6 Steps to Create your own Forex Trading System

The main objective of this article is to guide you through the process of developing your own trading system to operate in Forex .

Although devising a system may not take too long, if it can take a long time to prove its effectiveness. So, you must be patient, because in the long term a good trading system can generate you a lot of money.

How to Create your own Forex Trading System
Step 1: Time frame
The first thing you need to decide when creating your trading system is to know what kind of operator you want to be. Do you want to be a 1-day or 1-hour trader? Would you like to observe graphics every day, every week, every month or even, every year?

How long would you like to keep your positions open? .

Answering these questions will help you determine what timeframe to use in your operations. Although you can also analyze charts with different periods of time, this will be your main time frame, which you will use when looking for signals to open or close positions.

Step 2: Choose indicators that help you identify a new trend
Since one of our objectives is the identification of trends as soon as possible, we must use technical analysis indicators that can achieve it. For example, moving averages are one of the most popular indicators that operators use to identify trends. Two moving averages are usually used (one slow and one fast) and the rapid crossing to the slow above or below is expected. This is the basis for what is known as a mobile average crossing system .

Of course, there are many other ways to find trends, but the moving average crosses are one of the easiest to achieve.

Step 3: Find indicators that confirm the trend
The second objective for our trading system for Forex is that it has the ability to avoid false signals and thus avoid falling into false trends. The way to do this is to make sure that when we see a signal of a new trend, we can confirm it using other indicators.

There are many indicators that confirm trends , such as: MACD , Stochastic and RSI .

As you feel more familiar with the indicators, you will find some that you will prefer over others and that you can incorporate into your system.

Step 4: Define the level of risk
When developing the system it is very important that you define how much you are willing to lose in each operation . Very few like to talk about losing, but in reality, a good operator thinks first of what he can eventually lose before thinking about how much he can earn.

The amount of money one is willing to lose is very different from one trader to another. You have to decide how much space is enough to allow your operations to breathe, but at the same time, do not risk much in a single operation. In subsequent lessons we will explain more details about money management. The money management plays a big role in the risk that you must give to each operation .

Step 5: Define inputs and outputs
Once you have defined how much you are willing to lose in an operation, the next step is to discover where to place the closing of an operation to obtain the maximum possible benefits .

Some people like to enter as fast as they can in a trend when their indicators give a good signal, even when the candle has not closed. Others like to wait until the candle closes.

According to my experience I think it is better to wait until the candle closes before making an entrance. I have been in many situations where I am in the middle of the candle and all my indicators fit, only to discover that at the close of the candle, the operation turned against me.

But you can have a different opinion when you have some experience. It really is just a style of operation. Certain people are more aggressive than others and you should go slowly realizing what type of trader you are.

For closures or exits from the market, there are different options. One way to close is to place a stop loss , this means that if the price moves for your favor in "X" amount, you move the stop loss for that "X" amount.