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In Chapter 2 you learned all the important elements of technical analysis. In this chapter you will learn how to combine all this information into a trading system.
Our system is trend following, which means that you should always trade in the direction of the trend. You will learn how to use various technical indicators to identify trend and find the correct entry and exit levels.
The system described here is built in 6 steps:
Step 1: Define your time frame
Step 2: Identify the position of the market
Step 3: Find support and resistance levels
Step 4: Find your entry levels
Step 5: Find your exit levels
Step 6: Use multiple time frame analysis
As you become more experienced you might want to develop your own system that would fit your knowledge, personality and risk tolerance. It is vital for you as a trader to have a trading system, as this will limit trading mistakes and minimize your losses. It will prevent you from making any irrational decisions in the heat of the moment. Instead it will allow you to trade with less emotion and stress.
A trading system is only effective if it is followed. You have to stick to it and in order to do this you need iron discipline. It sounds simple but most traders still can’t do it. You must write your trading system rules down and always follow them.
Remember to always test your system. The easiest way to do this is through the MT4 platform. Go back in time and move the chart forward to see how your system would behave. Record its performance and if you are happy with the results start trading on a demo account. If after a while you are still getting good results, then you can choose to trade your system on a real account. At this point, you should have confidence in your system and feel comfortable making trades with no hesitation.
