Trading system: Best Guide on Understanding Trading System from Scratch

Look, if you are a forex trader using a trading system, it’s very important that you know and understand what trading system is all about.

Actually, we have different types of market; they are equity market, forex market, future market and more. Note this, in the process of developing trading system, every market has a specific designed.

For example, the forex market; It has a different T.system mainly designed for it. So is it for the equity market. It also has its own, specially designed for its own operation.

What is a Trading System?

A trading system can be explained as a set of rules, specifically designed to determine your entry and exit point for any given trade.

Additionally, it could be numerically define as a set of parameters (characteristics that guides you in developing a system) that also determines your entry and exit point.

Practically, your T.S automates your analysis. It tells you when to enter the market and when to leave the market.

In general, a good trading system is made up of some set of rules or parameter that specifically tells you when to execute.

You might have been wondering what this word ‘’parameters’’  are really made off; They are made up of numerical measurable factors, which are basically technical indicators like MACD, Moving Averages, parabolic Sar, Stochastic, oscillators, Relative strength index, and Bollinger band etc.

Still on trading system; those set of rules we mentioned earlier are practically constructed by the combination of two or more of technical indicators. For example,

Practical rules for Parabolic Sar

Move your cursor to the ‘’insert icon’’…….indicator…..trend…..parabolic SAR settings: leave setting (default setting).

If the parabolic Sar lies below the moving averages and the candle sticks ‘’ it gives you a buy signal’’ and also when your Parabolic Sar lies above the moving averages and the candle sticks –‘’it gives you a sell signal’’

Practical application of Moving averages.( practically ‘’3’’ is needed)

Draw your cursor to the ‘’insert icon’’ …Indicator….Trend….Moving Average.

  • Default setting

Period-5

M.A. Method- simple

Style color-Blue

Apply to close and repeat for more two by changing the period and style color.

2nd moving average

Change period -10

Style color-yellow

3rd moving Average

Change period-15

Style color- Red.

If Blue crosses yellow and red upward- it signals a Buy signal ‘’ going long’’

If Blue crosses yellow and red downward-it signals a sell signal ‘’ going short’’

These above analysis we just highlighted above are good examples of rules.

However, your trading system has both Merit and Demerit.

Merit of a well developed trading system.

#1 It practically saves your time:

Some traders today, especially those having other jobs prefer to trade with systems because of its time saving. The main factor that consumes your time as a forex trader is carrying out an effective analysis.

This is the major reason why most investors prefer to save some time by using a trading system.

#2 It has the potential of controlling your emotions by strictly following a pre-developed trading system.

Of course, the stress of you wondering on how to analyze your trade and to make an effective decision is practically reduced.

#3It practically grants you freedom:

Yes, that’s what you want right? With your trading system, you’ll have more time to spend on other activities.

#4 An expert can handle your trading account for you.

Using a trading system can enables someone else to handle your account. But before you do that, you must have this self conviction that the person you want to entrust your account to is a trusted fellow.

Be very watchful, for there are millions of sweet mouthed marketers looking for desperate forex investor to deceive.

Demerit of a trading system.

#1 Understanding their mode of operation can be a challenge. Yes, it’s challenging for some investors. They find it hard to fully understand what and how this system operates.

#2 Designing and developing is time consuming.

Developing an effective system requires a lot of effort and time. It’s not just built, It requires a lot of time to make it work. After designing, you have to also test and practice to ascertain its perfection.

All this action consumes your times, so if you want to develop your own TS, don’t think of it as an easy come by.

#3 it requires you to perfectly employ the system. And finally,

#4 Dealing with slippage effectively.

This sometimes, can serve as an obstacle blocking the success of your system. Trying to balance the difference between your simulated result and the actual result can be challenging, but it’s achievable.

Slippage simply means the difference between the simulated result and the actual result. Now, when you overlook this slippage, you are withholding your system from making progress.

Conclusion:  The fx trading system is very helpful, but when you fail to follow some rules diligently, you might end up regretting. To be on a safer side, follow the rules guiding the system accordingly.

Above, we discussed on the definition, examples, advantages and disadvantages of a trading system. Forex trading is a very risky business, always trade responsibly.

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