We've discussed a lot of theoretical knowledge about trading systems before, and it seems that everyone still has a vague understanding and doesn't really know what a trading system is specifically.

Since the moving average is quite well-known among all indicators, today I will take the moving average as the basis to share three types of moving average trading systems, including single moving average, double moving average, and multi-timeframe trading systems.

I will also delve deeper into teaching you how to make some system detail modifications to better suit your personality. This way, you can use these systems as templates to make detailed modifications and optimizations, ultimately forming your own trading system.

1. Single Moving Average Trading System: Single Moving Average + Reversal Candlestick

The moving average indicator has a very important usage, which is to act as a support or resistance level.

When the market tests the moving average, there is an expectation for a reversal or rebound. At this time, combined with the reversal candlestick pattern for double verification, it can be used as a trading standard for operation.

The chart is a 1-hour candlestick chart of gold, and the moving average in the chart is EMA90.

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The market consolidates and retraces below the moving average, testing it, and then forms a reversal candlestick pattern. After the reversal pattern is formed, the order enters, the stop loss is set above the high point of the reversal pattern, and then the market falls, setting a large reward-to-risk ratio.

Then, using the four basic elements of the trading system, explain the above trading method once again.

1. Confirm the direction: The candlestick is below the moving average, and the trend is judged to be bearish.2. Entry Position: Prepare to enter a short position after the candlestick retraces to the moving average, and open the position after a reversal candlestick is formed.

3. Stop-loss and Take-profit Settings: Set the stop-loss above the high point of the reversal candlestick, and set the take-profit at a ratio of more than 5:1 for a large reward-to-risk ratio.

4. Position Management: Use a position ratio of 1% to 2% per trade.

Precautions:

(1) It is not advisable to choose a moving average with too small a parameter. The trading signals will be more frequent, and the stability of the trading results will be worse.

(2) Select trading opportunities after the market has moved away from the moving average and then falls back to the moving average. Since the market has covered a large space before falling back to the moving average, the force has been released, and the probability of the market reversing and rebounding upon testing the moving average is higher, thus increasing the success rate.

(3) Entering on a reversal candlestick is a more aggressive entry method, with a great reward-to-risk ratio, but the rate of consecutive errors will be relatively high. Therefore, the position used for each trade should not be too high, otherwise, severe losses may occur in a series of consecutive errors.

The success rate of this trading system is not high, but the stop-loss space for a single candlestick is very small, and the reward-to-risk ratio is very high. It is a trading system with a low success rate and a high reward-to-risk ratio.

Some may say, I don't like trading systems with a low success rate. In fact, everyone can modify the technical details according to their preferences and adjust the trading system to suit their own style.

It is important for the trading system to suit oneself, as everyone has their own personality traits, such as being impatient or patient, being detail-oriented or not, and everyone's daily routine is different. This requires the trading system to have different trading frequencies, levels of operational complexity, and variations in holding period details.Next, I will delve a bit deeper and refine the aforementioned rudimentary trading system by demonstrating two detailed variations as examples, so you can understand the concept better.

Trading system variation operations:

1. Adopt a more complex entry method.

Using the previous example as a template, after the market retraces to the moving average, switch the chart to a 5-minute timeframe. Enter the trade after a trendline break in a consolidation pattern on the 5-minute chart, with a stop loss set at the previous high point.

On the left is the 1-hour gold candlestick chart, and on the right is the 5-minute candlestick chart. After the 1-hour backtest is in place, switch to the 5-minute chart. Within the 5-minute consolidation pattern, choose to enter after the market breaks the trendline downwards, at the position marked by the blue circle, with the stop loss set at the previous high of 2022.

Although the entry is made at the 5-minute level, this method requires a consolidation pattern at the 5-minute level, making the entry more complex than a reversal candlestick entry, which will reduce the trading frequency. Moreover, if the consolidation pattern is large, the stop loss space will be greater than that of a reversal candlestick entry.

Therefore, this complex entry method, compared to the hourly chart reversal candlestick entry, has a lower trading frequency, is more conservative, and will reduce the frequency of consecutive losses in trading, leading to better execution stability.

2. Combine with the breakdown of candlestick pattern combinations before entering.

The same single moving average trading system is used, but it requires that there must be a breakdown of a candlestick consolidation pattern beforehand, such as a double top or double bottom breakdown, a head and shoulders pattern breakdown, or a continuation pattern breakdown. After the market breaks down, it retraces to the moving average, and the entry is made in conjunction with the reversal candlestick pattern.The figure shows a 1-hour candlestick chart of the British Pound. After forming a double top pattern at the top and breaking through, the market retraced to the moving average, and then, under the pressure of the moving average, formed a doji with a long upper shadow, which is a direct signal to enter a short position. The stop loss is placed above the high point of the reversal candlestick. Subsequently, the market fell significantly.

