Fundamentals of Trading/Trading System Examples

Chapter 12. Trading System Examples This chapter brings everything together into a single, coherent trading system. This is not a holy grail — it's a template you adapt, test and make your own. The "Impulse and Pullback" System Core idea: enter in the direction of an impulse, after price pulls back to a significant level. Conditions for a Long Entry Identify an uptrend — sequence of higher highs and higher lows Wait for a bullish impulse — fast move breaking through resistance Wait for the pullback — slow, weak retracement back to the breakout zone Find confirmation — bullish candlestick pattern (engulfing, pin bar, hammer) Check volume — low on the pullback, elevated on the confirmation candle Calculate the ratio — minimum 1:3 to the nearest target Conditions for a Short Entry Identify a downtrend — sequence of lower highs and lower lows Wait for a bearish impulse — fast move breaking through support Wait for the pullback — slow, weak retracement back to the breakout zone Find confirmation — bearish candlestick pattern (engulfing, shooting star) Check volume — low on the pullback, elevated on the confirmation candle Calculate the ratio — minimum 1:3 to the nearest target Pre-Trade Checklist Run through this before every single trade: ☐ Clear trend exists on the higher timeframe ☐ An impulse has occurred in the trend direction ☐ Price has pulled back to a significant level (PSL, former support/resistance) ☐ The pullback is weaker than the impulse (speed and volume) ☐ A confirming candlestick pattern is present ☐ Volume is elevated on the confirmation candle ☐ Risk-to-reward ratio is at least 1:3 ☐ Stop-loss is placed beyond meaningful structure ☐ Position size respects risk management rules ☐ No high-impact news releases within the next hour If even one box is unchecked — there is no trade. Long Trade Example Situation EUR/USD, daily chart. Uptrend confirmed by a series of higher highs and higher lows. Price breaks above the 1.1000 level on an impulsive candle with elevated volume. Analysis Trend — bullish (confirmed) Impulse — breakout of 1.1000 on wide candles (confirmed) Pullback — slow return to 1.1000 on narrow candles and low volume (confirmed) Pattern — bullish engulfing at the 1.1000 zone (confirmed) Volume — elevated on the engulfing candle (confirmed) Ratio — stop 30 points, target 100 points = 1:3.3 (confirmed) Execution Entry: 1.1010 (after the engulfing candle closes) Stop-loss: 1.0980 (below the pullback low) Target: 1.1110 (next significant resistance) Risk: 30 points Potential: 100 points Ratio: 1:3.3 Short Trade Example Situation GBP/USD, 4-hour chart. Downtrend in place. Price breaks below support at 1.2500 with momentum. Analysis Trend — bearish (confirmed) Impulse — break of 1.2500 with acceleration (confirmed) Pullback — slow return to 1.2500 on low volume (confirmed) Pattern — bearish engulfing at 1.2500 (confirmed) Ratio — stop 25 points, target 80 points = 1:3.2 (confirmed) Execution Entry: 1.2490 (after the engulfing candle closes) Stop-loss: 1.2515 (above the pullback high) Target: 1.2410 (next support level) Managing an Open Position Option 1: Fixed Target Set your take-profit and walk away. Don't interfere until price hits the stop or the target. Pros: simple, emotion-free execution. Cons: you may exit before a large move fully develops. Option 2: Partial Exit Close 50% of the position when price reaches 1:2 Move stop to breakeven Hold the remaining 50% to the full target Pros: protects profit while keeping exposure to a larger move. Cons: more complex to manage. Option 3: Trailing Stop Move your stop behind price as the trade develops — for example, behind each new higher low on a long trade. Pros: maximizes profit in strong trending markets. Cons: can be stopped out prematurely in choppy conditions. When NOT to Trade Market Conditions Ranging market — no clear trend, signals are unreliable Low liquidity — public holidays, overnight sessions Around major news releases — one hour before and after Extreme volatility — following unexpected macro events Personal Conditions Fatigue Bad mood or emotional distress After a losing streak (tilt risk) After a large winning streak (euphoria risk) Significant distractions Developing Your System Stage 1: Testing (1–3 months) Trade on a demo account exclusively Follow the rules with zero exceptions Keep a detailed journal Collect a minimum of 100 trades Stage 2: Analysis Calculate your statistics Identify strengths and weaknesses Look for patterns in what works and what doesn't Stage 3: Optimization Adjust parameters based on actual data Add or remove filters as evidence warrants Test changes on a fresh sample before going live Stage 4: Live Trading Start with minimum position size Scale up gradually as results confirm consistency Never stop journaling and reviewing Course Summary Across these 12 chapters, we have covered: Market structure — exchanges, participants, price phases Technical analysis — levels, trends, candlestick patterns Volume analysis — the effort-result principle Entry method — trading pullbacks after impulses Mathematical model — stop-loss, 1:3 ratio, capital management Psychology — the four enemies, emotional traps Discipline — trading plan, trade journal The theory is complete. Now comes the only part that actually matters: practice. Good luck. See Also ← Discipline and Trading Plan ← Contents