Now that you’ve learned the basics of technical analysis, it’s time to put everything together and create a simple trading system.
This example will help you understand what to look for when developing your own forex trading system.
We’ll use a moving average crossover system, which relies on moving averages to decide when to go long or short. Additional technical indicators are included to confirm signals before entering trades.
You’ll learn how to use these indicators to set clear entry and exit points.
Building the Trading System in 3 Easy Steps:
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Choose your time frame
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Define your entry triggers
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Define your exit triggers
Trading Setup
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Use the daily chart (suitable for swing trading)
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Apply the 5-period SMA to the closing prices
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Apply the 10-period SMA to the closing prices
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Add Stochastic oscillator (14,3,3)
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Add RSI (9)
Trading Rules
Entry Rules
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Enter LONG when:
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The 5 SMA crosses above the 10 SMA
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Both Stochastic lines are moving up (avoid entering if they’re already in overbought territory)
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RSI is above 50
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Enter SHORT when:
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The 5 SMA crosses below the 10 SMA
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Both Stochastic lines are moving down (avoid entering if they’re already in oversold territory)
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RSI is below 50
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Exit Rules
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Exit when:
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The 5 SMA crosses the 10 SMA in the opposite direction of your trade, OR
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RSI crosses back to 50
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Also exit if your stop loss of 100 pips is hit
If the daily chart feels too slow, feel free to try other time frames. Just remember: the faster the time frame, the more likely you’ll encounter “false positives” — trades that trigger the rules but quickly reverse and stop you out.
Important: A trading system only works if you follow it consistently. Discipline is key!
Alright, let’s look at some charts to see how this system performs in action…