How to Create an Investment System

One of the hardest things for either traders or investors is deciding when to enter and exit a position. This is partially because the market can be irrational, and it is partially because you may not want to give up on a trade whether it is a winner or a loser. Let’s look at some ways to create a system that overcomes your emotions and helps you stay successful in the market.

What’s Your Goal?

When creating a system, you have to determine what your goal is as a trader or investor. If you are trying to be a trend trader, you may want to look for crosses on MACD or RSI indicators. You may also want to look for those crosses to happen on longer time frames as they may indicate stronger trends that will last for weeks or months instead of hours or days.

If you are looking to be a scalper, you may look for sell signals from the Fisher Transformer indicator at time frames of an hour or less. By creating a system that meets your goals, it is easier to know what to look for when entering or exiting a trade. This can help you stay profitable over a longer period of time, which may further act to keep your emotions in check.

Which Markets Will You Trade?

The S$P 500 is the most heavily traded index in the United States, which makes it one of the most liquid. Trading liquid markets may be ideal because you have a lower bid-ask spread, which means that your stock market predictions don’t have to be as accurate to profit. However, if you have a greater understanding of the oil or gold market, it may be better to trade those instead. It is also possible to trade currency markets if that is something that you feel is easier to create a trading system for.

Automate Whenever Possible

The easiest way to create and stick to a system is to automate as much as possible. For instance, you may tell a computer program to buy when the price goes above $30 a share or to sell if the index hits an all-time high. This ensures that you actually stick to your plan and don’t let your emotions get you into trades too early or stay in them longer than you intended to. Automating your trades may also reduce the odds that you risk more than you can afford to per trade. It may also reduce the odds that you risk too little to make a tangible profit per trade.

No one can be successful as a trader or investor without having a plan in place. Creating a system makes it easier to take trades only when they meet your criteria as opposed to simply hoping its worth opening a position. You can feel free to copy the system used by other traders if your lost as to what to do or create a custom one that meets your needs.