The system i use basically makes use of Stochastics, Divergence off of the MACD histogram and S/R off daily charts or higher.
I use 9,3,3 settings for my stochastics but i think that has just stuck because i know of a few traders who use those settings and it worked well for them. No real reason other than that.
In general, i don’t think it really matters though. Whatever system you are using, you will not be that much better off using one setting over the other, unless they are drastically different. I’ve read in so many places that optimizing your system this way is a fool’s game. If, for example, you use a moving average cross-over or a stochastic cross over, you will find the results of your system more or less similar no matter the setting. In other words, to expect one setting to generate an unprofitable system but a different setting to all of a sudden turn the system around into a profitable one is not reasonable in my opinion.
As for compounding (i think you mean scaling in) a position that moves against you in the presence of divergence…i think this could be a good practice and should not be confused with averaging down losers.
Averaging down a loser should be discouraged at all costs and will eventually wind you up in the poor house. However, since divergence can persist for quite some time, it could be a great method to scale into the position a bit at a time for as long as it persists. If you normally trade 5 lots, open up 1 lot as soon as you see the divergence. If it moves against you open up another lot at some predetermined point BUT use the same stop as your first fifth. Always maintain the same stop, NEVER increase your stop loss for each scale in. Eventually, if the move goes into your favor, you’ll have a beautifully averaged entry and a great potential profit, more than you would have had entering all at one place.
You should also have a plan for scaling into the full position if it begins to move in your favor right away. I think this is a GREAT method