Before designing and developing a successful trading system, traders must understand the base theory of Efficient Market Hypothesis (EMH). The current market price of traded assets (e.g., stocks, bonds, or property) already reflect all fundamental and economic influences and known information.
Therefore, the price action is taken into consideration. Most of trading systems are based on this understanding of the market. The rule of trading system here is built corresponding to price action as well.
Developing a trading system involves the following components.
- Entry Rules (when traders should open a position)
- Exit Rules (when traders should close a open position)
- Money Management Rules (how much money should traders put in a trade?)
- Back-Testing (test the trading system by using historical data)
Before going further, there is an importance thing to be remember
There is no Holy Grail of trading systems.
There is no MetaStock Formula that makes traders win markets 100%.
Only one component, Entry Rules, from four components is taken into consideration to build an example trading system. The following factors are picked to be used in identifying possible entry points.
- Liquidity: how much money the stock trades at. Avoid stocks that don’t trade enough whether traders can risk being trapped in stocks where the market is moving against them if the stocks have low liquidity.
For example here, the 21-day average of volume multiplied by the closing price of liquid stock must greater than $200,000. This can be written in the MetaStock Formula format as follow.Mov(v, 21, e)*C > 200000
- Trigger: the signal that will indicate it is time to enter a trade. The trigger condition doesn’t hold “true” over extended periods of time but occurs only at one point in time, such as moving average cross over. For example, the first day the when a faster moving average (a shorter period Moving Average) crosses above a slower Moving Average (a longer period moving average) which is considered a bullish crossover as follow.Mov(C, 5, e) > Mov(C, 10, e)*C
Simply put all formulas together, A simple entry system looks like:
Mov(v, 21, e)*C > 200000
Mov(C, 5, e) > Mov(C, 10, e)*C
That is the basic of designing a MetaStock Trading System
*Note: The tutorial on MetaStock Formula and how to use MetaStock Trading System can be found in MetaStock Tutorial
Posted in 
Tags: 
Can your system teach/lead me in turtle trading – and is there a step-bystep tutorial using your software for TT??
Hi,
What do you mean by “using your software” ?
The software I’m using is MetaStock. Are you using this?
As for the full turtle trading concept, you might study from the following books.
http://shop.metastocktradingsystem.com/?s=turtle
For the MA crossover, why are you multiplying the 10-EMA by the closing price itself? For stocks much greater than $5-$10, much less even $2, the 5-EMA will rarely be greater than the 10-EMA multiplied by the stock price itself…?