This system might work if you keep the position size very small and execute on a great many trades. But, even with that approach I believe slippage and xaction costs will prove it to be -EV.
You might consider:
1. Any and all systems design books by author Perry Kaufman;
2. Google: "Trading Strategies: Using computer simulation to maximize profits and control risk"
(2) is an very valuable read for anyone looking seriously at developing and implementing mechanical systems. It has much to say about all the major issues related to risk definition and control.
Alot of what is said in this excellent read (65+ pages) is non-obvious even to semi-experienced traders.
I hope this is helpful to you.
Links:
http://www.tradelabstrategies.com/
http://www.tradelabstrategies.com/cu...release301.htm