Chapter 31, Part II. Mechanical System Creation Framework. Page 5

3. Create the tools’ list that could help you to estimate what you want to.

We will use DMA and Oscillator. I offer you to use simple 7x5 DMA as a signal line. If you remember 7x5 DMA means 7-period Moving Average shifted forward for 5 periods. Since our system will be based on MA trading we could treat it as “swing trading system”. But still we will add some feature – we will use Oscillator for estimation of oversold and overbought conditions to place orders and to filter signals.

4. Estimate tools, that could let you get some confirmation signal.

Since our system mostly based on trend catching, we will try to use MACD as a confirmation indicator of trend shifting.

5. Assess your risk threshold

We will not risk more than 100 pips in every trade. Applying 2% rule, we might say that if your account is 5000 USD, you have to trader with 0.05 standard lot or less, if 10 K USD – 0.1 lot or less.


6. Define how you will enter and exit from the trade – as with profit as with loss.

Here is our trading algorithm:

Enter Long:

- MACD (8.3897;17.5185;9.0503) stands bullish at close;

- Price has penetrated and closed above 7x5 DMA on previous day;

- Oscillator (1;7) stands between (-248 ;241) – we treat it as market neither at oversold nor at overbought;

- Place stop-loss order at 100 pips. Move stop loss at breakeven after 40 pips move in favor of opened position.



Enter Short:

- MACD (8.3897;17.5185;9.0503) stands bearish at close;

- Price has penetrated and closed below 7x5 DMA on previous day;

- Oscillator (1;7) stands between (-248 ;241) – we treat it as market neither at oversold nor at overbought;

- Place stop-loss order at 100 pips. Move stop loss at breakeven after 40 pips move in favor of opened position.

Exit rules

1. Oscillator (1;7) reaches -248 or 241. (profit taking);

2. Price crosses 7x5 DMA in opposite direction;

3. Price reaches stop loss order.