Is this a good system?

Hi everyone, I just learned of Forex last Wendsday and am excited to try some demo trading with Oanda. I have read all I can find on this site, others and read the book “Forex Made Easy” and have devised a system I think might work, but would appreciate feedback from some veteran traders.

Basically this is my system:

Look at 1 day candle charts with RSI, Stochastic and MCAD and Bollinger Bands.

Look for Stock and RSI to be over 70 to sell, or under 30 to buy.

Next look at the candles to see if if any hanging men or hammers appear at the top or bottom of a the bollinger bands.

When the immediate trend that resulted in the over bought/over sold indicators reverses, wait for confirmation, meaning two consecutive days of the reverse of the previous trend.

Pull the trigger and set a stop loss so that max loss =1% of initial capital.

Let me give you an example:

I have $500 theoretical in an Oanda account.

As of 3/3/07 Here is the promising trend for the US/JPY:

Full Stoch,(14:3:3) 5.56, %K merging with%D and appears to be readying to go over.

RSI(14) 21.14

MCAD(12,26,9) -1.1382 and diverging

Current price is at bottom of Bollinger band,

All this tells me that US/JPY is extremely oversold and likely to reverse trend.

Therefore I wait for a positive close, to indicate a likely turnaround, but don’t go long US/JPY until there is a second consecutive close and Stock, RSI both start heading up, and MCAD begins to at least converge, if not exactly cross over.

Once this happens I go long $1000, a 2:1 leverage and set the stop loss at 47 pips below my entry, thus guranteeing a lost of only $5 if I’m faked out.

I close the position only when one of two things occurs:

I am stopped out or:(if I am making a profit)

I see two negative closes in a row with RSI below 50 and headed down with MCAD converging and %K Stock dipping beneath %D StocK.

Any advice on whether or not this system makes any sense?

Is it too simplistic? Overly complicated? Naive?

Anyone try it or something like it before?

Any comments would be greatly appreciated.


My advice is to spend your first month just getting to know the trading interface and what everything does. You won’t be comfortable trading until you’re comfortable with the interface. After that, you can concentrate more effectively on the nuances of whatever system you’re testing out.

Thank you for the kind advice. I have quikcly acclimated myself to the Oanda FXtrade platform and find it to be a marvelous and simple thing. I like how they caculate what pips are worth as you enter the amount you want to trade. Their charts leave something to be desired but as long as I can make out the values of MCAD, RSI and Stochastics I am fine.

However, I would appreciate an answer to the question.

In general what do you think of this system?

Does waiting for quadruple confirmation make sense? It does limit the amount of trades one makes but its quality and profitability of trades that we are after, and not a high quantity.

I am still waiting on the Yen to confirm a reversal but that may take a while.

Meanwhile, on a 1 hour chart the AUS/US shows promsing signs of a positive reversal as of 12:54 PM Eastern on 3/04/07.

Its currently in a downtrend that is becoming a bollinger channel, which of course, means that a breakout is likely to be in the positive direction, and the Stoch, RSI and MCAD indicate its highly oversold.

Now I just need two green candles and I can try out the system for the first time in a real environment,(IE no backtesting )

Sounds a bit complicated to me, but it makes sense if you don’t mind holding your positions over the weekends. Most people seem to prefer closing their positions out before the market closes, though. Or at least before it reopens.

I don’t think I ever used that combination of indicators all at once, but I seem to recall trying to take long positions like that when I first started my demo account. I also recall learning not to trust overbought/oversold indicators too much… the market didn’t seem interested in listening to them, so to speak. Maybe I just haven’t learned to use them correctly, but I don’t like them, personally.

In short, that might work… but you’ll be waiting a long time for entry and exit signals, and I’m not sure $1000 positions will make it worth your time.