I just finished the School of Pipsology and am trying to put together a day trading system based on GMMA analysis using multiple time frames, that I can practice with on a demo. I’m looking for criticism of my system so far, and I have a few additional questions below that. Thank you in advance to anyone who can help!
Focus on EUR/USD and USD/JPY
Use 4H, 1H, and 5M charts, adding the recommended 2 groups of 6 EMAs each in two different colors.
Add RSI below each chart.
Identify a trend on the 4H chart - all short-term lines above all long-term lines (uptrend) or vice versa (downtrend). Note the strength of the trend based on the spread of the lines.
Confirm the trend on the 1H chart using the RSI (above 50 but not above 70 for uptrend, below 50 but not below 30 for downtrend)
Risk no more than 1% of capital per trade, using no more than 3:1 leverage to start.
On the 5M chart, add resistance and support lines
Wait for an entry point on the 5M chart: (a) in an uptrend, buy when the fast group completely crosses above the slow group, or if already crossed, if prices fall down then bounce back off the slow group (b) in a downtrend, sell when the fast group crosses below the slow group, or if already crossed, if prices come up then bounce back down off the slow group
Add the stop loss slightly above the closest resistance (if selling) or below support (if buying)
After determining the stop loss point, use the position size calculator to meet the 1% risk limit, and
Enter the trade with the stop loss.
Add a take profit around a support level (if selling) or resistance level (if buying). Use a level that is further from entry than the stop loss is, considering the strength of the trend.
Also take profits manually if the RSI on the 5M exceeds 70 (if long) or 30 (if short)
Then there are a couple additional things I am unclear on:
-When drawing support and resistance, is the 5M chart the correct chart to look at? How far back should I look on that chart?
-How should I trail my stop?
-How many charts will I likely need to monitor to find 5 trades/day or so?
Thank you again for any criticism or advice you can offer. If I’m way off base, please let me know. No need to spare my feelings. I have a journal ready to go so I can analyze myself after a decent number of trades. Day trading is the right time frame for me, I am confident I can follow the rules to trade mechanically, and technical analysis resonates with me more than fundamental, but if this system sucks I am open to trying something else altogether.
I suppose you do realise that even though you have learned how to do 50 things in trading, you don’t need to do 50 things in trading to make a profit?
Its also a subjective approach - which explains your questions on drawing support and resistance.
For me, the more complicated the system, the higher the win rate is going to have to be to justify the work. I’m sure I would have to see this approach making a 90% plus win rate to use it as drafted…
which seems unlikely…
@lgriffio
Well done - you are thinking !
I would concur with @tommor that it does look a bit on the complicated side
Often less is more in this game and having a multitude of indicators can lead to confusion as sometimes they will contradict each other. The same can happen with multiple timeframes. If you are working off the 5mins it can often have no confluence with for example the 4hour. The MAs will give you good confluence eg 50 and 20 SMAs. And the 8EMA is awesome on the 5min.
Practice and do read ‘Trading in the Zone’ - Mark Douglas, An absolute must.
Good luck !
I think that you should use 15M chart instead of 5M chart. About taking profit, using RSI 70/30 may not be a great idea. When the price trends, it often crosses 70/30, but RSI keeps adjusting its value with the price movement. I assume that you may use key level of support/resistance, significant higher high/lower low to determine your Take Profit level.
One way to see if it works is to trade it. If you go live, use micro or nano lot size, and same if on a demo.
I use capital $1,000, 100:1 leverage, lot size 0.04 - 0.08. Use ATR for S/L and T/P placement confirmation - this indicator should be on every trader’s charts - the ATR line shows increase/decrease in price VOLUME (not trend), which is critical, IMO.
And your chosen pairs are not huge volume pairs, very predictable, so not much use to test a new strategy- for a roller coaster ride experiment also with GBP/USD & GBP/JPY. if your system is profitable following these pairs whether buy or sell, and if the buy/sell ratio is within <5% of each other my pro trader friend says the system is a good one.
Of course you could just use Ichimoku, plus a couple of confirmation indicators and be able to see trading opportunities of all 28 pairs in 30 minutes - which is what I do.
Thank you all for the helpful replies. I think I got enamored with some of the concepts in the school and wanted to implement too many of them. Demoing it just a little today, it did feel like too many steps and I got a bit overwhelmed and uncertain. So I will set this aside for now and practice with something more simple.
