10 Step Guide to Create a Reliable Stock Trading Strategy

The Process & Rules For Better Trading Decisions.

Creating a reliable stock trading strategy involves merging logic, expertise, experience, and data.

☆ Research You Can Trust ☆

My analysis, research and testing stems from 25 years of trading experience and my Financial Technician Certification with the International Federation of Technical Analysts.

A trader’s approach to the market determines their success or failure. Thus, it is crucial to have a well-defined strategy in place before trading.

Your system will need to perform well, historically higher than 8% on average per year, and be expected to perform well in the future, at least for the time frame in which you plan to use it.

A trading system’s nirvana is that it must perform well and require little user interpretation to function. This could mean using trading robots or a mechanical method.

10 Step Stock Trading System- 10 powerful steps to building a PROFITABLE Stock Market Trading System. Fundamental, Technicals, Backtesting
10-Step Stock Trading System- 10 essential steps to building a PROFITABLE Stock Market Trading System. Fundamental, Technicals, Backtesting

1. Understand The Elements of an Investing System

A good investing process will have the following important elements.

  • A sound stock trading system will need to be backtested to prove that it worked in the past. This would prove that the logic on which we base our assumptions is functional.
  • A good system allows us to trade with less emotion, providing a market advantage. Emotion is known to be the culprit of many trading errors and losses.
  • Automation of the fundamental screening for the stocks will save us time.
  • Automating the technical indicators scan will narrow the list and focus on our preferred candidates.

Our original trading research is powered by TrendSpider. As a certified market analyst, I use its state-of-the-art AI automation to recognize and test chart patterns and indicators for reliability and profitability.

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2. Build a Foundation of Knowledge

Take a high-quality stock market training course. This site has a FREE 10-module Stock Market Training Course covering fundamental and technical analysis. Read this Stock Market Training Review to help choose a quality education.

Free Online Stock Trading Courses & Investment Training

3. Decide if You Trade Short-Term or Invest Long-term

If you have the time to immerse yourself fully in the stock market, you might want to trade shorter timeframes (days to weeks). Day trading comes, of course, with its own set of higher risks. If you have a full-time job and less free time, you may want to trade longer timeframes and only monitor your stocks weekly.

How to Day Trade and Is It Worth It? Tools & Tactics Tested

Of course, there is no solid proof that day trading with higher risk yields better results than long-term investing.

4. Choose Your Stock Markets & Timezone

As an active trader, you should choose your Stock Markets wisely. If you want to be active (checking your stocks intra-day or daily), it may be wise to trade a stock market that is not in your time zone.

For example, Mr. Smith has a busy day job and only has time free in the evening. Mr. Smith is based in India. Typically, he would want to trade in the Indian Stock Market. But actually, the European Markets might be a good choice as they open close to the end of his working day. Therefore, he can focus on the stock market in question.

If you are a less longer-term investor, trading the stock market in your time zone might be wise. You may have the advantage of spotting successful companies in your country and investigating them further using your “Local Knowledge.”

5. Understand Your Profit Target

What is your target? Active traders should expect higher profits as they spend more time trading.

Less active traders might expect a slightly lower return as the trade-off for not being as focused. But what is a good target?

Do not believe the scam artists of “Penny Stocks Newsletters” and peddlers of “Microcap Stocks”; in the real world, 100% or 1000% profits are not realistic; in fact, it is irresponsible that they would promote their services in this way.

Warren Buffett has averaged just over 24% annual return over his career. That is only 2% per month. Realistically, choosing this as a viable upper target would be best.

6. Learn To Analyze Stocks

Technical analysis is critical for short-term trading and essential to understanding long-term value investing. Knowing where the company’s stock is relative to its history can illuminate.

There are two essential methods for analyzing a stock. Long-term investors use fundamental analysis of a company’s financial statements, such as earnings, sales, dividends, and future cash flow valuations. Stock Traders use technical analysis of stock charts, prices, patterns, and supply and demand using volume indicators.

How To Analyze Stocks with Fundamental & Technical Analysis

What Chart should you use?

What indicators should you use?

7. Select Your Investing Screening Strategy

Filtering stocks based on their financial performance may be an integral part of your strategy; here are highly relevant articles to help you get started.


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"I have been researching and investing in stocks for 20 years! I now manage all my stock investments using Stock Rover." Barry D. Moore - Founder: LiberatedStockTrader.com


10 Best Stock Screeners of 2024: Tested by LiberatedStockTrader

8. Turn Your Choices Into Specific Rules

Quantify your choices of the fundamental screens and technical analysis screens.

At what point would you buy?

