10 Key Steps to Build a Profitable Stock Trading System

Learn How to Build a Profitable Stock Market Trading or Investing System. We Provide the Process & Rules To Help You Make Better Decisions.

After you have attained a solid foundational knowledge in stock market investing, 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 create this system yourself.

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

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 historically, and be expected to perform well in the future, at least for the time-frame in which you plan 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 excellent backtesting software options here.

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 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 focus only on our preferred candidates.

2. Build a Foundation of Knowledge

Learn Stock Trading - Trading Academy FREETake 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.

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

If you have the time to immerse yourself in the Stock Market fully, you might want to trade shorter time-frames (days to weeks), for example.  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 weekly.

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

4. Choose Your Stock Markets & Timezone

Choose your markets for your system

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 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 longer-term investor, then it might be wise to trade the stock market in your 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.”

5. Understand Your Profit TargetWhat are your targets for your investing system

What is your target?  Active traders should expect higher 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 only 2% per month.  Realistically it would be best if you chose this as a viable upper target.

6. Select Your Investing Screening Strategy

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

Related Articles: Finding Great Stocks With Stock Rover

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

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7. Learn To Analyze Stocks

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

There are two essential methods to analyze 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 the technical analysis of stock charts, prices, patterns, and supply and demand using volume indicators.

What Chart 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 the price – and how the price has a relationship with volume.
  • Study of Price Volume Indicators – “On Balance Volume” (OBV), Chaikin Money Flow, “Time Segmented Volume” (TSV), MoneyStream.

Important Article: Fundamental vs. Technical Analysis: How To Analyze Stocks

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

Using backtesting software, you can start to implement your rules and see if they work historically. This is a fascinating and immersing 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.

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

The great thing about backtesting is that you actually get to prove if 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.

MetaStock Review 2021: Charts, Systems & Software Tested

If the systems produce the targets you expect, move to step 10.

10. Let Your Rules Run & Start Investing.

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.

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 methods have been refined repeatedly to remove logical errors and improve the percentage of winning trades and the % of the profit per trade.

Summary: 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 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.

Goal of a good investing system

Now 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

Stock Investing System Rules ChecklistLong-term Investing Rules
Step 1. Build a Foundation of KnowledgeFree Training
Pro Training
Step 2. Decide if You Trade Short-Term or Invest Long-termLong-term Investing
Step 3. Choose Your Stock Markets & TimezoneUSA, Europe, Asia
Step 4. Understand What Is Your Profit Target > 10% per Year
Step 5. Select Your Favorite Fundamental Screens & StrategyCANSLIM
Value Investing
Dividend Investing
Growth Investing
ETF Investing
Step 6. Select Your Software, Charts & IndicatorsStock Rover, Best Screening Strategies & Research
Step 7. Turn Your Choices Into Specific RulesBuy on Stock Pullback
Buy After Good Earnings Report
Buy at Start of Year (Tax Harvesting)
Step 8. Backtesting Your RulesStock 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/TradingChoose a Broker
Recommended USA – Firstrade $0 Commissions
Best International Broker – IB

Checklist: Stock Trading System Rules

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



  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.

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