One of the biggest problems that most people have with ETF trading systems is that they seem very abstract. Most of the reading that is done about systems is from a marketer selling a system. Some subscription services offer alerts, training, information, etc., to make using a trading system easier. But, they really don’t tell you what the trading system is or how it became the “valuable” tool that it is.

Creating a trading system starts with knowing what it is. The terms trading system and trading strategy are often confused in advertising. One way to tell if an advertisement is legitimate is to see if the advertiser knows what the words they are using mean in the context of ETF trading.

An ETF trading system is just a group of specific rules that determine your entry and exit points for your EFT. So, when a subscription is being paid for “signal” alerts, you are actually subscribing to a service that is going to alert you when the light goes off on your entry or exit point.

The analytical tools used to set up those rules are pretty ordinary also. The most common tools used are the Stochastic, Oscillators, Bollinger Bands, Relative Strength, and Moving Averages. The details and information that these programs spit out is called “indicators.” When you use at least two indicates from one or more of the tools, you have yourself a system.

Now, what makes a system effective and consistently reliable depends on what two or more indicators are used in your system. You may need different indicators for a more volatile sector than you need for a low risk sector. The programs kick out literally hundreds of details that can be used as indicators for some part of your trading.

Many people don’t have the time or patience to create their own system. This is where the web services come in handy. Most create programs using the indicators most often pulled from the analytical tools. That doesn’t mean that they are more effective, but it does give you a head start with a system. The web service creates the rules that fit specific sectors and the user picks the sector and gets the right indicators for that sector.

Doing the work on one’s own will require the same attention to detail and a lot of experimentation. There are however, some rules for the system that should help reduce the risks that are involved in creating your own system. First, the system must consistently have positive returns. Translation, it must make money. When the system has negative returns ten times in a row then you will need to take a hard look at the system and strategy that is being used.

Planning a safety net to limit losses will also be beneficial. Having buy and set limits in place and stop-loss orders will reduce some of the risk and provide a safety net. In addition the system must be made up of stable parameters. The tools will give a lot of information that is interesting, you are only interested in the ones that show clear trends or activities on a consistent basis. By creating or finding an effective system when you first start trading you will have much better returns through your learning curve.

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