Hi everyone,
I am a newbie and have not started trading yet. I have gone through Babypips school a few times and put together a trading plan. I have now developed a trading system. I still need to back test the system and demo trade the system. Before I back test and demo trade, if anyone has time to read through my system, and offer any constructive criticism, I would be very appreciative. What I really need to know right now is if I understand the overall idea of trading system, and if there are any glaring issues with my trading system.
This system will probably look similar to the keep it simple system and to the cowabunga system. Below is my trading system. Thank you for your help.
[B]Type Of Trader[/B]
Swing Trader
[B]Time Frame Analysis[/B]
- Use the weekly charts to confirm overall trend
- Use daily trades to make and define trades
[B]Indicators[/B]
- Moving Average Crossover
Use a 5 SMA and a 10 SMA.
Go Short (sell) If:
A. If 10 SMA is originally below
B. The 10 SMA and 5 SMA Cross Over
C. The 10 SMA crosses From BELOW the 5 SMA
D. After the cross over the 10 SMA is ABOVE the 5 SMA
Go Long (buy) If:
A. If 10 SMA is originally above
B. The 10 SMA and 5 SMA Cross Over
C. The 10 SMA crosses From ABOVE the 5 SMA
D. After the cross over the 10 SMA is BELOW the 5 SMA
- Parabolic SAR
A. Use the Parabolic SAR line to confirm the direction of the trend before the crossover.
B. Wait for the three dot formation to confirm the start of the new trend.
- Stochastic
A. If stochastic is 80 or above then it is overbought and that will confirm that we should be looking to sell (go short)
B. If stochastic is 20 or below then it is oversold and that will confirm that we should be looking to buy (go long)
- RSI
A. If you are going short/sell then make sure RSI is BELOW 50
B. If you are going long/buy then make sure RSI is ABOVE 50
[B]Defining Risk[/B]
The goal is to risk no more than 2% of my account on any trade.
[B]Stop Loss[/B]
-
Pick the third dot of the Parabolic SAR formation before the moving average crossover.
A. Do this by taking the moving average crossover point
B. Then look at the Parabolic SAR formation before the crossover occurred
C. Use the third dot on the Parabolic SAR before the crossover occurred -
Make this a trailing stop
-
Do not let stop loss exceed 2% of account balance. If stop loss exceeds 2% of account balance, then do not execute trade.
[B]Entry Point[/B]
-
Wait for 5 SMA and 10 SMA to crossover.
-
Wait for three dot formation of Parabolic SAR.
-
When the three dot formation of Parabolic SAR forms, then execute trade.
[B]Exit Point[/B]
-
Set trailing stop. If trade becomes profitable, then when it profits half the amount of the trailing stop, reduce the trailing stop by half the amount. For example see below:
A. You are taking a long/buy trade
B. You set original stop loss at 100 pips below your entry
C. Your trade moves in your favor in the amount of 50 pips, then make your trailing stop loss to be 50 pips below the current price (the trailing stop was 100 pips but now you reduced it to 50 pips) -
If 5 SMA and 10 SMA cross over again, then exit trade
[B]Trading Rules And Trading Process[/B]
-
Look for overall trend on weekly charts.
-
Use Moving Average Crossover to find new trend on the daily chart. Use 5 SMA and 10 SMA.
-
Only continue if crossover is in direction of overall trend from the weekly charts.
-
Look for three dot formation of Parabolic SAR in direction of new trend on the daily chart.
-
Use RSI on the daily chart. Only make trade if RSI is below 50 for a short/sell trade. And only make trade if RSI is above 50 for a long/buy trade.
-
Use stochastic to see if currency pair is oversold or overbought. If stochastic is over 80 then it is overbought and use this to confirm a short/sell trade. If stochastic is 20 or below then it is oversold and use this to confirm a long/buy trade.
-
Set trailing stop by picking the third dot of the Parabolic SAR formation before the moving average crossover point.
A. Do this by taking the moving average crossover point
B. Then look at the Parabolic SAR formation before the crossover occurred
C. Use the third dot on the Parabolic SAR before the crossover occurred to set trailing stop -
If trade moves in the direction you want, at half the amount of the size of your trailing stop, then reduce the trailing stop by half the amount.
-
Take profit in the following situations
A. Another crossover occurs
B. If you are in a long/buy trade and Stochastic reaches 80 or higher which indicates an overbought situation
C. If you are in a short/sell trade and Stochastic reaches 20 or lower which indicates an oversold situation