Hey guys. Been playing around with this little system for the last couple of months now and have had some good success (on paper). I created this first as a stock trading system, but have had no problems moving it into Forex (no luck day trading it however, 4hr is the shortest timeframe it will work). Just thought I’d post it to hear some feedback from the community. I don’t know any other traders so constructive criticism is hard to come by. I would like to hear your thoughts as to what could be added, changed, etc, etc before I start using real cash. So anyway, I present,
The Che Guevara System
Entry
Select a daily price chart and place overtop a 50-day exponential moving average. Look for pairs that have a moving average sloping in excess of 20 degrees upwards for long trades and downwards for shorts. Wait for price to consolidate for at least three days and place a buy stop order above the recent high. If the price touches the 50-day moving average, trade is invalid.
Exit
Place a stop loss a few percentage points behind the 50-day moving average upon entry and trail order with the average as position moves in your favour.
Risk Management
Position sizing is important for the long-term success of the system and no more then 2% of trading capital can be risked in any given trade. So for example.
If you�re trading a $10,000 account, 2% equals $200. This means that in any trade, $200 is the most we can risk. So if we�re trading a $100 stock, with a stop at $95, our risk per share is $5. 200/5 is 40; therefore based on this system we can trade 40 shares of stock.
Now 2% isn�t set in stone, it’s just a number I perfer to use. If 2% is too much, lower it or increase it if you’re a risk taker. Just have a number thought out before you start trading.
So lets take a look at a few examples shall we?
First one here is Google from last fall. Note that I highlighted the range bound trading during the late summer. There was no trend here. The moving average was flat and therefore based on this system we could not trade it. However, early fall, the stock broke out and the moving average steeped. The price consolidated for a few days at around $665. We set our buy stop order above this level, which was triggered a few days later. Upon entry, we placed our stop loss order below the 50-day moving average and trailed it underneath the average as the stock rose higher. In November, we were stopped out of our trade.
Second example here is a back-tested result from Circuit City. Now this stock I actually traded to the short side during this time, but not using this system.
Once again, we�re alerted to this stock because of the steep down trending moving average. The stock consolidated for a few days in mid-July so we would place a buy order below $14. Once entered, we would then place our stop just below $16 and trail it downwards as the position moved in our favour before being stopped out several months later when the stock has a massive rally.
Here’s an example of the USD/CAN over the past few weeks. First two set-ups I highlighted which would’ve provided a nice profit. Third on I forgot to hightlight but you can make out an entry on the 28th. To be fair, you might’ve been stopped out if you kept a tight stop.
Of course, this system can be customized to meet your personality. I chose the 50-day moving average because it�s a good fit for trading intermediate term trends. If you�re a longer-term investor, perhaps trade with the 100 or 200 day moving average. Of course, before any application, always back test yourself and practice beforehand.
Good luck with your trading and best wishes.
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