T2W Trading Community

In this article we present a simple trading system that we developed based on the concepts outlined in The 10 Power Principles of Successful Trading Systems.

Step 1: Selecting a market and timeframe

One of the most popular markets these days is the e-mini S&P, and that’s not without a reason: It's a 500 company index. One of the largest in the world and that means you have excellent and consistent liquidity, superb volatility, tremendous leverage and no uptick rule. It's a truly bi-directional market that shorts just as easily and safely as going long. It’s a fully electronic market, offering all the advantages of electronic contracts.

We decide to trade the market intraday, i.e. we will enter and exit a trade on the same day, because we do not want to expose our position to the risk of holding it overnight.

Step 2: Define entry rules

In my opinion swing trading is actually one of the best trading styles for the beginning trader to get his or her feet wet. That’s why we decided to use a swing trading approach in this example.

Many traders are familiar with the concept of “Bollinger Bands”: Bollinger Bands consist of a centerline and two price channels, one above the centerline and one below. The important thing to know about Bollinger Bands is that they contain up to 95% of the closing prices, depending on the settings.

In the chart above you see the red centerline and the blue price channels. There are only 2 days in the beginning of November when prices close outside the Bollinger Bands.

We are using this knowledge to create a very simple entry rule:

• Sell when prices move above the Bollinger Bands and
• Buy when prices move below the Bollinger Bands.

The idea is that prices will move back into the Bollinger Bands by the end of the day.
 

Step 3: Define exit rules

Let’s start with a very simple exit rule:

• Exit the trade at the close of the same day.

Below is the equity curve of the last 2 years. The first results are encouraging.