simple system

while the market is in chop mode and im not taking to many plays i thought i could give you guys a little system you might want to use from time to time.

This is a simple system that is used to go long only. Not used for short selling.

Your shares to trade is based on this equation:
AC * PR / (4)ATR = shares to trade
AC = available capital
PR = Percent risked
(4)ATR = 4 times 10-day Average true range, (can be found on a stockcharts.com chart)

Rules:
1. setup: Look for three consecutive down bars with closes lower than their opens and successively lower highs

2. Entry: Go long on a move above the last (and lowest) of the three down bars

3. Trailing stop: Exit if the price breaks yesterdays low

4. Profit taking: Take profits on the open if the market gaps higher than yesterdays high

5."reversal" stop: Exit if todays high is higher than yesterdays high, but todays close is lower than yesterdays close.

This system tested over a 10 year period had a total return of 513% and an average annual return of 20%.
Over the 10 year period there were only 873 trades placed (only using top 30 big cap stocks in the nasdaq 100) so the set-up does not come up very often, about 7 a month. This might be another little tool to keep ready in your arsenal