How do you know that your trading strategy really works?
If it took you more than 2 seconds to answer this question, read on.
When you start trading a new strategy, this question can be challenging to answer. You might have trading rules but because you’re not sure about your edge, your confidence in the strategy will last until you get your first couple of losers.
All of a sudden, you question everything.
Did this really work to begin with? What if I was just lucky?
Let’s fix this.
“I’m close to going live with my system! It works perfectly!”
– “Great! Have you backtested your system?”
“What’s backtesting?”
– “…”
Backtesting. One of those things no trader is really excited about. It usually takes a long time, involves a lot of data crunching and it’s generally, well, boring work.
Yet, it’s the one thing traders can’t live without either! To just say that it’s important for your trading success would be an understatement.
Imagine you’re Elon Musk and you’re building SpaceX rockets. You’ll want to test if they can actually be launched and if they fly as expected, right? Backtesting is that step for trading. It checks if something works as expected.
Or rather, you need to ask yourself the question:
How can I make sure that my strategy has an actual edge?
When people are looking for a new forex trading strategy, what they really want to know is:
The first question almost goes without saying. Without a working strategy, there’s no use in attempting to trade in a consistent and profitable way. The second question, however, is more subtle. My opinion is that if you have a working strategy but don’t have a deeply rooted belief that you can trade this strategy, you will fail.
Confidence in a strategy will make or break your results.
Fortunately, there is an answer to both questions: testing.
Before I ever use a strategy, I will have tested it for weeks. For months. It’s not an extremely difficult process, but it does involve a lot of work. During the years, I’ve tested 100’s of strategies. Most of them failed. Some of them, I could make work. The best ones, I’m trading today. Here are the steps involved to make it happen.
I have a confession to make.
I’m completely addicted to trading.
I just love the charts. Regardless if I’m winning or losing. I love analysing price action, testing strategies and finding trading opportunities.
Sounds familiar, you say?
It’s not uncommon. We forex traders are a passionate breed. However, after 5 days of trading, the retail forex markets close. Time to relax and spend time with friends and family. But weekends are also the perfect time to sharpen your forex skills! It’s when most of us actually have some time to research, learn and improve.
The three great essentials to achieve anything worthwhile are, first, hard work; second, stick-to-itiveness; third, common sense.
― Thomas A. Edison
“But the markets are closed! What is there left to do?”
Actually, there’s plenty to do in weekends if you want to sharpen your forex skills! Here are my top 5 tips to improve my forex knowledge in weekends.