Building Trading Systems

Many traders spend a great deal of time and expense searching for information on trading system(s) design. It can not be stressed enough how important it is that you use a system (whether its your own creation or someone elses) that works in harmony with your psychological make-up. My only wish is that this article will be of some use to you on your broad/narrow path to market success. Now that we have the intro out of the way; let's begin...

A good trading system will always answer the following questions (in no particular order):

1. How and when do I enter the market? 2. How many contracts/shares do I trade? 3. How much money do I risk per trade? 4. How and when do I exit with a profit? 5. How and when do I exit with a loss?

Using a loss limiting mechanical system which factors in the questions listed above can help eliminate the emotion that goes along with descretiony trading.
Below you will find some examples of simple mechanical systems. If you are inclined to use and/or backtest these systems, please feel free to do so. Although the systems are extremely simple, they are considered robust for any/all markets.

Simple System 1

EMA (Exponential Moving Average) Crossover with a set period of 15 days (fast EMA) and 50 days (slow EMA); using daily charts. This system is always in the market and is considered a Mid-Term Trend Following Method. Only trade in the direction of the long term market trend.

System Rules:

1. Check your positions EOD only.
2. Go long at the market the day after the fast 15 day EMA crosses above the slow 50 day EMA.
3. Go short at the market the day after the fast 15 day EMA crosses below the slow 50 day EMA.
4. Always exit and reverse position the day after the fast EMA and the slow EMA cross.