANAGEMENT.

 

Trend Director - Like the name says, is which defines the trend. A simple moving average can do the job, so don´t think in mix a bunch of indicators to predict the trend of market.

Trade Activator - Is what make us " Pull The Trigger", entry/exit trades.

Money Management - This is very important, if not most important part of trading system. This can lead you system to survive on market,or blow up accounts.

 

Next i will explain each of the trading system components.

 

regards,

Edited May 16, 2011 by eggzactly

[stockvn2011]

sound great, thanks for this kind of sharing.

[andrepixel]

Great.. Without money management, all the systems are failed

[eggzactly]

Before explaining the components, i saw on other thread a member asking what is tick charts, well maybe is good going thru that :

 

Tick Charts - conventional (i.e. time-based) charts draw a new bar after a set period of time, for example after every 5 minutes. Tick charts draw a new bar after a set number of trades, for example after every 1,000 trades.

 

Range Bars - Range bars take only price into consideration; therefore, each bar represents a specified movement of price.

 

Volume Bars - Are considered momentum bars, as are tick bars and range bars. Volume bars print OHLC not as each minute passes by, but as each measure of the volume-value selected passes by.

 

Renko Bars - In Renko charts, a box (or "brick" as they're called) is drawn in the direction of the prior move only if prices move by a minimum amount (i.e., the box size). The bricks are always equal in size. The box size is specified by the user, and can be any value greater than or equal to the tick increment of the symbol being charted. Similar to Range Bars or Point & Figure charts, the frequency of Renko Bars is driven by price movement, not by time.

 

Point & Figure - A point and figure chart window shows price movement and reversals as columns of X's and O's. The X columns represent periods of rising price movement, the O columns falling prices. New columns are added whenever the price trend changes according to user specified reversal criteria. Each X or 0 represents a realized price change of a certain user specified amount, called the box size. The reversal criterion is then expressed in terms of the number of box sizes the price must move in the opposite direction to warrant starting a new column.

 

Three Line Break - The three line break chart is similar in concept to point and figure charts. The decision criteria for determining "reversals" are somewhat different. The three-line break chart looks like a series of rising and falling lines of varying heights. Each new line, like the X's and O's of a point and figure chart, occupies a new column. Using closing prices (or highs and lows), a new rising line is drawn if the previous high is exceeded. A new falling line is drawn if the price hits a new low.

 

Is time to put a index on this thread and organize it, i will do that during the day....

 

regards,

[alansim]

Great.. Without money management, all the systems are failed

 

Bingo ! EXACTLY !

[eggzactly]

Can you share your renko system?I also trade only renko because it gets rid of all the noise in the market and you can see a clar trend without any indicators.Do you mind sharing your strategy?

 

first post oh the thread

 

I will not share any specific trading system, i will not give you the holy grail ( there´s no such thing ) - what i will do is step by step help you build your own trading system.

 

regards,

[eggzactly]

Sorry eggzactly I didn't make my self clear I am not looking for the holly grail:)) I've just wanted to know what kind of indicators you find most useful with renko blocks .Anyway thanks ,ignore this post..I 've just wanted to explain myself

 

I´m really busy with my trading, but that question is good and i wil answer it. I´m making a nice thread to put here, because there is so many aspects we can and must discuss.

 

regards,

[ndsouz]

I use renko too and i have a fantastic system for my personal use. But then again its not holy grail. :D