How to Build your own Profitable Trading System? Step by Step Guide (2024)

People literally spend years building a profitable trading system. It requires a lot of hard work, patience, and determination to develop a system that performs consistently and mints money for you. Just learning technical or fundamental analysis is not enough to have an edge in today’s competitive environment, rather you also require some additional skills to turn your strategies into systems that can be traded on. It’s not a cakewalk for sure, but we have tried to consolidate a step-by-step process to build your own profitable trading system. Read on to know more

For trading system development, we always advise following the KISS strategy. It stands for Keep It Simple and Stupid.

The human mind tends to complicate things naturally, we always think that anything that is complex adds value whereas simple stuff are good for nothing. However, it works exactly the opposite when you start building your trading systems. The more complex is the system, the more is the probability of data biasing which can lead to unprecedented results.

So in a nutshell, you do not have to use fancy indicators and 100’s of chart patterns to build a super successful system. Even a simple system that derives Buy/Sell signals based on OHLC values can do wonders in any market condition.

Below is the equity curve of one of our range breakout systems (no indicators involved at all)

A capital of 500K invested in 2008 multiplied to 17~ million in 2021, and the profit still keeps growing. This is 30 times growth in 13 years without compounding. Had it been compounding was allowed, this would have been a billion-dollar system!

This system was developed in Amibroker software and the rules are pretty simple and don’t require any special skills.

Buy Rule: Current High price is greater than Last 5 Highs

Short Rule: Current Low price is less than Last 5 Lows

Cover and Sell conditions are the same as Buy and Short conditions respectively. The stop loss is based on 5-period ATR and there is no fixed target per trade. As simple as that!

Now since we have set the premise that trading system development is not a rocket science, let me try to answer your question “How to Build your own Profitable Trading System”

The only thing is you need is the right guidance and resources at the right time. The Internet is full of crap and you need to be careful about how and where to start.

Based on our years of experience in this field, we have created a 5 step checklist to become an algorithmic trader. If you follow this in order, you should be able to create your own profitable trading system in less than 6 months.

Assuming that you are building a trading system based on technical analysis, this is the most important step. Even if you think you are an expert technical analyst, never stop learning. Technical analysis is more of an art than science, and there is no end to it. The best way to learn is to observe price charts, make it a habit, and take notes whenever necessary.

Varsity is one of the best websites to learn technical analysis. If you are looking for some hard-copy books, here are the suggestions.

We have seen people who simply do paper trading and aspire to become an algorithmic trader. Believe me, that’s not going to work. In order to win the war, you have to go out and fight yourself! So, open a trading account and start trading regularly. Don’t just speculate or trade based on the gut feeling. Try to apply the concepts you learned in technical analysis.

You might fail in the beginning but note down your observations from each trade. Try to maintain a date wise trade log. If you buy any stock, make a note of what made you buy it. Collect as much data as you can as that is going to be the foundation to build your profitable trading system.

Also Read: How to make consistent passive income through Algorithmic Trading and quit your 9 to 5 Job?

You would need a software or tool to convert your trading strategy into an algorithm. And once the algorithm is coded, the tool should have the capability to backtest this algorithm on historical data. Picking the right tool is important as you cannot re-invest your time learning different tools.

We did an independent survey among 1000~ experienced traders to know which algorithmic trading tool is best. The survey focused on 5 parameters and users were asked to rate out of 100 for each tool. See the result below:

Clearly, Amibroker stands out in all aspects.

So, whether you are a beginner or experienced trader, we recommend starting using Amibroker for algorithmic trading system development. It is feature-rich, robust software that allows you to develop and backtest trading systems. Even people from non-computers background find it very easy to learn.

Now here comes the important part. Based on the data you collected in Step 2, you need to code your trading system. Assuming that you are using Amibroker, it provides a neat coding interface where you can write trading systems using Amibroker formula language (AFL). You need not to be a computer programmer to learn this language, a little practice can help you get going. Check out this link if you want to learn AFL coding from scratch.

Make sure you add risk management rules, position-sizing, and commission calculation in your code. Against the mass belief, the algorithmic trading systems need not to be complex always. We have created a live system that has just 50 lines of code, and it’s performing well for a year now.

Once you have coded your system, you need to backtest it against historical data to see how it works. Never ever start trading on a system without backtesting it. It is a way to validate the performance of your system. Also, make sure that the historical data source is reliable, otherwise, backtesting results may not be accurate.

Post backtesting, you can also optimize the system parameters to further improve its performance. All this can be done with few clicks in Amibroker. Learn trading system development using Amibroker here.

This is the last step of this exercise. Once you are convinced with the backtest results of your coded system, you can take it live. Do not try to fully automate it at least for 1st six months. Manually place the orders based on buy/sell signals generated from the system. Amibroker has a scanner feature that can automatically send you email or show popup messages when a signal is received.

Observe the system performance for a few months and try to compare it with the backtest results that you saw earlier. Don’t get disheartened if there are few losses, no system in the world is 100% accurate. If you are not convinced with the performance, then tweak it further to obtain the desired result.

After you are fully satisfied that your system is working, you can try to automate it. Depending on the exchange and your broker, there are different options to automate. And almost all of these options support Amibroker. The money will start flowing in passively, your system will do all the hard work for you.

Also Read: Trading for a living: Is it really Possible?

These 5 steps are more than sufficient to build your own Profitable Trading System. Spend most of the time in Step 2 and Step 4 as the foundation of your system depends on it. You would be tempted to hire a freelancer to code your system, but we would recommend to do it yourself. It’s not difficult at all!

If you are looking for a structured course to learn Trading system development, join Trading Tuitions Academy. All the steps outlined above are taught in an interactive step by step fashion. Don’t worry if you are not from a programming background, we have got it all covered.

Happy Learning!