Hello guys, in the previous video we talked about technical andfundamental analysis
In today's video we will talk about how to build your own trading system
it's important if you want to be successful as traders to think like
traders
and so what is a training system exactly and when a trader talks to
another about his trading system what exactly does he mean
a trading system is comprised out of three things
one is entry rules how to enter ther market and when to enter the
market
two is exit rules
when to exit the market if you already have a position
and three is your risk management your overall risk management
that determines your position sizing and your
stop losses usually so let's talk about each of these individually
entry, in order to enter the market
you must have specific technical rules
its more advisable to use technical rules when entering the market even if
you are a fundamentals trader
and you know already your direction is going to be long or short because of
your fundamental analysis you should
do thechnical analysis and pinpoint the best places to enter the market
second very important thing is to be aware of the announcements of the economic
calendar
before you enter the reason is that if there is a major announcement
somewhere around
the time you want to enter there might be very huge volatility that you don't want
or you want, so at least you need to be aware of the
announcements of the economic calendar. The third thing
is your a risk to reward ratio what's a risk to reward ratio
most readers the never get into a trade
if they think that they're gonna lose more money
that they're going to actually win so you risk to reward ratio
should be at least 1:1 you should at least risk
a specific amount of money to make the same amount of money
it's more advisable to have a bigger ratio like
2:1 so that you risk
like a hundred dollars to to make two hundred dollars
to make a bigger amount of money
most novice traders should stick to one to one or two to one
and leave 1:5 or higher entry ratios for the more advanced
and experienced traders. The next concept is the consept of your exit
now what's important on your exit, that is where
most traders get destroyed in the market. The reason is because of trading
psychology which we're going to talk about more specificly and in more detail in another video
now I will just say that you need to exit on predetermined rules
when you enter the trade you need to know exactly when
and how to axit and you don't, you should not
bend those rules even if that they are technical rules or risk management rules
you should stick to the rules. If you
you think that the rules are wrong close your postition when it's supposed to be closed
stick to the rules execute your rules and then
you can stop and think and change your ruels for the next time
but please stick to the rules
that's the most important thing about exit, it's usually also done on
technical terms you can find very good exit points in the charts
when the price is going on very high standard deviations
or even on your fundamentals and news announcements if you see you're
long and you see a news announcement that's
short you can close your trade let's see
an example of an entry and an exit on cTrader, this is just a random example to show
you how
someone would think as a trader
I've just drwaen a trend like here before the video and we see that we are
actually own the trend line we also have here
a hammer, this is a specific candlestick that
it's a pretty possible reversal signal
so I will decide to enter long, the reason why I am entering long is because
I'm on the trendline
and I see a hammer for example but those are my rules
I have already selected the volume I want to select
and now I'm going to decide on my exit
I can accept losing (stop loss) and I exit winning (take profit)
and we talked before about the
2:1 risk-reward ratio, a hammer gives me a very good 2:1 risk to reward ratio because
the whole point of the hammer, this specific candlestick it's that it's supposed to be
a reversal signal
that means that the price should not go below the hammer
if it goes below the hammer there is no reversal. So I can put my stop-loss
just below the hammer and then I can put my take profit
Juse below the previous swing so
even though it's a trend I want to play it safe and I don't want to go higher than
the previous
higher. As you can see now I'm risking
pips to make 20 peeps so
this is a pretty cool trade and
no matter what happens I will not
be moving my stop loss or take profit and I will not be doing
anything else because I have already made my decisions
if I see that there is a problem when trading system
I'm gonna stop at some point and think about improving my trading system
but that will what I will not be doing is what destroys most traders
which is, I'm seeing now that the price is not going the way I want to
and I'm going to, when the price reaches close to my stop loss, I'm going to be no
no no no I'm going to put it just a bit below and then it reaches
my stop-loss again and I'm sure it's going to turn back and I put it just a bit below
and I'm gonna keep on doing that and the thing is that
you may do that a couple of times or three times successfully
but they're is going to be one time that's going to be un - successful that is gonna
blow your account
now let's talk about the third important concept that we talked about
which is risk management
risk management is about the amount that you are going to trade
and this is very important depending on your training frequency
you must think about how much of your balance
you will risk with every one of your trades if your trading frequency is high
for example you trade 10 trades per day
or 20 trades per day, you should be risking a small amount of your balance
with each trade
if you're trading more infrequently and you put more thought into your trades or
you like a swing trainer trading every two months or something
then you can risk more something like I don't know five percent of your
balance or something like that
but risking more than that then you're not trading anymore you doing
something different if you risk fifty percent of your account which
each trade
obviously at some point you're gonna blow your account one last thing that I
want to talk about how
how to test and filter your system
and about filtering, a trading system doesn't have to work
all the time and in all symbols you may
I will give you an example, market volatility is is not the same
at every hour after twelve o'clock in the night at europe
there is no volatility so you may consider testing your system
during the high volatilty
hours another thing is this the symbol that you are trading
it's not the same if you are trading a low
volatility symbol, or a hight symbol like EURUSD
so try to filter your system and think where it's going to
do better. In this video we talked about
how to create your own trading system and how to
think like a trader thinks of a trading system rating system. I'm going to remind you
again
try to keep a 1:1 risk / reward ratio it's very important
try to think how much of your account you risk with every trade
have good entry and good exit rules
next videos we're going to talk about trading psychology and
go into more deeper technical analysis
so, thanks for watching