I am going to have an experiment here to test out automation of trading SRS and FAZ. I do not know if it works. It just might. I will open 2 small positions, 5k each in SRS and FAZ.
The set-up is simple. I am looking for an engulfing bar using the 60 min charts. The engulfing bar must be big enough to engulf(cover) the last significant red bar. A market order will be sent right after the close of the engulfing bar. Here is the illustration of the engulfing pattern.
Here is the Set-Up
- Go long right after the close of the 60 min engulfing bar
- Stop Loss will be 5%. If it gaps down by 10% and it will be considered 2 losers in row.
- And the risk/reward ratio will be 1:5. That makes it 5%:25%
A good outcome will be anything that I do not have 5 losers in a row. The experiment will finish either when one hits the target before sustaining 5 losers in a row or when it loses 5 times in a row. It will start from Monday. The computer will totally take emotion control out of my hand. Let’s see how it works. I think it is going to beat me. The trades will be excluded from my portfolio. Feel free to ask me questions.
Here are the 60 min charts of SRS and FAZ at the end of 4/17/2008.
Here is the ongoing experiment: Day 1 Day 2
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