Using my “Instant Scan” feature, I can see that it is similar to the Trend Is Your Friend and Amazing Crossover System in that it uses moving averages and oscillators, and tries to catch trends as early as possible.
However, the Simple System 32 also uses an additional indicator called the Parabolic SAR, while also applying Bollinger Bands and a simple moving average to the Stochastic. A little complicated, it is!
The system waits for the Parabolic SAR and moving average to align and signal a new trend, while the Stochastic-Bollinger Band-moving average combo is used to determine overbought/oversold conditions.
The system is not purely mechanical, as System32 uses his own discretion for take profit and stop loss points. And so, for backtesting purposes, I have decided to make it a little more mechanical by setting exact stop loss and take profit targets. I have also decided to backtest on just the 1-hour chart and see how it performs.
SMA (100) – Blue
Bollinger Bands (10, 2) – Applied to Stochastic
SMA (10) – Applied to Stochastic
1-hour or 4-hour (I will be using 1-hour for the backtesting)
Any pair, but I will use GBP/USD for the backtesting since it is what System32 used in his example.
- Buy: ParSar must be below price, 100 MA must be heading towards the direction of the indication, indicators in the Stochastic window should be squeezed in the oversold area (0-20)
- Sell: ParSar must be above price, 100 MA must be heading towards the direction of the indication, indicators in the Stochastic window should be squeezed in the ovebought area (80-100)
- All entry orders must be on the CLOSING PRICE of the signal candle.
- Stop loss: 50 pips from entry.
- Close trade when a new signal materializes.
- Profit target:
- First PT: 50 pips from entry. Take profit on 50% of initial position and move remaining half to BE.
- Second PT: 100 pips from entry. Take profit on 50% of remaining position (or 0.25% of initial position) and move stop of remaining position to TP 1.
- Third PT: 200 pips from entry. Take profit on remaining position.
- If a new signal is made in opposite direction, close trade and switch sides.
It is time to seclude myself and get to backtesting this system. Next week I will present to you my findings and we shall see how profitable this “simple” system truly is. But if you have any questions, feel free to leave a comment or contact me through the following channels:
This is Robopip signing off!
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