  • When does the 10-day moving average cross the 20-day moving average and hold above the price for two days?
  • When does the RSI hold above the RSI 5-day Moving Average for two days?

At what point do you sell?

  • When MACD turns negative?
  • When did you see a negative divergence in Money Flow?

9. Backtesting Your Rules

You can implement your rules using backtesting software and see if they work historically. This is a fascinating topic. Most Stock Market Analysis Software allows you to backtest your theories to see if they work historically, and some even allow you to do forecasting forward.

LiberatedStockTrader’s Guide to Backtesting Trading Strategies

The great thing about backtesting is that you can prove if indicators are meaningful. Does it work in the real world because someone tells you how to use MACD? You can find out with backtesting.

10 Best Backtesting Software for Traders Tested 2024

10. Let Your Rules Run & Start Investing.

Let your rules run for weeks or months to see if they continue to perform; tweak them as necessary. If you are confident in the results, move to the final phase.

If successful – Implement the system – If unsuccessful – tweak the system and start again from step 5.

If your rules are working, implement your system and start trading it. If not, you may need to refine the system. The best methods have been refined repeatedly to remove logical errors and improve the percentage of winning trades and the percentage of profit per trade.

Summary: A Great Stock Trading System

Building and running a trading system takes time, a logical mind, and patience. Many successful traders have started to make losses because they have deviated from their winning system or strategy through boredom. Try not to make the same mistake.

The results will be profits and plenty of them.

Now that you know the core elements of a sound investing system, look at the 9-Step Stock Market Investing Strategy with free books and videos.

Checklist: Stock Investing System Rules

Investing System Rules Checklist Long-term Investing Rules
Step 1. Build a Foundation of Knowledge Free Training
Pro Training
Step 2. Decide if You Trade Short-Term or Invest Long-term Long-term Investing
Step 3. Choose Your Stock Markets & Timezone USA, Europe, Asia
Step 4. Understand What Is Your Profit Target  > 10% per year
Step 5. Select Your Favorite Fundamental Screens & Strategy CAN SLIM
Value Investing
Dividend Investing
Growth Investing
ETF Investing
Step 6. Select Your Software, Charts & Indicators Stock Rover, Best Screening Strategies & Research
Step 7. Turn Your Choices Into Specific Rules Buy on Stock Pullback
Buy After Good Earnings Report
Buy at the Start of the Year (Tax Harvesting)
Step 8. Backtesting Your Rules Stock Rover BackTesting Article
Step 9. Let Your Rules Run. Stay in the Market Long-Term 10-Year Period
Sell Only if Market Dominance / Competitive Advantage is Diminished
Step 10. Start Investing/Trading Choose a Broker
Recommended USA – Firstrade $0 Commissions

Checklist: Stock Trading System Rules

Trading System Rules Checklist Short-term Investing Rules
Step 1. Build a Foundation of Knowledge Free Training
Pro Training
Step 2. Decide if You Trade Short-Term or Invest Long-term Short-term Investing
Swing Trading – Weekly
Day Trading – Daily
Step 3. Choose Your Stock Markets & Timezone USA, Europe, Asia
Step 4. Understand What Is Your Profit Target  > 1% per day?
Step 5. Select Your Favorite Strategy Trading The News
Trading Leveraged ETFs
Step 6. Select Your Charts & Indicators MetaStock for Backtesting
TradingView for Trading & Social
TC2000 for USA Trading from Charts
Step 7. Turn Your Choices Into Specific Rules Break of 50 MA
RSI Breakout
MACD Cross Over
Chart Patterns
10 Best Candlestick Patterns
Step 8. Backtesting Your Rules Technical Rules Proven
Step 9. Let Your Rules Run. Timeframe for Testing
5 Minute Chart
Backtested 1 Year
Step 10. Start Investing/Trading Choose a Broker
Recommended USA – Firstrade $0 Commissions

 

9 COMMENTS

  1. Creating the system of trading is news to myself.it makes perfect sense. Whats software would I use to create a good system and test it. Mostly interested in U.S stocks

  2. Admiring the commitment you put into your website and in depth information you provide.
    It’s awesome to come across a blog every once in a while that isn’t the same unwanted rehashed material.

    Fantastic read! I’ve bookmarked your site and I’m adding your RSS feeds
    to my Google account.

  3. I just logged in for the free course, and I did not expect it to be so well done. I am a beginner and this site has just what I need. Thanks Barry. Looks like I’ll also be taking the Pro Course.

  4. I have to say that for the past couple of hours i have been hooked by the impressive articles on this website. Keep up the wonderful work.

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