Increase Trading Profits With The Use Of A Stock Trading System

What is a stock trading system?

What is a stock trading system?

A stock trading system is simply a set of rules and parameters that are used to determine when to trade a stock. These rules are used to determine a specific entry and exit point. Such points are often marked on a stock chart to prompt an immediate trade.

Technical Analysis can be used to construct a set of rules for a trading system. It can be used to forecast future price direction through the study of past stock market data. Technical analysis uses charts and other tools to help investors identify patterns in the past to anticipate what is likely to happen in the future.

Here are some of the most common technical analysis tools that are used to construct a trading system. These indicators can be used to create the rules of any trading system. Trading managers spend a lot of time analyzing these rules to optimize their trading systems to perform better results and eliminate any unnecessary risks.

Moving Averages

Relative Strength

Bollinger Bands

Oscillators

Two or more forms of these indicators can be used to form a rule. For example, a trading system could signal a buy signal when the 10 day moving average crosses above the 20 day moving average. A signal could also be triggered when the relative strength index crosses above a certain level. It is the combination of these rules that make up a trading system.

Advantages and Disadvantages of Stock Trading Systems

One of the biggest advantages of using a trading system is that it takes the emotion out of trading. Emotion can be one of the biggest flaws of stock traders. By simply following a strict system, investors are less likely to second guess their decisions that could cause them to lose money. Another advantage is saving much time because trading tools can be used to generate trading signals automatically. This can free up time to generate more profits. However, trading systems can be very complex and require a great knowledge of technical analysis. You must have a solid understand of all parameters available in order to create a profitable trading system. Also, much time will be needed optimizing the system in all different kinds of trading environments.

Types of Stock Trading Systems

There are two major types of stock trading systems, trend following systems and countertrend systems.

Trend Following Systems

Trend following is the most common type of stock trading system. This type of system simply buys and sells in the direction of the price movement. Moving averages and channel breakouts can be used to determine the general direction of the market. Technical analysis can then be used to determine the entry and exit points of the trades.

Countertrend Systems

Contrarian investors perform countertrend trading strategies. The goal of a countertrend system is to buy low and sell high. A trade is entered once the momentum in a certain direction starts to fade. Oscillators and other indicators can be used to help determine those entry points. These types of systems can be very profitable. However, they can be more risky and require a much greater knowledge of technical analysis and market psychology. For these reasons, a countertrend trading system could require much more time to develop and optimize.

Selecting a Stock Trading System

A good trading system can take the emotion out of trading and earn you a lot of money, but you must be careful in selecting the right one. Your system should be thoroughly back tested and have consistent results in different types of market environments. The back testing results should account for all transaction fees and slippage. Most importantly, a good stock trading system must be proven to consistently limit risk and increase profits.

Be careful of scams while looking to purchase a trading system. Avoid systems that offer outrageous promises and do not offer a free trial. Get a solid understanding of how the system was back tested. Make sure transaction fees and slippage were included in all provided results. Most importantly, spend time testing the trading system yourself before you make any purchases.

by: Mary Hedden

POST COMMENT

Feierpusen: Win With Quality Service To Win Market Marketing Your Chiropractic Practice Affiliate Marketing, Tips That May Help You Make Money Online Declare ‘Scram' to Scam 4 Affiliate Marketing Tools For Your Benefit And Success For best results, Market yourself with your articles. Make the most of your assets Market Samurai Overview - Is It An Effective Keyword Study Software? Getting Results From Your Online PR Marketing Strategy Guide Advertising And Marketing And The Very Best Spinner Application What Does It Take To Be An Affiliate Marketing Celebrity? How To Make Money Online – 3 Steps To Affiliate Marketing Marketing Jobs: Marketing Jobs Offer Opportunities For People Who Enjoy Persuading Others Attraction Marketing As A Key To Success