How to create stock trading system
Well, when I say stock trading system I am thinking about set of rules. These rules have to reply to questions described below. Consider them as your best stock pick guides.
- What is time frame for your trades
- What type of trades you are looking for
- How you will find best trading opportunities
- How you will set entry, stop-loss and target points for my trades
- How you will enter and exit trades
- How you will manage trade
I use rules based on these points in my everyday stock
trading for living.
Time Frame
Definition of time frame for your trades is necessary. You need to know how long you could hold position. I personally define these
types of stock trading
Trade Types
My trades are based on simple rules. My basic premises for trades are
support and resistance
. So simple stock trade can be :
-
Breakout trade
. This trade expect break of significant support or resistance level
-
Pullback trade
. This type of trade expects that price will bounce from important support or resistance level
How to find trading opportunities
There are several ways how to find
best stock pick
(understand stock trade setup) for the next day. You can use:
- stock screener available on Internet
- stock scanner integrated in your trading software or analytics software
- special list with manual selections
I use my best stock screeners in
AmiBroker
software for my personal trading for living. Here are
rules
for breakout stock screeners.
I also found that
checklists
can help to improve stock picking process a lot.
Set up you entry, stop loss and targets
You need to have these important values prepared for each of trade setup you like and which fit with your trading strategy. First you need to find
good entry
price, then you have to think where to
place stop loss
and finally you can think about possible
targets
where you can realize profits.
These 3 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 of trade Knowledge of right
order types
used to enter or close of the trade is part of good stock trading system.Read also
why I do not enter
any orders before market open.
Trade management Good trader have to take care of every opened trade. You also must make regularly monitor development of your stock trade.The most important tasks of trade management are
Very profitable approach in trade management is
adding
into already profitable trade or
re-entry
of trade.
Prepare
list of rules
for all these tasks in advance and follow them during active trading hours.
Write all answers to question list above to paper to ensure you will not omit them in the future. These rules are basics of your stock trading system.
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