5 Steps To Creating A Price Action Trading System:
A price action trading system attempts to use entry and exit signals that have an edge by creating good risk/reward ratios that lead to profitable trading. There are five primary components in a trading system.
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A price action trading system attempts to use entry and exit signals that have an edge by creating good risk/reward ratios that lead to profitable trading. There are five primary components in a trading system.
A threadπ§΅π
Your watch list can be filtered using fundamentals but should only be traded using price action. It is a good practice to trade markets that historically has had good trends & swings in the past and consistent repeatable price patterns over the long term.
You need to backtest your watch list and study the historical price action patterns to find signals that have created good risk/reward ratios in the past. The trades should be managed through stop losses, trailing stops, & profit targets.
To manage the size of your drawdowns and eliminate your risk of ruin you will must set guidelines for position sizing based on historical and implied volatility of the markets you are trading. Also you must consider the correlation of your positions and diversify risk.
A good trading system can have diversified signals for trends, swings, and dip buying. This can help smooth the equity curve through different market environments.
The trading system you choose to use must fit your own personal tolerance of risk and have the potential of meeting your return goals. You must understand your edge & believe in the trading principles that will make your system profitable over the long term for the right mindset.
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