Trading systems are often perceived as highly complex entities in the minds of many, as if they have a particularly high barrier to entry and are very difficult to learn. However, this is not the case. A trading system is much like writing a composition when we were young; it provides you with a fixed framework, and then you fill in the content according to this framework. As long as you follow the structure, your score won't be particularly low.

A trading system consists of four parts: trend confirmation, entry position selection, stop-loss and take-profit settings, and money management.

Following this framework, you can establish a trading standard using technical indicators, which completes the rudimentary form of a trading system. Then, by reviewing past trades, you can gradually optimize this rudimentary form, ultimately achieving overall balance and stable profits. That's the process.

Many people are very interested in moving averages, which are indeed an easy-to-understand and widely applicable indicator. I will directly discuss two methods of trading with moving averages, in accordance with the trading system framework I mentioned earlier, so that you can understand more clearly.

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Method One

1. Trend Confirmation: If the K-line is below the moving average, the trend is considered bearish. If the K-line is above the moving average, the trend is considered bullish.

2. Entry Position: When the K-line retraces to the moving average and forms a reversal K-line pattern, enter the position when the K-line closes.

3. Stop-Loss and Take-Profit: Set the stop-loss at the high or low point of the reversal K-line, and set the take-profit at a 3:1 risk-reward ratio.

4. Money Management: Use 1% of your principal as the standard for each position opening.

After a significant drop in gold prices that breaks through the moving average, an upward flag consolidation pattern forms. When the K-line tests the moving average, it quickly forms a reversal pattern. Upon the close of the reversal pattern, enter a short position, set the stop-loss at the previous high point, and the market falls.After a continuous decline in the market, it once again retraces to the moving average, forming a reversal candlestick, and continues to enter the market to go short. The stop loss is still set at the high point of the reversal candlestick. Subsequently, the market continues to fall.

The EMA120 moving average is used in the chart, and this method is the logic of entering on a pullback.

Precautions:

(1) The trading system mentioned above is a purely trend-following trading strategy. In a market with continuous rising or falling trends, it is possible to achieve very high profits through continuous position scaling. However, in a consolidating trend, there will be consecutive stop losses, so it is important to pay attention to the use of position size in practice.

(2) To avoid consolidation, suspend trading when the moving average is flat. When the moving average forms an upward or downward divergence with an angle, and the trend is clear, wait for the candlestick to retrace to the moving average and form a reversal pattern before entering.

Method Two

1. Confirm the trend: If the candlestick is below the moving average, the trend is judged to be bearish; if the candlestick is above the moving average, the trend is judged to be bullish.

2. Entry point: Enter the market in the direction of the trend after the candlestick retraces to the moving average and receives support or resistance, then breaks through again.

3. Stop loss and take profit: Set the stop loss at the high point or low point of the pullback, and set the take profit at a 3:1 risk-reward ratio.

4. Money management: Use 1% of the principal as the standard for opening a position each time.In the chart on the left, after the k-line crosses below the moving average, the trend is judged to be bearish. Wait for the k-line to retest the moving average and fail to break the pressure, then enter a short position after breaking below the previous low. Set the stop loss at the high point of the rebound. After the first order is entered, the market goes through a period of decline and then retests the moving average, gaining pressure. After the second break below the low, enter again to add to the position.

On the right side of the chart, after the k-line crosses above the moving average, the trend is judged to be bullish. Wait for the k-line to retest the moving average and not break the support, then enter a long position after breaking above the previous high. Set the stop loss at the low point of the rebound, and then the market rises significantly.

Precautions:

To avoid oscillations, it can be required that the k-line crosses above or below the moving average by 100 points before retracting to the moving average, and then the upward break or downward break after the retraction is considered valid. This can avoid some of the frequent up and down signals of the k-line around the moving average during oscillations, enhancing the stability of our trading system.

The chart uses the EMA120 moving average, which is the logic for entering the market after a break. Both of these are examples of using a single moving average to formulate a trading system, but these examples are just the rudiments of a trading system. They need to be refined in detail, and everyone should not directly apply them to actual combat. It is necessary to go through backtesting, thoroughly understand these two trading systems, and adjust them properly before going into actual combat.