10 Key Steps to Build a [Great] Stock Market Trading System

10 Steps to a Professional Stock Market System

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 powerful steps to building a PROFITABLE Stock Market Trading System. Fundamental, Technicals, Backtesting

After you have undergone stock market education in fundamental and technical analysis you will be ready to start to create your Stock Market Trading System.

Of course, any good educational service in the equities/security space should help you to create this system yourself.

Developing a stock trading system is about combining logic, knowledge, experience, art and science.

Your system will need to perform well (higher than 6% on average per year) both historically and be expected to perform well in the future at least for the time-frame in which you expect to use it.

The “Nirvana” of a trading system is that it would need to perform well and need little “user interpretation” for it to function. This would mean using  “trading robots” or a mechanical method.

I do not recommend a trading robot that would place your trades for you as this will essentially take any on the fly decision making out of your hands.

However, you should use a mechanical method (computer) to help you test your systems and create the buy and sell signals for you.

See some great backtesting software options here.

In this context, your systems would have the following requirements.

  • A good stock trading system will need to be back-tested to prove that it worked in the past. This would give us an element of proof that the logic upon which we base our assumptions are 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 a lot of time.
  • Automation of the Technical Indicators Scan will also narrow the list further to enable us to focus only on our preferred candidates.

Step 1 – Get educatedLearn Stock Trading - Trading Academy FREE

Take a high-quality stock market training course.  This site has a FREE 10 module Stock Market Training Course, covering fundamental and technical analysis.  For help on choosing a quality stock market education read this Stock Market Training Review.

Step 2 – Choose your favorite time-frame for trading / investing

If you have the time to fully immerse yourself in the Stock Market you might want to trade shorter time-frames (days to weeks) for example day trading.  Day trading comes of course with its own set of higher risks  If you have a full-time job and less free time available you may want to trade longer time-frames and only monitor your stocks on a weekly basis.

There is, of course, no solid proof that day trading with its higher risk actually yields better results than long-term investing.

Step 3 – Choose your favorite Markets

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

For example:

Mr. Smith has a busy day job and only has time free in the evening.  Mr. Smith is based in India.  Normally he would want to trade 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 dedicate and focus his spare time on the stock market in question.

If you are a less active trader, then it might be wise to trade the stock market in your own time-zone as you may have the advantage of being able to spot successful companies in your country and investigate them further using your “Local Knowledge”.

Step 4 – Understand what your profit target is!What are your targets for your investing system

What is your target?  Active traders should expect higher returns/profits as they will be spending more time trading the market.

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 Buffet has averaged just over 24% annual return over his entire career.  That is just 2% per month.  Realistically you should choose this as a viable upper target.

Step 5 – Select your favorite Fundamental Screens

Being able to filter stocks based on their financial performance may be an integral part of your strategy if so you will need to know the following terms:

If these terms are simply vague notions to you, please go back to step 1.


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Step 6 – Select your preferred Stock Market Indicators using technical analysis

Technical Analysis is critical for short-term trading, but also essential to understand for long-term value investing.  Being able to understand where the companies stock is relative to its history can be very illuminating.

What Charts should you use?

What indicators should you use?

  • Price Indicators – the study of price based chart indicators or Oscillators know as Stochastics,”Relative Strength” (RSI), “Rate of Change” (ROC), “Moving Averages” (MA), “Moving Average Convergence Divergence” (MACD), Parabolic SAR, ADX Average Direction Movement Index.
  • Study of Volume – understanding how the level of volume has a relationship with price – and how price has a relationship with volume.
  • Study of Price Volume Indicators – “On Balance Volume” (OBV), Chaikin Money Flow, “Time Segmented Volume” (TSV), MoneyStream.

Step 7 – Turn your previous choices into specific  rules

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

At what point would you by?

  • When the 10-day Moving Average crosses the 20-day moving average and holds above price for 2 days?
  • When RSI holds above the RSI 5 days Moving Average for 2 days?

At what point do you sell?

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

There are simple examples, to get detailed stock screening guidance go here.

Step 8 – Run your rules and backtest

Using back-testing software you can start to implement your rules and see if they actually work historically. This is a fascinating and immersing topic.
MetaStock Award Winning Stock Market Analysis Software - Free Trial

Most Stock Market Analysis Software allows you to back-test your theories to see if they work historically and some even allow you to do forecasting forward.

There are a few vendors that provide backtesting software but our award-winning vendor and an excellent choice for forecasting forward as well as backward is MetaStock

The great thing about backtesting is that you get to actually prove is indicators are meaningful.  Just because someone tells you how to use MACD, does that mean it works in the real world?  You can find out with backtesting.

If the systems produce the targets you expect, move to step 9.

Step 9 – Let your rules run

Let your rules run for a few weeks or months to see if it continues to perform, tweak as necessary.  If you are confident in the results move to the final phase.

Step 10 – Go or No Go

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

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

The results of 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 through boredom they have deviated from their winning system or strategy.  Try not to make the same mistake.

The results will be profits and plenty of them.

Goal of a good investing system

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

10 Steps to a Great Stock Trading System Infographic

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 powerful steps to building a PROFITABLE Stock Market Trading System. Fundamental, Technicals, Backtesting



  1. 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.

  2. 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.

  3. 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.

  4. 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


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