In this podcast, I cover a step by step plan that I’ve found to be very effective in fixing the problems traders face.
Too many times, people waste time on trading plans that do not work. Too many times, traders do not understand their edge, or even know if they have one. Too many times, traders may have a good plan, but struggle to apply it in actual trading. This plan will fix all of those problems, if you’re willing to do the work. Along the way, we explore some of the issues of trading psychology and loss of efficiency in trading system design.
If you enjoy the podcast, one of the very best things you can do for me is to leave me a review on iTunes here. Also, if you like the music for this podcast, then be sure to check out Brian Ashley Jones, my friend, and a fantastic singer-songwriter.
Enjoy the show:
Is there reasoning for why you separated back and forwarding testing into two steps. To me they are conceptually just research. Success/failure of a back test does not necessarily lead to the success/failure of the forward test and vice versa.
The remainder of the steps are excellent
I do understand that something which occurs presently is more likely to have occurred at some point in the past than the flip of that. It just seemed curious to me at first because I’ve always done both simultaneously.
Really good podcast! Had a few specific (and stupid) questions: would you say that there is a correlation between how well your backtest does and the likelihood of you having an edge? Meaning that the more you make on your backtest, the bigger the edge tends to be. I’ve only just started backtesting, I’m getting 20+ e-mini SP points daily (that’s after commission, I do 20+ trades per day) with my backtests, going bar by bar, although I’m still trying to make the rules much more objective. And you were right, it’s extremely tedious and I’m not trying to ask you so that I can skip steps, just asking so that I can have a rough idea of what to expect.
After this podcast, I started doing my testing with Robinhood, it is perfect to risk a little money, have a real feeling, yet not worrying about losing too much. I noticed many things by doing this for a week. some of my trades have no set up name! if I can not give a clear description of it, there must be something not stable about it. I will continue doing more to see what I will discover. This is great for I do not have to invest too much emotion in these trades, so I can focus purely on the right entry and and exits. so far so good. I find it is hard for me to do backtesting and paper trading. By using robinhood, I still get amused by playing the game, yet, I do not risk too much capital and emotion. Thanks for great inspiration.
I noticed how you moved your stop while the trades develops, one thing I am struggling with is the big reversal intraday. for example, today I woke up happily seeing EDIT reached 22.80 from my perfect 18.80 entry, then later intraday, It retraced back to 21. it is 1.8 out of 4 dollars profit. I am debating if I should stay with daily stops, or move to a 15 minutes stop. — this is one area I have been struggling with. Also intraday, sometimes I am not quick enough to move the stops. — I am right now using the forward testing hoping I can collect enough data to see if I can get more clue. Thanks as always,