|
Author: David Jenyns Article source: http://www.systemtradingblog.com/. Used with author's permission.
In this three article series, I`m going to guide you through the process I use to design a trading system using MetaStock. I'll cover the four major components that every successful trading system has in common, and then I'll show you how to code these components into the MetaStock program. Please note that this is by no means investment advice and any information I cover is purely for illustrative purposes.
I am a technical analyst by trade. It is my belief that all fundamental and economic influences on a stock price are taken into consideration by the market. Therefore, I focus my attention on price action. All my trading systems are based on this understanding of the market, and the rules of my systems are built to respond to price actions. In this article, I'll cover the basic rules of trading:
- Entry rules (when you get into a position)
- Exit rules (when you get out of one)
- Money Management rules (how much do you put in a trade?)
- Back - Testing (does the system work historically?)
These four components make up a proven formula for designing profitable trading systems in MetaStock. Let's start with the first part.
A stock passing through a precise set of conditions creates entry signals before you will enter a trade on that security. I believe the rules set to signal an entry into a position should leave no room for individual judgment. I follow the KISS principal - that is they should Keep It Simple Simon.
Remember, there is no Holy Grail of entry systems. There is no MetaStock formula that will get you in at exactly the right time, everytime. With this in mind, it's your goal to construct a simple, yet robust entry system.
Even though I always say that the entry is the least important component of any trading system, you still must have some way to enter a trade. Here are the points that I think are important to consider when identifying possible entry points.
PRICE: It is important to set price maximums/minimums because a stock's price can determine its attributes. For example, speculative stocks tend to be cheaper, and blue chip shares tend to be more expensive.
LIDUIDITY: This is a measure of how much money the stock trades at. You need to set minimum levels of liquidity to keep you out of stocks that simply don't trade enough. You can risk being trapped in stocks where the market is moving against you if they have a low liquidity.
VOLATILITY: This measurement tells you how much a stock moves. It is important to trade stocks that move enough for you to make a profit, yet aren't so erratic that you can't sleep at night.
TREND: This is the cornerstone of technical analysis. Remember that "the trend is your friend" and that you always want to trade with it, not against it. You will need a way to measure trend in your system.
TRIGGER: This is the point that will indicate it is time to enter a trade. The trigger condition occurs only at one point in time and doesn't hold "true" over extended periods of time, such as with a moving average cross over.
When combined, these components are going to make up your entry rules. But, before we even begin coding this into MetaStock, you need to determine one of the most critical elements of any system. What time frame are you going to trade?
+ Short-term, such as a reversal trader
or
+ Long-term, such as a trend follower
There are distinct differences between these two types of systems and your choice here will have a marked effect on every other decision you make about your system.
Short-term systems tend to require a greater time commitment, and more money. However, the benefit of trading more often is that usually your profits are more consistent, and are realised more frequently.
Conversely, longer-term systems tend to require less time, and less money. However, since you are keeping your positions open longer, you need to wait until positions are closed out before you can collect any profits.
Generally, I steer my clients, particularly those who are just starting out, to a longer-term trend following system. It takes less time, less money, there is less risk and it is easier to do than short-term trading. In addition, trend following systems tend to have a higher win to loss ratios and are psychologically easier to follow because of this.
For the sake of this example, let us construct a trend following system. In the next two articles, I'll explain how to code the four entry components of a trend following system into MetaStock. David Jenyns is recognized as the leading expert when it
comes to MetaStock and designing profitable trading systems.
His MetaStock website offers a huge free collection of trading
related tips and tricks. Gain free access now.
Click Here ==> http://www.meta-formula.com/subscribe
Insurance and The Engineer
The world is no longer right when the two words, Engineer and Insurance are used together, side by side in a conversation. Individually they are words that just...
Add a Special Touch to Your Stamped Cards with Embellishments
Once you have the basic stamping techniques mastered, you will likely want to move on to something more. By adding embellishments to your handcrafted cards, you...
The Benefits of Wood Blinds
In interior design, the blinds found on windows and doors are major decorating elements. Blinds made of wood or those with a wooden look add a feeling of warmth...
The Secret to Network Marketing Online
Learn the No 1 secret to network marketing online...
Refinancing Your Home Mortgage - Get Up To 125% Cash From Your Homes Value
Refinancing and getting extra cash out of your home is a great way to pay off debt or do a home improvement. Here are some tips to keep in mind when refinancin...
Affirmations for Success + Music = Pow!
Affirmations for success are powerful and effective in their own right, and when used together with music, it's a double whammy!
Self-examination vs Self-indulgence
Writers must study carefully their motivation for writing.
What We Believe We Create - Love is the Creation
I once was told by the Angels that our concept of Love would fit on the head of a straight pin and the size of the Universe and more is the love that is felt fo...
It Is All About Attitude!
Why do we really need the experiences that we have to deal with in our day-to-day life? Does anyone know who can answer my question?
Confession of the Egoists!
To be or Not To Be! Hamlet has given this generation an awfully amazing and defensive quote "to be or not to be". This article is not at all a serious philosop...
Subprime Hybrid Mortgages
Learn more about hybrid mortgages for people with bad credit.
Business Intelligence & Data Warehousing in a Business Perspective
Business Intelligence has become a very important in the business arena irrespective of the domain due to the fact that managers need to analyze comprehensively...
The Debt Free Lifestyle
Many people have been taught that you cannot get ahead without debt. We are also inundated with advertising telling us we can have anything we want. All we ne...
Basement Remodeling Begins With Dependable Waterproofing
Basement remodeling advice and tips
Creativity Management – When To Add Talent
First one must master the craft. Then one adds talent. Then the endeavour begins to enter the realms of artistry. Craft includes the following:
Life Dont Work That Way
It would be nice if the planet - like so many other things in modern day life - came with a guarantee. "If, for any reason, this planet fails to yield the resou...
Scared Of Creating Your Own Info Product?
Don't be scare off when you hear about product creation or the term 'product'. Basically a product can be almost anything you put together that pass on quality ...
What is a Supplement?
Consumers who are using some type of supplement need to always read supplement product labels, follow all directions, and pay attention to all warnings. Consult...
Optimal Website Design
Don't let visitors get away. Learn to create a user-friendly site that will attract business.
So Many Loans, So Little Time
If you find yourself in need of poor credit loans, there are many online companies just dying to help you out. But is it really help they're offering, or just ...
How You Can Use Your Kitchen to Develop an All Natural Skin Care Regimen
Learn how to start your own all natural skin care regimen from common household items. No longer will you need to rush to the pharmacy in order to keep your ski...
10 Surefire Ways to Add Sizzle to Your Brochures
Businesses rely on brochures as their front line in communicating their products or services. Yet according to Shannon Cherry, APR, many find them not as succes...
Choose To Be Happy
What if I told you that you have the ability to decide if you are happy or not. You would probably say that I'm crazy. 1. I'm not crazy and 2. Happiness is a ch...
Debt Consolidation Benefits
If you've ever been in a situation where you needed money that you didn't have, you probably already know about loans and credit cards. It's easy for these situ...
|
Print this page