Hey all,
I thought it was time for another random thought while I had some time to spare. It is quite obvious that most of the traders here come from a technical background, or at least are exploring the art of technical analysis as they start on their trading journey. I myself trade pure technicals, as I just don't have the head for the patience and to be quite frank, the last thing I want to do is decipher a political statement or try to second guess the incompetence of a federal department each time figures are released (damn those revisions, I mean how wrong can you get it!).
Anyhow enough of that, so here's the point of what I am getting to. If you are a technicals trader, i'm sure time and time and time again you have been told to backtest your system, and for very good reason, if you don't trust that it has worked in the past, where you have physical proof of what price did, what hope have you got for trusting it will work in the future, where everything is unknown? So very sound advice there and I recommend it highly. However how do you back-test?, chance are you back test either automatically through a backtesting program of some sort if you have some coding knowledge, or, like most MT4 users need to, they move forward bar by bar (or lumps of bars at a time), pretending to trade and see how your system performed. Again, as long as you are honest with yourself when doing this, nothing wrong with that at all.
Let's say you finish a backtest on a years worth of data, bar by bar, taking entries and exits and at the end of the test you have a nice profitable system with limited drawdown, you are ready to go!
But here's the thing, you have those little whispers in your ear on forums around the globe saying "be careful of news", "better close before CPI is released", "watch out for the PPI,PPO,EST,EDU,FYI,FU,ROFL it comes out in 10 minutes, you better tighten that stop" ... well I ask you why in the world should you? When you back tested, chances are you had no idea when news was released in the past, if you see a large outside bar in your favour in back testing, I'm sure you don't think "Oh that must have been the inflation figure release" .. chances are you think "Oh yeah, I am the (wo)man! May ye bow down to my greatness!" ...................... ok maybe that's me ... but you get the idea.
So if you start closing trades before news, stay out of the market when the news is releasing, or start moving stops around, you are essentially flying in the face of your tried and back-tested system, you didn't do any of those things in testing, so why do them in live trading? Am I making sense?, you can't maintain utmost discipline and stick to a back-tested system to the letter as you should as that is what you trust, but then adjust things on the fly 'cause news is being released if you didn't take that into account in your testing (chances are you didn't right?).
Now if you did note every news release in your backtesting and check each bar against possible data releases, then a rowdy round of applause to you and I bow down to your vigilance, but if you didn't, well then perhaps this applies?
Something to ponder ... im hungry, best of luck on the markets.
I thought it was time for another random thought while I had some time to spare. It is quite obvious that most of the traders here come from a technical background, or at least are exploring the art of technical analysis as they start on their trading journey. I myself trade pure technicals, as I just don't have the head for the patience and to be quite frank, the last thing I want to do is decipher a political statement or try to second guess the incompetence of a federal department each time figures are released (damn those revisions, I mean how wrong can you get it!).
Anyhow enough of that, so here's the point of what I am getting to. If you are a technicals trader, i'm sure time and time and time again you have been told to backtest your system, and for very good reason, if you don't trust that it has worked in the past, where you have physical proof of what price did, what hope have you got for trusting it will work in the future, where everything is unknown? So very sound advice there and I recommend it highly. However how do you back-test?, chance are you back test either automatically through a backtesting program of some sort if you have some coding knowledge, or, like most MT4 users need to, they move forward bar by bar (or lumps of bars at a time), pretending to trade and see how your system performed. Again, as long as you are honest with yourself when doing this, nothing wrong with that at all.
Let's say you finish a backtest on a years worth of data, bar by bar, taking entries and exits and at the end of the test you have a nice profitable system with limited drawdown, you are ready to go!
But here's the thing, you have those little whispers in your ear on forums around the globe saying "be careful of news", "better close before CPI is released", "watch out for the PPI,PPO,EST,EDU,FYI,FU,ROFL it comes out in 10 minutes, you better tighten that stop" ... well I ask you why in the world should you? When you back tested, chances are you had no idea when news was released in the past, if you see a large outside bar in your favour in back testing, I'm sure you don't think "Oh that must have been the inflation figure release" .. chances are you think "Oh yeah, I am the (wo)man! May ye bow down to my greatness!" ...................... ok maybe that's me ... but you get the idea.
So if you start closing trades before news, stay out of the market when the news is releasing, or start moving stops around, you are essentially flying in the face of your tried and back-tested system, you didn't do any of those things in testing, so why do them in live trading? Am I making sense?, you can't maintain utmost discipline and stick to a back-tested system to the letter as you should as that is what you trust, but then adjust things on the fly 'cause news is being released if you didn't take that into account in your testing (chances are you didn't right?).
Now if you did note every news release in your backtesting and check each bar against possible data releases, then a rowdy round of applause to you and I bow down to your vigilance, but if you didn't, well then perhaps this applies?
Something to ponder ... im hungry, best of luck on the markets.
You can quit and they won't care, but you will always know.
