5 steps to build a trading system (Part I)

1. Study the daily bullish patterns base on candlestick, macd, stochastic, Average Directional Index (ADX), moving average, or any other any technical indicators you like.

2. Analyze their charts and see if they are common patterns they share as the base point for your system.

3. Backtest this pattern and try to break it. For example, if the patterns you found is the stock rises on stochastic crossover 30, macd crossover, and bullish engulfing with candlestick. You will test it not only with historical data but also paper trade the pattern using live data. Whenever the system fail, try to find out why it failed and add this new condition to your system and again start to backtest this new system with both historical data and paper trade the system.

4. Until I am confident that the system works with a good win-loss ratio (You need an at least 3:1 percentage win-loss ratio to use the system), I will start trading base on my new system.

5. There is no one single system that will work forever under every market environment. So if your system starts to failed on 3 consecutive losses, Stop using it for a while. This does not mean you will throw away your system completely, you will keep it on file and start use it again when the market environment changes and the system start to work again.

6. Keep repeating steps 1-5 to develop new trading systems that work for you.