I have been trying to daytrade the Hang Seng CFD index lately, and have only broke even thus far due to poor money management and a bad habit of trying to pre-empt signals even thought I am in the right direction of the trade almost every time so far. I am in the process of developing a semi-mechanical system/rules to try and remove the emotional and subjective elements of trading.
Rules :
Go long : When the 7 minute EMA crosses above the 14 minute EMA, and both are above the 21 minute EMA. (Vice versa for going short)
Close long : When 7 minute EMA falls below the 14 minute EMA. (Vice versa for going long)
I am also taking information from a 10 min RSI oscillator - a crossing over the 50 line will be a "pre-signal" to go long, and vice versa.
Stop management : Maximum loss is 60 points ($100). Move stop loss to breakeven after the trade moves into profit by an amount (subjectively). Trail stops to retain 40% of profits. I will be using "mental" stops.
Whipsaws : If whipsawed by EMA crossovers, stay out of the market and analyse the latest trend as a rectangle chart pattern. Go long/Short on the breakout. Whipsaws by the 10 min RSI signal the trend is weakening.
A few things I am unsure of :
1. RSI divergences - are they accurate enough? I am not too keen on using divergences at present as it is very costly to be thrown out of a trend early.
2. Candlesticks : Does a 1 min candlestick contain enough "timeframe" to be significant?
All feedback appreciated. Thanks.
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