Hello, friends!
There is a huge number of different trading strategies on the Internet, but what is for some reason they do not suit you?
The solution is to design your own indicator trading system. First, I’d like to define what a trading system is in general.
Trading System/Strategy
In general, a trading system is a set of predefined rules used to make trading decisions in order to make a profit. At the same time, these rules can be grouped into two categories that are the elements of any trading method.
Rules to enter a trade, exit a trade, set a stop loss, a take profit, move the trade to break even and so on. Everything that you should and shouldn't do in the market, a kind of trading do’s and don’ts.
Capital management. It refers to the trade volume, acceptable risk, conditions to stop trading.
Note!!! This article deliberately avoids the concept of trading psychology. If you have a complete trading strategy, psychology plays a secondary role.
Well, let us dwell upon creating your own trading strategy based on indicators.
Steps to creating a trading system
Step 1:
I suggest using a classical approach, so, let us try to identify the ongoing market trend. To do this, we need any trend indicator that is in the standard indicator list on the trading platform or it has been added. These indicators allow you to hold a trade for quite a time as long as there is the price is trending; they also help you filter off false signals of the trend reversal.
The most popular and most common trend indicators are Moving Averages, Parabolic SAR, Bollinger Bands, Alligator, Standard Deviation and many others.
The figure shows the daily EUR/USD price chart with the THV Coral indicator attached
You can use your favorite trend indicator. There are no restrictions.
There are not always strong clear trends in the market. The market is in the consolidation stage or trading flat most of the time. So, we need another important element in our indicator strategy.
Step 2:
We add an oscillator to our trading system. Oscillators got their name from the verb “to oscillate”, which means “swing back and forth”, “vary”, as these indicators change their value within a given range or relative to a zero level. They include the following indicators: Relative Strength Index, MACD, Stochastic Oscillator, DeMarker, Awesome Oscillator, and others.
The figure represents a daily price chart of EUR/USD pair with one of the most popular indicators, the RSI.
Employing oscillators, you can open positions in trading flat, using the overbought/oversold zones. They also allow anticipating the trend reversal by signals of convergence and divergence of the oscillator and the price chart.
But that is not all. Oscillators can also help you enter a trade in the major trend direction during the local corrections so that you can cut the drawdowns when entering new trades.
This step could well be the final one. A trading system should be simple and profitable. Sometimes, you can enrich this indicator list with different information tools indicating spread, trade sessions, time left before the current bar will close and so on if your trading strategy requires this.
Step 3:
Combine all the indicators and enjoy your easy trading strategy.
A good forex strategy for beginners that is quite well-performing and engages low risk is based on two types of trading indicators: oscillator + trend indicator.
This type of forex trading strategy will deliver entry signals irrespective of the market stage (whether it is trending or trading flat).
You must study well all the tools you use.
Common errors
Even in this simple trading algorithm, many beginner traders often make a typical mistake, which should be illustrated.
I think the most common mistake is to add too many indicators to the trading chart.
Some traders wrongly think that they can better filter the entry or exit signals they discover by adding more and more new tools to the price chart.
Unfortunately, they do not consider the fact that different indicators have different calculation algorithms. This results in the situation when good entry signals are filtered out together with false ones.
The only way to deal with this problem is to study more deeply those tools that you use in the market analysis. You should not just study the main types of signals and properties of the indicators. You also need to study the calculation algorithm and the working principle suggested by the indicator designer. This will allow you to reach a better understanding of not only how your trading strategy work, but how the foreign exchange market operates in general.
Another important flaw is that when there are too many tools attached to the chart, you just can't see the price chart itself. This is especially acute for the traders who apply indicators only to filter the entry/exit signals, they need to see a clear price chart.
Remember!
A combination of a trend indicator and an oscillator will be the most flexible and universal.
Few indicators are easier to study and you can enrich your beginner forex trading strategy with no indicator trading methods. A huge choice of technical tools allows you to select the most suitable for your trading style.
Money management helps to correct your trading strategy
There is no always-winning forex strategy and any trading system can fail from time to time. Wise money management will help you to improve your trading system and increase your trading performance.
How to identify the market phase and how to identify the trend direction
An important point, for which any indicator trading system is very often and fairly criticized, is no clear method to determine what phase the market is in at the moment (trend or flat). There has been no single approach to solving this problem so far. In my next posts, I will describe some possible solutions to this problem.
I wish you successful trading!
P.S. Did you like my article? Share it in social networks: it will be the best "thank you" :)
Useful links:
- I recommend trying to trade with a reliable broker here. The system allows you to trade by yourself or copy successful traders from all across the globe.
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- Telegram chat for traders: https://t.me/litefinancebrokerchat. We are sharing the signals and trading experience.
- Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders https://t.me/litefinance
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
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