I am new to trading, and am trying to learn as much as I can. I've been reading a few books (like Day Trading for Dummies), but I still can't get one thing straight.
So let's say, I'm going to start trading. Never done it before, so I'm going to be on a demo account.
Do I start by creating a system?
Doesn't a system require the formulation of a hypothesis, i.e. "Every time there is an MACD cross, and the Stochastic is over 80, and there is a hammer, there most likely will be an uptrend, and every time I see this combination I will place a trade, unless there is a news report"?
How does a trader begin coming up with such a hypothesis? Gazing at historical charts, throwing all various technical indicators on it and noticing patterns?
I hear a lot about systems, discretionary versus automated (you decide versus it decides for you). Does ever trader have a strict "system" which they have rigorously backtested? Or is this simply one way of trading?
Thank you for any and all advice!
So there's one group of traders who has a defined system, we'll call them Group A.
The A types say "MACD crosses, hammer, stochastics are upwards of 80%, no news, let's take it, there's a 65% chance this will work".
Then there is a group B who doesn't have a system per sey. They just know what security they're trading.
The B type says "Hmmm, what do we have here? Hammer. Okay, what is the stochastic saying? 80%. Okay, that is a promising sign. What about the MACD? Not crossing. Hmm. What about the bolinger bands? Crossed the top of the band, so looks like there's something to think about here. Any news releases? None. Okay, no unexpected moves. Should I take it? Where are we in the 45 minute chart? Okay, looks like it's heading towards the top of a range, might be a bit risky for a buy...."
Is this accurate?
Thank you for all advice, as always...