Hello Everyone, this is Nathan Tucci and I wanted to share something that I am doing with you.
As many of you probably already know from being in the trading room with me, I like to look at the longer term timeframes and make my trades based off of the daily and weekly momentum.
But lately I have been thinking about trading on some smaller time frames, like the hourly charts, to see if I could come up with a profitable strategy using them. I decided to put my plan into writing and test the system on a demo account. And I thought it might be fun to share my results, as I am likely to be very unprofitable in my first attempt at this. Hopefully, you guys can follow along and give me advice on how to improve my plan so that I can eventually get the system to be consistently profitable (then I can make REAL money with it)
I decided to do this based on the Forex Trading Systems article I wrote a week or so ago.
I put a lot of thought into how I could create a profitable system, and I came up with a few key things that I wanted to incorporate. One thing I definitely wanted to be a part of my system is being in line with the trend. I figured that using hourly charts, there would be PLENTY of entries, so I might as well take advantage of being in line with the longer term trend. To determine the longer term trend, I am placing a 483EMA on my 1HR charts. I will only take shorts below the EMA and I will only takes longs above the EMA.
The second thing I wanted to implement was momentum. This goes hand in hand with the trend, but it also has a distinction of its own. Rather than using a momentum indicator, I just decided to base momentum off the candlestick. So one of the rules in my new strategy is that the entry candle must “show momentum”, and I define that as just being a larger candle than the average candle on the chart. In other words, I am not going to get into the trade based on a wimpy candle.
The last thing I wanted to make sure was involved in my strategy was the potential for very large wins compared to a relatively tight stop loss. To achieve this, I decided that I would use a trailing stop system, so that I could have the opportunity to take very large wins if I got in at the right time.
Here is my Plan:
Enter trade based on a Parabolic SAR switch-over in combination with a large candle on the 1Hr chart. Example of what that looks like:
Must be in direction of the trend, defined by the 483EMA on the 1HR.
Ignore switch-overs that are happening regularly and without Momentum around the 483EMA.
Only take trade if the bar with the switch-over is larger than the average bar on the chart and does not have much of a tail in the direction of the trend.
My strategy will require many different stop loss amounts and targets, so I will not abide by a certain risk percentage. Instead, I will use a delta method based on lot size.
I will trade 1 Mini lot for every 2 thousand dollars that is in the account. When the account increase to the next delta, I will then change my size accordingly. If the account decreases a delta level, I will decrease the amount 2 delta levels to ensure that I get back on my feet before losing more money. Once I increase back up to a higher delta level, I will go back to the 1 Mini Lot per 2k system.
My trade management will be very simple. I will enter the trade with the stop loss above the entry candle + a few safety pips. I will not us a hard target, but rather trail the stop using the SAR until I am stopped out of the trade.
I will never take partial profit.
I will never add to a trade or hedge a trade.
I will set an auto trailing stop at X amount of pips if I am leaving my station.
I will never pull a trade off the market without hitting the stop loss.
I should not enter a trade with incorrect size based on the platform that I use, but if I do, I will close it IMMEDIATELY.
I will hold up to 8 trades at one time, but I will only enter up to 3 trades in one hourly close.
I do not mind holding a trade over the weekend.
I will continue to hold trades that earning negative interest until I am stopped out of the trade.
Alright, so that about covers my initial plan. I am sure that it will take a lot of work and tweaking before it is profitable, but this is where I am starting out.
Hope you guys enjoy watching this, and please feel free to leave comments, questions, and suggestions below!
P.S. I will have a myfxbook link to track this account very soon (though I am sure the equity curve will be ugly 🙂 )
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