Hi Klastica,
Welcome to T2W.
Your idea is very appealing in many ways and, indeed, will work a lot of the time especially in a rangebound market. The problem - as KillPhil08 points out - is when the market trends strongly and you're got in at, or near, the start of the trend. The question you have to ask yourself is this: are you going to hold your nerve when the trade going against you and your loss mounts up exponentially? Not only that, are you going to keep adding to your position the further offside it goes (i.e. averaging down)? I did use this exact system for a paper trading competition before Christmas and, when it works, it's spectacularly profitable. However, when it goes against you, it gets VERY scary VERY quickly!
It may be worth investigating its use as an entry technique in zones of support and resistance. Attached is a chart of the Nikkei, chosen purely to illustrate my point. The heavy middle red horizontal line a the resistance line based on price action dating back to November last. Although price rises up towards the line at the start of the year, it never actually reaches it. So, for example, if you placed a single sell order at 9,500 - it wouldn't have been triggered. However, if you place additional orders either side of this at 9,300 and 9,700 respectively (thin red horizontal lines), you increase your chances of being filled by at least one of them. As the X hairs on the chart show, the first order at 9,300 would have been filled on the 7th Jan and the trade would have been profitable. What is important is that corresponding stop orders are placed at three points above the three entry orders so that if there's a full blown reversal and price breaks through the 9,500 resistance zone, then one doesn't find oneself in the unenviable position outlined in my first paragraph.
Tim.
.
