How to Design Trading System

How to design trading system

If you start reading about trading systems, you will find a plethora of ideas. People are using all kinds of indicators, chart patterns and even moon phases to make ‘profitable’ trading systems around it.

When you’re working with a mechanical trading system, you think of a strategy with a clearly defined set of rules that can be automated. When you mention a discretionary way to trade, most people think about traders that push buy and sell buttons with no rules at all!

Since I moved to trading Forex, I’ve been using the discretionary way of trading.Basically, I look for pullbacks in trends and breakouts. Since I was under the impression that discretionary trading has nothing to do with rules, I fell for the same mistake like most traders out there. I didn’t have any written rules for my trading.

A week ago I had a chat with Adam H Grimes. If you don’t know Adam H Grimes, he runs very successful web page where he offers free course as well as great guide on meditation. He mentors in a real sense. And so, the first thing he asked me,  left me speechless:

“Do you have WRITTEN trading plan?”

My answer was “no” but that question made me think. For all my trading years, I had very strict rules that I followed with precision. And all of a sudden, I now jump into a completely different market without any rules.

This was a big beginner’s mistake. I knew I wanted to trade pullbacks and breakouts, but I never knew how to go about it!

So I sat around and made a small diagram on how to design a proper trading system.

Even if you are discretionary trader, you need to have a trading system with clearly defined rules. Somehow from the start of my trading career, I was attracted to simplicity.

In fact, the most complicated trading system that I ever had, was using 2 moving averages. And most of the time it was just using 1 moving average.

This is a very simple concept anyone can work around it. How do you define a pull back or breakout it is up to you. Where you put stop loss or profit target again is based on your trading idea and risk appetite. If you follow a diagram, you will be saved for not taking any impulsive trades.

In most cases, the excited and aggressive impulse traders, are the ones that break their account.

How to go about your trade!

If there is trend, first wait for a pull-back but to enter. This way you’re waiting for the momentum to change. Don’t go blindly into trade. Enter trade, set up your stop loss and profit target and go look for the next FX pair.

If there is no trend, then look to see if there is a potential break out of a range. If the candle was closed above or below the range, that’s where you can get into the trade, set up stop loss and profit target and go to next FX pair.

I always wait for bar to close on a relevant time frame, so if you trade daily time frame wait for the candle to close and then enter.. If there is nothing to do, step away from the screen and come back the next day.

I hope this diagram will help you to make a good trading system which will avoid you taking impulsive trades that can result in an unnecessary loss.

Trading System


Igor Marinkovic

Electronic engineer, futures trader and property investor and total beginner in making good web sites