How to create
best stock trading system
Every day trading rules
that improve your trading results
Stock trading system is one important part of your broad stock trading business plan that you have to create before you start real trading with real money.
Stock market trading system should be based preferably on several stock trading strategies that are used in different market situations. One stock trading strategy could be suitable for bull market, another for bear market and some rules should also cover range bound or trend-less stock market. There are also days or weeks when price moves are very volatile and there are times when volatility is low. It is much better to have rules that allow to recognize what is todays stock market situation. Well, when I say stock market trading system I mean a set of rules. These rules have to answer the questions below. Consider them as your best stock pick guides.
- What is the time frame for your trades?
- What type of trades are you looking for?
- How you will find the best trading opportunities?
- How do you set entry, stop-loss and target points for trades?
- How do you enter and exit trades?
- How do you manage trade?
My personal stock trading system use rules based on these points.
Please notice that stock trading system is only one part of good
business plan
of every good stock trader.
Stock trade time frame
You have to define the time frame for your trades. You need to know how long you can hold a position. I define these
types of stock trading.
Online stock trade types
My trades are based on simple rules. My basic premise for trades is
support and resistance
. So, a simple stock trade can be:
-
Breakout trade
. This trade indicates a break of a significant support or resistance level. My
stock market tutorial
that describes details of breakout online stock trades is quite simple way how to trade stock breakout.
- Pullback trade
. This type of trade indicates that the price will bounce from an important support or resistance level. I think that knowledge why and
how to short stocks
is very important for traders and active investors. The knowledge about
three basic stock trading terms
is also important for profitable trading results. Short sell trade strategy could be used when you know
how to trade commodities
in bear market situation.
How to find trading opportunities
There are several ways to find the
best stock pick
(understand the stock trade setup) for the next day. You can use:
- a stock screener available on Internet
- a stock scanner integrated into your trading software or analytics software
- a special list with manual selections
I use my best stock screeners in
AmiBroker
software for my personal trading. Here are the
rules
for breakout stock screeners.
Checklists
can help to improve the stock-picking process a lot also.
Very important part of good stock trading system are rules that help to decide what type of stock trading strategy is best for
todays stock market
situation.
Set up your
entry, stop-loss and targets
for stock trade
You need to have these important values prepared for each trade setup you like and that fit with your trading strategy. First, you need to find a
good entry
price, then you have to think about where to
place stop loss
and finally you must think about possible
targets
where you can realize profits. I use these two main ways
how to setup entry
for my stock trades. These three values must fit with your
risk:reward ratio
definition. This procedure will tell you if your setup is good and worth trading.
Entering and exiting stock trade
Knowledge of the right
order types
used to enter or close the trade is part of a good stock trading system. Read also
why I don't enter
stop orders before the market opens. I use
pre market stock trading
hours for my exits from time to time
It is important to stick with your risk management rules and
do not chase
the trade.
Stock trade management
A good trader has to take care of every opened trade. You also must regularly monitor stock trade development. The most important tasks of trade management are
Low cost stock trade
can be achieved only using proper risk management rules.I recommend to check
stock earnings date
for every trade you want to enter. Here is description what
realtime stock charts
I monitor during any trading day. A very profitable approach in trade management is
adding
into an already profitable trade or
re-entry
of trade.
Prepare a
list of rules
for all these tasks in advance and follow them during active trading hours.
Write all the answers to the questions listed above on paper to ensure you won’t omit them in the future. These rules are the basics of your stock trading system.
Stock trading routine
Any stock trade system is practically one big set of rules for different tasks. These tasks could be divided into different parts.Stock trading is not only about placement of order, entering or exiting of position. There should be also everyday trading rules for stock chart analysis, stock market analysis, trade management and much more. You can divide your working day to different time parts based on time zone where you live and what market you trade. I live in Europe and trade US stock markets mostly so my
workday time schedule
is different then schedule of a trader living in America. One part of my time schedule is
pre-trading routine
I do every working/trading day before market is open.
Another routine
that should be part of stock trading system is needed to recognize stock trading mistakes and correct them
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