What does the trading system look like?

How Does a Forex Trading System Look: Examples, Rules, and Recommendations

 

Creating a trading system is one of the most critical steps in a trader’s journey. In this section, we’ll review an example of a strategy based on technical analysis and provide recommendations for building your own system. Keep in mind that this is just a template, not a ready-made solution. Your system should reflect your trading style, goals, balance, market, and risk management principles.

Example Trading System: Technical Analysis on Daily Charts

 

System Conditions

1.Trading Type: Swing trading (using daily charts).

2.Indicators:

•5 SMA (Simple Moving Average): to identify short-term trends.

•10 SMA: to confirm trend direction.

•Stochastic Oscillator (14,3,3): to identify overbought and oversold zones.

•RSI (9): to measure trend strength.

Trading Rules

 

Entry Rules:

•For Long Positions (Buy):

1.The 5 SMA crosses above the 10 SMA.

2.Both Stochastic lines point upward, but not in the overbought zone.

3.RSI is above 50.

•For Short Positions (Sell):

1.The 5 SMA crosses below the 10 SMA.

2.Both Stochastic lines point downward, but not in the oversold zone.

3.RSI is below 50.

 

Exit Rules:

•Exit the position when the 5 SMA crosses the 10 SMA in the opposite direction.

•Exit when RSI crosses back through the 50 level.

•Set a stop-loss at 100 pips (recommended to adjust based on market volatility).

Real Examples of Trading Systems

 

News-Based Trading System

 

Conditions:

•Trades are executed during the release of critical economic news (e.g., NFP, interest rate decisions).

•Economic calendars are used to track upcoming events.

 

Tools:

•Charts on 1-minute and 5-minute timeframes.

•Volatility indicators such as ATR and volume indicators.

 

Example:

Before the release of NFP data:

•If the data exceeds expectations, enter a trade in favor of a stronger USD.

•Place stop-loss orders near recent support or resistance levels.

Support and Resistance Trading System

 

Conditions:

•Uses daily and 4-hour charts.

•Key elements include horizontal support and resistance levels and candlestick patterns (e.g., pin bars, doji).

 

Tools:

•Support and resistance drawing tools.

•Indicators like Bollinger Bands for confirming zones.

 

Example:

•On a daily chart, a key support level is confirmed by a pin bar.

•Enter a long position if the next candle closes above the level.

•Place the stop-loss just below the support level.

Risk Management: The Foundation of a Trading System

 

Risk management is the backbone of any trading system and is more important than the strategy itself. Proper risk management ensures survival even during periods of consecutive losses.

 

Core Principles:

1.Risk per Trade: Do not risk more than 1–2% of your capital on a single trade.

2.Risk-to-Reward Ratio: Aim for at least a 1:2 risk-to-reward ratio.

3.Diversification: Spread risk across multiple instruments and strategies.

 

Example:

•With a $10,000 account, risk no more than $200 per trade (2%).

•For a 50-pip stop-loss, adjust position size to match your risk tolerance.

How Capital Size Influences Strategy Selection

 

The size of your capital determines the strategies you can apply.

1.Capital under $1,000:

•Limited options due to higher risks.

•Use micro lots and shorter timeframes to minimize risk.

2.Capital between $10,000 and $50,000:

•Allows for mid-term strategies.

•Greater access to a variety of markets and instruments.

3.Capital above $100,000:

•Enables diversification across asset classes, including stocks, bonds, cryptocurrencies, and forex.

•Supports long-term strategies with minimal risk exposure.

Diversification and Combining Strategies

 

Successful trading requires multiple strategies in your arsenal.

1.Technical Analysis:

•Focuses on charts, trends, and entry/exit points.

2.Fundamental Analysis:

•Evaluates macroeconomic data, news, and central bank reports.

3.Blended Strategies:

•Combines technical and fundamental approaches.

 

Example:

•Use a support-and-resistance system for mid-term trades.

•Apply news-based strategies for short-term opportunities.

•Maintain a long-term portfolio with minimal risks.

Conclusion: Flexibility and Adaptability Are Keys to Success

 

The examples provided are templates to inspire your trading system development. At Ronin Academy, we recommend:

•Avoid relying on a single strategy; use at least 2–3 approaches.

•Diversify risks and adapt strategies to market conditions.

•Recognize the differences between technical and fundamental strategies.

 

Building a successful trading system requires time, testing, and discipline. Continuously refine your approach, adapt to changing market dynamics, and always prioritize effective risk management.