How To Create A Profitable Trading System

Creating a viable trading system that can let you take advantage of the current trends in the market is not an easy task. It is a process that requires certain knowledge, experience, and well… creativity. However, nobody says that developing a strategy that really works is mission impossible. If anything, we have witnessed a myriad of successful examples made from scratch.

If you have been on the lookout for a hot ticket recipe for a trading system able to make money, you have come to the right place. This comprehensive guide is a step-by-step instruction on how to define all important elements and combine them into one brilliant plot you call a system. Just a heads up, do not expect to run into a kind of one-size-fits-all solution – such things do not exist in the world of trading. Be ready to learn, analyze, and what’s most important, make the right choices.

Without further ado, let’s embark on a pretty engaging adventure of creating your own profitable trading system. We’ll walk you through the whole process, from the very beginning to the final step.

Idea Is Key

No doubt, a brilliant idea is always key, but the reality is nobody can come up with a worthy idea without being well-versed in the specific market. Before everything else, make sure you know the situation in your niche, short- and long-term trends so you can figure out the starting point for your strategy.

It is safe to say that the importance of thoughtful observation of the market and its behavior in recent years is hard to overestimate, hence, take it seriously. Some experts explain that without this data, it is not possible to build a sustainable hypothesis on how the market is going to behave even in the short run. Keep in mind that your big idea shouldn’t be too complex to be programmed into an automated system.

Put Your Idea To Test

When you decide on the market you are going to trade and the idea you are going to try, it is time to define a bunch of parameters, such as time frames, slippage, commissions, estimated started equity, in and out of sample periods, as well as the max bar look-back, that will help you test your would-be system. Chances are, you have more than just one idea in mind (the majority of traders do), so it is natural to give a try to each of them.

The main goal is to eliminate all useless and totally unproductive options at the very outset, so you can focus on what really can become a winning solution. Upon testing, rank your ideas, taking net profit, the annual rate of return, or the profit factor as the major factors. Do not forget to include a range of market-specific filters to see the whole picture or otherwise, you may miss some significant details.

Change Rules

After performing the initial testing, it is time to take the whole story to the next level by putting your system to a more comprehensive test. How will you do it? Quite simply, by adding new layers that come in the form of extra rules. Now it’s all about playing with hard stops, different entry methods, and multiple exit options – with a clear purpose to figure out whether a certain rule can improve your strategy or not. This is really a no-brainer, you eliminate all the rules that fail to boost the performances and keep an eye on those which look like something worth a shot.

Keep It Simple

Testing can be a lot of fun, which is the reason why many new-minted traders end up with a so-called “over-optimized” system. It mainly happens when you try to squeeze too many rules in your baseline strategy and nicely put them together. Well, your future system is not intended to work in an ideal world, hence, make every effort to resist the temptation of building too complicated schemes and keep things simple. How? Just test each rule independently to get viable results that mirror the reality.

Leverage Live Simulator Mode

When you feel that you are pretty close to your perfect fit, load your system into the trading platform, and test it on live market data in demo mode. Do you like what you see?

The process of creating a profitable trading system is easy and complex at the same time. The sooner you start practicing, the faster you can reach your goals. So, what are you waiting for?