AMEX Gold BUGS Index ^HUI
AMEX Gold Index Trading Systems
A trading system typically comprises a specific set of rules that determine entry and exit points. It generally also incorporates various technical analysis indicators that provide feedback about the strength and direction of a trend. Trading systems may be tailored to the specific needs of individual traders.
As a rule, a complete trading system is created by generating signals, setting up a decision making procedure, and incorporating risk management into the system. A complete trading system includes a trading software that allows to auto-trade the signals generated by the system. A trading system is supposed to be objective and mechanical, and the main rule in creating a trading system is to exclude an emotional factor from trading. As a rule, technical analysis combines a set of objective trading rules (usually in a formula(s) or algorithm(s)) that are used to test the system and adjust the system.
Rules for an AMEX Gold Index Trading System
A complete trading system should go well beyond simple signal generation. It ought to incorporate decision-making procedures (where to buy and sell) and include risk management calculations. A complete trading system should also include auto-trading capabilities based on the signals it generates. Finally, a good trading system must operate objectively, ideally removing the emotional factor from the trading process.
Using a volume-based system to trade the AMEX Gold Index as an example, the following simple rules could apply:
- Establish the critical VMA (volume moving average) levels that precede index reversals in a majority of cases;
- During a decline on the index, buy when the VMA exceeds the critical level (as defined in step 1) and then VMA starts to move higher.
- During an advance on the index, go short when the VMA exceeds the critical level (as defined in step 1) and VMA then starts to move lower.
These rules are very basic; depending on the specific trading application, they may have to be adjusted. For instance, when trading with volume-based indicators, you may have to define separate critical VMA levels for downtrends and for uptrends. In addition, it is good practice to incorporate additional rules into a trading system