Hey all,
Check out my trading strategy I am going to be testing for a while. Anyone see any problems with it? I would love to discuss anything you may notice about how it will work/not work.
Thanks,
Lew
Trading Strategy:
1. Put up four charts each for EUR/USD, USD/JPY, AUD/USD, EUR/JPY, & USD/CHF
2. Time frames: 6 hr. 1 hr. 15 min. 5 min.
3. Mark off S/D zones, support and resistance lines, trend lines, channels, chart patterns, candlestick patterns, and divergences on each chart, transferring higher level info onto smaller charts when applicable.
4. Circle large price movements & gaps that have yet to be retraced (for price targets of high interest.)
5. Make note of bullish or bearish bias on each time frame.
6. Check Stockcharts.com Perf Charts to find weakest & strongest currencies over last ten days.
7. Trade from 3AM to 6:30 AM and 7:30 AM to 12 noon. (Eastern time)
8. Always watch for major news releases. If in a position, tighten the stop. Don’t enter a position 15 minutes before major release or less than 5 minutes after.
9. On all charts, put 9 RSI. On the two short charts, also put 8 SMA, and 12 SMA. On 5 min, put 20 ATR.
10. Primarily focus on EUR/USD and USD/JPY since they have lowest spread. Also trade the others (one direction only) when the Perf Chart shows one as the weakest and the other as the strongest. (Ie. USD = weakest, CHF = strongest, therefore, look for shorting opportunities on USD/CHF.)
11. Stops and targets are to be determined by previous price action and S & R mainly, with the following restrictions: targets must be four times the spread or larger. Stops must be the same size as the target or smaller. If there is a significant price point or heavy congestion in the direction of the trade too close to the entry, pass on the trade. If the stop seems too tight given the current ATR or volatility, pass on the trade.
12. Entries: at the right edge, look for divergences between price and RSI indicator. When a divergence is found in either direction, refer to the following two rules and place an entry, if acceptable.
13. Refer to the higher time frame charts. If there is a majority of biases against the trade direction, either pass on the trade or take a smaller position size. “Biases against” means that the trade is against trend, is too close to a S/D zone, has to break through a short term trend line, and so forth. Decision must be made as to how many negative factors will be allowed. Can this be made without just resorting to gut feeling or emotional response? Need to work on this & decide.
14. If target and stop are acceptable, wait for the entry signal. Entry can be made one of three ways: 1) the candle following the divergence makes higher high/lower low, 2) following candle closes above/below the 8 SMA, 3) following candle touches the 12 SMA. If the divergence candle is very short, wait for entry signal 2 or 3. Don’t enter after a move of just a few pips. Ideally price will move 4 – 6 pips in trade direction from the close of the divergence candle.
15. Position size – risk 1% of trading capital on each trade.
16. Exit strategy: at the target, exit about 2/3s of the position, letting at least one lot run. The remaining lot(s) will be converted to a trailing stop, initially set to break even.
17. When a position is still open at noon, tighten the stop and target every once in a while until the position is closed. There is no need to take risks with the position in a low liquidity time.