This method of operation is a more conservative trading model. Since it requires trading after the pattern breaks, the frequency of trading will be much lower (which can be increased by screening multiple instruments), and because of the pattern break, the success rate and stability of the trades will be better.

However, please note that recognizing candlestick patterns requires a higher level of technical skill from the trader, so it is essential to practice more before engaging in actual trading.

Regarding the single moving average trading system, let's summarize.

The single moving average trading system mentioned above, by adjusting the entry conditions or combining them with other technical criteria, can yield completely different trading results.

The trading system is actually very flexible and can be combined in many ways to find the most suitable technical criteria, which is the best.

2. Double Moving Average Trading System: The crossover of double moving averages confirms the direction, and entry is made on the pullback.

The crossover of moving averages is also the most commonly used method of moving averages, divided into golden crosses and death crosses. After a golden cross, there is an expectation of an upward trend, and after a death cross, there is an expectation of a downward trend. The crossover is used as the standard for judging the direction, and after the trend is established, wait for the market to pull back and enter.

The chart shows a 15-minute candlestick chart of gold. After forming a death cross at a high level (the red circle in the chart), the trend is judged to be bearish. Then the market pulled back, tested the pressure of the moving average, and after forming a reversal candlestick, entered a short position.

There are two opportunities to enter a short position in the chart. After the first short position (the blue circle on the left in the chart), the market fell briefly and then quickly reversed upward, and the order was stopped out.After the order stop loss, the second entry opportunity is formed (the blue circle on the right side of the chart), and after the order is entered, the market falls sharply.

The double moving average crossover confirms the direction, which is more conservative and more stable than a single moving average.

Similarly, this pattern of double moving average crossover can also be switched to the entry based on the breakdown of patterns at a smaller level, such as the trend line breakdown entry mentioned above.

Precautions:

The entry method of this double moving average trading system can also use the structure of entry at a smaller level above, for example, in the example above, the 15-minute market rebounded to the position, and a consolidation pattern was formed at the 1-minute level, entering upon breakdown.

3. Multi-period moving average trading system

Moving averages on k-lines of different time periods all represent the meaning that the market is about to rise or fall. In practice, a trading system can be established for trading through the resonance of moving averages at multiple periods, as shown in the schematic diagram below.

The chart is a k-line chart of the British pound against the US dollar, with the left side being the daily k-line, the middle is the hourly k-line, and the right is the 5-minute k-line.

On the left, the daily line is in a golden cross state with two moving averages, and the market is judged to be bullish.

During the bullish phase of the daily line, in the middle of the hourly k-line, the market changes from a death cross to a golden cross. At this time, the hourly chart resonates bullishly with the daily chart, and the trend of the hourly chart is also bullish.After two major cycle long-term resonances, at the 5-minute level, wait for the market to form a golden cross to enter and go long. The far right of the chart is the 5-minute K-line chart, with two opportunities to go long.

After the first long position, the market rose slightly and then quickly corrected deeply, causing the order to be stopped out. After the correction ended, another long entry opportunity formed below, and then the market rose significantly.

This operation mode can be used for hourly chart waves. After entering at the 5-minute level, hold the position at the 1-hour chart level to exit.

It can also be used for intraday short lines. After being filtered by the long-term resonance of the large cycle, enter at the 5-minute level, hold a wave of long positions, and then temporarily close the position. At this time, the long-term trend of the daily and hourly lines has not changed, and look for opportunities to go long again at the 5-minute level.

Everyone can see the subsequent trend, there are opportunities to continue to go long.

After making a profit from the long position at the 5-minute level, the short-term trade is closed, and the golden cross opportunity formed at the 5-minute level on the second day is entered again for short-term trading.

Precautions:

(1) In this multi-cycle moving average trading system, the two major cycles can choose the same moving average parameters.

The minor cycle is the entry cycle, and the parameters of the moving average can be different from the major cycle parameters. Aggressive traders can choose a small parameter moving average for entry at the minor cycle, which is more aggressive and faster to enter. Conservative traders do the opposite, choosing a large parameter moving average for entry at the minor cycle.

(2) If you choose to exit at the hourly chart wave, after the order is profitable, you can add positions when the golden cross appears again at the 5-minute level, and obtain greater profits through adding positions. However, the trading of adding positions must pay attention to controlling the position and paying attention to risk.The above three trading systems are all based on moving averages, and in fact, it is similar to build trading systems using other indicators. Trading systems are not unique, but diverse and personalized.

You can refer to the template above, combine your own technical and personality characteristics, and build a trading system that belongs to you. As long as our trading system has been verified and tested to be profitable, and the execution difficulty is low, and we can execute it well, it is a success.