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Trading Rules

There are 5 key areas to the trading rules in our trading system builder tool kit. They are:

  1. Trend
  2. Trigger
  3. Trade
  4. Terminate
  5. Filters

The idea behind the first four is that the most money that can be made in any market is when it is trending. However, the largest problem facing traders is when to get in to a market when they know it is trending. One of the most famous errors made by traders and investors alike is jumping on a trend right before it is about to end.

Trending markets always offer opportunities to ride the trend and it is in knowing how to spot these opportunities that will help you to trade successfully. Technical analysis aims to do this by use of technical indicators.

In the diagram below we can break the sequence down for you visually.

  1. The trend is determined by looking at a longer term view or indicator.
  2. During a trend, price will reach an extreme before correcting or pulling back.
  3. If the trend resumes, this is the opportune time to enter (your entry depends on your style).
  4. At some point (depending on your objectives and style) you will exit the trade, hopefully with a profit.

 

Article

This article will help to explain why markets correct and why we have bull and bear markets. When you understand the mechanics of the markets, the 4 step sequence explained above will make more sense.

For a more detailed explanation on why markets correct right click and download here: Why markets correct


We break down each key area and provide tools, indicators and methods for each so that you ‘the trader’ can choose which ones to use when building your trading system. The list of indicators and methods we suggest is not exhaustive.

The idea is to choose the ones that feel most comfortable for you and to test them as combinations. After testing various combinations you will know which method from each key area is best for you.

Once you have settled on the combination of trend, trigger, trade, and terminate to suit you, you may want to apply some filters, and then you will need to thoroughly back-test and paper trade your system to determine its performance metrics and risk.

Your system’s performance metrics will then be able to tell you what you need to do in order to reach your goals and how much risk you’ll need to take.

Examples

Here are examples of some of the simple differences between the sorts of rules a mechanical trader would want versus a discretionary trader. Please bear in mind, these are just examples of the simple rules and do not even consider the money management, markets or position sizing side of the plan.

Right click to download the example > Mechanical vs Discretionary example


 

 

Move on to Step 4 - Module 2 > Trading System Builder Tool Kit: Trading Rules > Trend

 

  

____Step_1____
Welcome
Binding Agreement
____Step_2____
Your Trading Business
□ Trading Styles
□ Objectives
□ Business Resources
□ Business Assets & Liabilities
____Step_3____
Market Basics
□ Stocks
□ Forex
□ Futures
□ Options
□ CFDs
Trading Basics
□ Reading Price Charts
□ Types of Markets
□ Types of Trading
□ Placing Orders
____Step_4____
Charting Basics
□ Pivot Points
□ Trend Points
□ Isolation Points
□ Real Bars
□ Summary & Test
□ Answers
Trading System Builder Tool Kit
□ Trading Rules
□ -1 Trend
□ _Moving Averages
□ _MACD
□ _Trend Lines & Channels
□ -2 Trigger
□ _Moving Averages
□ _MACD
□ _Stochastic
□ _RSI
□ _Bollinger Bands
□ _Fibonacci
□ _Support & Resistance
□ _Trend Lines
□ _Divergence
□ _Volume
□ _Price Bar Patterns
□ _Breakouts
□ _Which Triggers To Use
□ -3 Trade
□ -4 Terminate
□ _Initial Stop Loss
□ _Exit Strategy
□ -Filters
____Step_5____
Risk Management
Back Testing & Evaluation
Running The Business
Additional Tools & Resources
Resources