Before you create your own trading system you need to gain some experience with well-known trading systems that work. Some of these systems are very popular in the forex world. To succeed try to follow these steps:
- Try all these popular trading systems, until some of them stick with you.
- Master at least one system (make profit with it in 100 trades).
- Modify the system to make it more profitable for your own style. Attention! This is not the last step by accident, it has to be the last step in this sequence. Too many newbies start “changing” a system before they master it and everything goes to waste.
1. London Open
This is an extremely popular trading strategy and isn’t considered a full trading system, rather a part of a system. Nevertheless you can use it on it’s own with great success. Basically, you enter your trades when the London market opens. This works because there’s an influx of orders at that time and there will be an increase in volume. The market can go in either direction but it’s going to have a good momentum so better take advantage of it.
It’s known as the London Open, but you can use it with any big market open really. Try it with the New York open or the Tokyo open as well. Usually a trader would have a schedule and get notified with each major stock exchange open.
Veteran traders use the London Open as an entry point for their trades, even if their system is more complex.
2. Moving Average and Parabolic SAR
This is an easy system and while it’s not the most popular, it’s part of the category of trading systems where you combine moving averages with an oscillator. In this case we’ll use Parabolic SAR as the main oscillator.
If you’re confused and don’t understand any of these terms, you can take a deep breathe and relax, because you don’t need to know what they mean. Although it’s a good idea to google each term. But you don’t need to know the definitions, because you can apply this system on TradingView/MetaTrader with a few clicks and it’s simple and visual so you can learn all about it in 5 minutes.
The system works like this: BUY when price is above EMA100 (Exponential Moving Average with period 100). Once a BUY signal appears, draw a line on the last Sell dot that SAR indicator created and wait for the candle to close ABOVE the line before you enter the trade. Take profit after 50 pips and set stop loss at 25 pips. Do the opposite (SELL) when the price is below EMA100.
3. The three candles system
This trading system is truly simple stupid. You don’t even need indicators, it’s basically naked trading, just follow a pattern of 3 candles. All you need to do is BUY when a third candle closes above the close of the previous two candles ( ideally the 3rd should be bullish and the previous 2 bearish). SELL when the reverse happens (third candle closes below close of previous two candles).
If you combine this with a tight money management system, like don’t trade more than 1% of your balance in one trade, then you should be making money. Careful! It’s easy to overcomplicate this system by adding flashy indicators, but that can easily corrupt this beautiful system and put a hole in your bankroll.
4. Ichimoku System
Ichimoku Cloud is an indicator that seems rather complex but it isn’t. Just add it in TradingView/MetaTrader and follow these instructions:
- Add a simple moving average to your chart (SMA 50 preferred).
- Set Ichimoku on 12, 29 and 32 but with only the span A and span B (you don’t need the rest).
- Use Heiken Ashi candles (smoothed).
- Optional: add supply and demand indicator to show high and low of the day, week and previous turn points.
BUY when the Heiken Ashi candle closes above the Ichimoku span and above the SMA 50. SELL when it does the opposite (closes below Ichimoku span and SMA). This works on S&P500 on intraday better than with forex currencies. Use your own RR (risk reward ratios) but be conservative.
5. Bollinger Bands System
This is probably the most popular trading system for beginners because it can be understood easily and it’s very visual. You usually need just the Bollinger bands indicator, but some traders like to combine it with a moving average on a longer period (EMA 100 or 200).
All you need to do is sell when the price touches the upper band and to buy when it touches the lower band.
This super easy trading system, works best when the price is going sideways (flat trend), but it’s also good when there’s a stable trend. It’s not a good strategy when the volatility is high and the trend changes.
Nobody really uses this system as is, because it’s safer to use at least one extra indicator, an oscillator such as RSI will help, so don’t be afraid to “modify” this system out of the gate, even if we told you not to do it in the beginning. This is an exception because it’s easier to lose money when using only the Bollinger bands and nothing else.
Trying a few trading systems is the best way to start trading seriously. You’ll get the hang of it fast and you’ll quickly discover what you like and what’s useful. Don’t focus on what looks more sophisticated or “smart” because at the end of the day, it has to make money, so if an easy system can do that, you don’t need anything else other than repeating what works.