Trade Stock Indices

Creating System: Trading Indicator Stock Index System

A Index System refers to a set of stock index rules that you follow to manage your stock index trades. These rules will determine when you open a stock index trade & when you'll exit the open trade. A trade system is created by combining 2 or more indicators.

For illustration, Stochastic Oscillator can be combined with other indicators to form a trading system. For this example illustration stochastic oscillator can be combined with the indicators below to come up with the following trading system.

  • RSI
  • MACD
  • Moving Averages


Example of trading system

Making Trading System: Trading Indicator Index System

Creating Index System - Stock Index System Example

So the question is how can one come up with a trading systems that work like the one above and how does one writedown it's rules? follow the steps explained below.

Seven steps to creating/developing an indicator-based trading system

To come up with these set of index rules we will make use of the following 7 steps.

1. Choose your Time-frame

The first step depends on the number of hours you as a trader want to dedicate to Stock Indices trading. Whether you prefer sitting in front of the computer constantly for several hours analyzing short charts time frames OR you prefer setting up your charts using bigger and larger time-frames once or twice a day. Selecting a trading chart timeframe will mainly depend on what type of trader you are.

While testing out your new Index system you may want to find out about its performance on different chart time-frames and then choose the most accurate and profitable chart time-frame for you.

2. Choose indicators to identify a new trend

The goal of a trader is to get into the trade as early as possible & take max advantage of price moves.

One of the common ways to spot a new Index trend as fast as possible is to use MAs Moving Averages Indicator. A simple system is to use a moving average crossover system that will identify a new trading opportunity at its earliest stage.

Moving Average Crossover Method - Strategy

Making Trading Strategy: Trading Indicator Index System - Index Strategy

Sell signal and Buy signal Derived/Generated by MA Cross over Method - Trading Strategy

3. Choose additional indicators to confirm the market trend

Once we find a new trend on the charts we need to use additional charts indicators which will confirm the entry signals and give either a green light for action or save a trader from fake-outs.

To confirm the signals we use RSI & Stochastic Oscillator Indicator.

Making Trading Strategy: Trading Indicator Index System - Index Trade Strategies Template

RSI and Stochastic Oscillator System

4. Finding entry & exit points

Once the indicators are chosen so that one indicator gives and generates the signal & another confirms the trade signal, it's time to enter a trade position.

A Index trader should enter as soon as a trading signal is generated/derived and confirmed after a candle closes.

Aggressive traders enter a Index trade transaction immediately without waiting for current price bar to close.

Most traders wait until the current price bar is closed & then enter the transaction if the trade transaction setup hasn't changed & the trade signal remains valid. This method is more considerate and prevents additional false entries and whipsaws.

Generating Signals - Index Trade Strategy

Generating Signals - Trading Index Trade Strategy

For exits, one can either set an amount of Index pips he wants to earn per trade or use technical tools which help to set profit goals like Fibonacci expansion or set a protective stop loss depending on the market price volatility at any one specific time. Alternatively a trader can exit the trade position when the indicators give an in the in the opposite market trend trend trend trend trend trend trend signal.

When opening a new Index trade transaction it is always important to calculate in advance how much you're willing to lose if the transaction moves against you.

5. Calculate risks in each setup

In Index you as a Stock Index trader must calculate your risk for each trade. Serious stock index traders will only enter or look to open an order if the risk : reward ratio is 2:1 or more.

If you use a high risk:reward ratio like 2:1, you increase your chances of becoming profitable in the long-run.

The Reward : Risk Chart below shows to you how:

Making System: Indicator Index System - Stock Index Strategy

Money Management Risk Reward Chart - Strategy

In the first example of Risk : Reward Ratio, you as a stock indices trader can see that even if the Stock Index system only won 50% of your positions, you'd still earn a profit of $10,000 like shown in the exemplification revealed above. Read more on this lesson: Money Management Rules and Money Management Methods.

Before opening a new Index trade, a stock index trader should define the point which he will close out the trade if it turns out to be a losing one. Some people use Fibonacci levels & support & resistance levels. Others just use a pre-determined stop loss to set stop loss order once they have opened a Index trade.

6. Write down the Index systems trading rules & follow them

A Trade System refers to a set of trade rules that you follow to manage your trade transactions.

The keyword is A SET OF TRADE RULES which you as a Stock Index trader must follow. If you don't follow the rules then you don't even have a trading strategy in the first place.

The next trading systems lesson shows you an example of how to use the above steps to come up with your own Indices online system:

Next Lesson: Example illustration of Writing Trade Systems Rules

7. Practice Stock Index on a Practice Account

Without enough trades, you'll not be able to realize the true profitability of your system.

Once you as a trader have your system rules written, it is time to test & improve your trade system by using it on a practice trading account.

Open a free practice demo account & trade your system to see how well it'll respond.

It is strongly recommended to begin with a demo account & practice trading for at least for 1 or 2 months so as to gain and garner some practice and experience how the market works.

Once you begin making some a profit on your demo trading account you as a stock indices trader can then try opening a live account & start trading online stock index.

Study More Lessons and Tutorials and Courses:

Forex Seminar Gala

Forex Seminar

Stock Indices Broker