J-A,
I fear you may end up getting stopped out a lot, for me both pairs of MAs are too close together.
If you research something like Captain Currency's 3 Ducks system*, you'll see he uses a 60MA on a 4hour chart, a 1 hour chart and then triggered on a 5 minutes chart.
That's the same principle as you are trying for, but 3 Ducks has a good hit rate, doesn't overtrade and is easy to manage visually.
3 Ducks also helps plan your trade - something I am very passionate about. For me your potential downfall lies in the riskiest area - "anticipating the trend". IMHO thats the fastest way to the poorhouse.
Most of my trading now is with Buy Stop orders (we'll concentrate on the Long side as that you're stated preference, although I happen to love Shorts)
Using Buy Stops allows me to place an order at a point where I believe that price is confirming its own movement.
If you use market or Limit orders, you're basically saying to the market "i am wiser than you, i can predict when you will turn, therefore turn you must"
I prefer to say "O great Market, i have no idea which way you are heading, but should you touch my Buy Stop, that will mean you have already significantly turned around, and perhaps there is a possibility that you may continue in this new direction for a little while longer; may I hop aboard Sir ?"
As an example, you believe that a downtrend is about to turn Up. (whatever signal you use**)
Say price is now at 875 and you want to go Long at 873, you ordinarily place a Limit at 873 or go Market at 873.
If you get triggered, you have to rely on a huge change of gravity, to shift the trend from down to up - remember that although your technique gave the signal, there is no guarantee the market will listen to it.
If your're wrong you get out at say 869 for a loss of 4,
if you're right you get out at say 885 for a gain of 12
people will tell you that that's admirable R:R
I prefer however, to place my Buy Stop at say 876, so I only get triggered (spikes, pro-fades, stop-hunting etc aside) once price rises back UP through 874,875,876 Wouldn't that give you more confidence that price was moving in your direction ?
Okay, taking a profit at the same target at 885 reduces your potential profit to only 9 points instead of 12 ***
The beauty of this technique is that if you're wrong about the turnaround in trend, you just keep lowering your Buy Stop point as prices keeps going down, so you're exposed to the potential of a trigger without incurring drawdown.
listen, it's not infallible, once triggered there's nothing that stops price turning right round again and heading south, in which case your loss would be 876-869, 7 points instead of 4
but i have found it's better, for me personally at least, to have Momentum on my side while I hop aboard, rather than trying to anticipate a juggernaught turning around.
* whenever I try to "teach" any new trader, I always start them off now on 3 Ducks. Often times, it's all anyone will ever need
** personally i mostly just use Pivot points and/or divergence
*** although I tend to go rampant once my initial Buy is triggered and I keep placing Buy Stop orders just ahead, so eventually I may have (885-876)+(885-877)+(885-878) etc etc
try it, if you like it, great. if you don't like it, I'm too far away for you come and smack me ....
