Does my very simple strategy make sense?

Adecco

Junior member
46 3
Hi Guys

I'm a newbie here. I don't have a lot of trading experience - but i would consider myself as someone with a good understanding of risk reward and probabilities.

I've no idea if my system below is idiotic - or quite good. Hence why i'm posting. (I haven't tested this or anything - now would i know how to)

This is geared for day trading (as given its (supposed !) positive expectancy then the more trades the better)

for simplicity i will assume long positions below - but it can also apply short.

Step 1
Look for an indicator of momentum. I've yet to detail this - happy to take suggestions. But if the ma for a number of timeframes all point one way and the price is above the ma (with possibly a breakout of some sort) then this is a possible entry point


Step 2
Use 2 stop-losses.

- Do a risk reward of 1:2.

Theory here is that given you are trading in direction of trend then greater probability of going that way. If the movement was random then you should break even by hitting the profit mark 1 in every 3 trades.
The systems edge is that it gets in with momentum - therefore hopefully hit the profit mark more than 1 in every 3 times.

- Use a second stop loss based on time.
i.e. If the price begins to range then exit.
The idea of the second stop loss is that the momentum relative to the timeframes you are using gtes you into the trade to begin with. If that momentum slows down then suddenly its more of a 50/50 bet again - so time to exit.

Usual Money management rules apply to the above.

AND THATS IT

Can anyone point out any obvious flaws?
I see one main one. It needs back testing to find out the optimum risk reward. I picked 1:2 pretty randomly. But i guess it has to be above 1 to break even (inc fees). Maybe 1:1.5 might be better.Maybe 1:3 would be better. I simply don't know.

I accept it is very simple method - but does it even need to be any more complex? It seems to have a positive expectancy as far as i can see.

Is the above a viable trading strategy? I cant see why it wouldn't be. But i am a newbie only !
 
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Adecco

Junior member
46 3
Thanks for the reply.

I guess where i was hoping the positive expectancy is that given you are trading with the momentum then it is more likely to go in that direction. I would put the take-profit point twice as far away from the stop-loss.
With all things being equal/random then it should hit the Take profit point 1 in 3 times meaning a break even.
But given i am trading with the momentum it would have a greater strike rate of 33%.
And that is my edge.

And to maintain a little extra edge, any trades that end up ranging would be closed out (as they are closer to 50/50 bets meaning they would hit the stop-loss twice as often as the take profit.

Is that not a good reason why the system has the edge? Where is my logic flawed?
 
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