12/12: Trading Strategy Development Update & testing commences

I spent the last few days compiling a strategy – this entailed looking how I have traded this year, how I traded in 2010-11, and picking what has worked and what has not.  I tried to keep it simple yet detailed (see the outline below).  Remember I hit a rut, and plotted myself a few small milestones to try and get out of the rut.  See this post here for more details on that and also this one.  Aside from that, I have not put on any trades this week (I got my office colleagues to keep an eye on me for that) and consequently my general happiness and productivity has been higher this week.  As planned, I will refrain from live trading for the rest of the year.  The only other thing this week have been a lot of technical discussions with Mr France.

What does the strategy entail?

The strategy revolves around two main points. Firstly to identify key levels in the market (that is something I seem to be able to do ok).  Secondly to read price action when/if price gets to those levels to figure out whether to go for continuation, reversal or just stay out.   There are only specific technical patterns I can use for assessing price action – triangles, rectangles, 123 patterns, double tops/bottoms, triple tops/bottoms, heads & shoulders (incl. inverse).  No others aside from those.

I am going to look at the 1H timeframe for identifying the trend and use either the 5M or 15M as the execution timeframe (XTF). I will only take trades in the direction of the 1H trend (if there is a trend).  If the 1H is consolidating then I can trade in either direction. I can also take continuation trades in the direction of the trend, if price is not near a key level.

On my chart I will have the EMA’s that I have used all year (10, 20 and 100) as well as the SMA200 (the Bloomberg default).  I will also have the Stochastic (5,5,5) indicator to identify overbought and oversold conditions.

Stops, targets and pivotal trade management points will be set at the time that I enter into the trade.

Testing

I am going to test this strategy on Dax, Oil and Cable for all of 2013 and 2014.  Not sure how long this will take.  I am going to start on it right now.  I hope that I will have it done before xmas.  I am going to focus in on those three instruments, because those are the ones I have been monitoring and studying closely over the last few weeks.  I will do the testing using the ForexTester2 software – I have recommended this software before – and I recommend it again!!

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