Problem: With the fast-paced world of trading, one finds himself glued to charts and observing market movements day in and day out. A trader gets drenched in information and is burdened with a sense of urgency to make quick decisions.
Platform: Automated trading alerts is a powerful tool that simplifies the trading process by providing real-time notifications for potential buy or sell opportunities. This innovative approach leverages indicators and predefined rules to deliver high-probability trading signals directly to your phone.
Solution: By implementing a rules-based trading system that sends automated alerts, you will be able to minimize screen time while maintaining the highest level of trading efficiency. This approach allows you to only act on high-quality signals, which will generally increase your trading success.
Knowing the Trading System
The trading strategy being discussed focuses on the German 40 index, using a 5-minute chart, and can be transferred to other markets as well. The foundation for this approach was built on using an indicator that goes by the name of The Wave Rider that offers very tight buy and sell signals based upon a combination of technical indicators.
To utilize The Wave Rider indicator properly, you should set up the following parameters
Short EMA 100
Long EMA 200
RSI Source Close
RSI Length 3
Overbought Level 80
Oversold Level 20
ATR Period 10
ATR Multiplier 3
Please make sure to de-select the “Use Short EMA” checkbox and the “Short EMA” in the style tab so that you would get the signal generating process more manageable.
Rules for Entry and Exit
The strategy is pretty simple and has these rules:
Entry: On any buy or sell signal enter into a trade.
Stop Loss: The stop-loss level shall be the swing low or high formed previously. This might get close to your entry price so as an alternative take the stop-loss level by a floating moving average.
Risk-Reward Ratio: Achieve a risk-to-reward ratio of 1:4, if you’re willing to take the risk on the first one percent, it’ll reward four percent.
Break-Even: Move the stop loss to break even once the trade reaches a 1:1 risk-reward ratio to protect your capital.
Analyzing Trade Performance
The effectiveness of this system is evident in its performance analysis. Between August 1st and September 5th, a total of 11 trades were executed with the following outcomes:
Winning Trades: 7
Break-Even Trades: 4
Losing Trades: 0
The risk-reward ratio in this system will still make a couple of trades turn out very profitable. For the trades executed so far, the reward units achieved were 28.
Computing Potential Gains
In determining the profitability level, here’s how to analyze the profit depending on account sizes:
$100 Account: $28 gain
$1,000 Account: $280 gain
$10,000 Account: $2,800 gain
$100,000 Account: $28,000 gain
$200,000 Account: $56,000 gain
These numbers show the great leverage from increased account size without altering the trading method.
Advantages of a Rules-Based Trading System
Consistency: With pre-defined rules, you rule out emotional decisions. You would make more consistent trading decisions.
Efficiency: Automatic alerts allow less chart monitoring time and, hence, leave ample time for other activities.
With a strict risk-reward ratio coupled with break-even strategies, your investment is secure and generates sustainable growth.
Variation of the System in Other Markets
While this system is applied to the German 40 index, it can be used for other markets such as cryptocurrency, stock, or forex. The idea, however, is to set the indicator configuration appropriately and test the system on your market so that it works there, too, and effectively.
Automated trading alerts form a useful option for the traders who are eager to enhance their performance but still do not wish to continuously look at charts. The system illustrated above helps a trader become much more efficient at trading, risks are properly controlled, and constant profitability is gained. Small or large portfolios remain the same while using the concept, which provides you with ample confidence in scaling your success.