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How to overcome "Hindsight Bias"?

  • #21
  • Mar 28, 2010 9:01am Mar 28, 2010 9:01am
Having a program like Forex Tester 2 or something along those lines can also benefit you. It allows you to go back to as early as 2000 and trade bar by bar (of what ever TF you want) and you make the decision to trade or not before moving on the next bar. It is much like live trading only you control the pace. You can also choose a few exclusive pairs (not commonly traded) to help remove the bias and check your system (provided it works on all pairs).

It is difficult to be discretionary in trading when eveything is curve fitted either through optimising an EA or optimising your backtesting scope (ie only taking the trades that you at least subconsciously know will work). The ultimate test is trading in the now and it will tell you almost instantly whether you have an edge or not. If you have an edge and you understand it then you will have very little problem executing when the time presents itself. You will have behind you a trust based on the level of backtesting. How well that edge is defined will be found out in real time (and whether your edge is actually anything at all). If you dont trust in the backtested results then the chances are that you will find it hard to pull the trigger no matter how the market/s set up.

Hindsight is always 20/20 and the markets are human emotions which means they tend to have some repeatable patterns over time which allows for at least a moderate amount of clear vision.

Razor
  • #22
  • Mar 28, 2010 9:02am Mar 28, 2010 9:02am
Quoting pipmutt
So basically your system only works on historical charts and can't be put to practical use in a live market environment, is that what you're saying?

Not being funny but more or less every strategy works with the benefit of hindsight, discretionary ones even more so!
Definatly more so. I have had many discretionary backtests turn 10k into over a million in less than 18 months. Nothing like putting down a cool 10% when you know at a conscious level the market is about to trend and your at a top or a bottom lol.

Razor
  • #23
  • Mar 28, 2010 9:28am Mar 28, 2010 9:28am
Quoting Razor_trader
Definatly more so. I have had many discretionary backtests turn 10k into over a million in less than 18 months. Nothing like putting down a cool 10% when you know at a conscious level the market is about to trend and your at a top or a bottom lol.

Razor
lol, now if we could just come up with a time machine or a brôker who will execute on yesterday's prices.....

The F12 tip Bytebodger mentioned is really useful (sounds like Forex Tester 2 is similar), great after a few losses, scroll back and make sure everything is still working renews confidence!
  • #24
  • Mar 28, 2010 10:29am Mar 28, 2010 10:29am
Yeah, a related thing I see a lot are supposed Gurus posting charts marking all the trades they could have made money off, or even more crafty, just a blank chart and a few lines with cryptic clues. They are all of course in hindsight.

Classic technique, then you try trading it live and it suddenly stops working.
Economists have forecast 9 out of the last 5 recessions
  • #25
  • Mar 28, 2010 10:40am Mar 28, 2010 10:40am
Quoting kk007
Thanks Dopey,

How are you? Hope you are well!

I tend to look at more than one factor (mostly 2 to 3) when making decision, because of the "synergistic" effect. If one factor gives indication of 60% success, combining two factors gives indication of 84% success( 1-(1-60%)*(1-60%)). I really want to use one factor alone, since it is simpler, but I am not aware of any simple-and-high-prob trading method.

cheers,

kk
I have never understood why people here on FF care so much about success-rate. I would be more concerned about the average win contra average loss, also called expectancy. My % for a successful trade can be below 50% yet I have no problem making positive returns in the long run.
Measure twice, cut once
  • #26
  • Mar 28, 2010 9:33pm Mar 28, 2010 9:33pm
I know you are talking about R:R. I was focused on "synergistic" effect in probability, and so did not touch R:R.

Quoting aediaz1
I have never understood why people here on FF care so much about success-rate. I would be more concerned about the average win contra average loss, also called expectancy. My % for a successful trade can be below 50% yet I have no problem making positive returns in the long run.
  • #27
  • Mar 28, 2010 9:35pm Mar 28, 2010 9:35pm
That is true. It is a technique to attract students. I have attended a introductory class teaching the method of using moving average crossing, the gurus picked a chart and demostrate 90% of the setup on the chart is successful.

Quoting markmm
Yeah, a related thing I see a lot are supposed Gurus posting charts marking all the trades they could have made money off, or even more crafty, just a blank chart and a few lines with cryptic clues. They are all of course in hindsight.

Classic technique, then you try trading it live and it suddenly stops working.
  • #28
  • Mar 28, 2010 9:36pm Mar 28, 2010 9:36pm
Very true.

Quoting Razor_trader
Definatly more so. I have had many discretionary backtests turn 10k into over a million in less than 18 months. Nothing like putting down a cool 10% when you know at a conscious level the market is about to trend and your at a top or a bottom lol.

Razor
  • #29
  • Mar 28, 2010 9:37pm Mar 28, 2010 9:37pm
As my post#5 response to you. My method on forward trading still profitable, but not as good as hindsight judgement.

Quoting pipmutt
So basically your system only works on historical charts and can't be put to practical use in a live market environment, is that what you're saying?

Not being funny but more or less every strategy works with the benefit of hindsight, especially discretionary ones!
  • #30
  • Mar 28, 2010 9:39pm Mar 28, 2010 9:39pm
Yes. I have tried this method. The scrolling feeling is completely different to historical chart observation. I also tried LHF simulator, again it is another feeling.

Quoting Bytebodger
First, if your system is largely (or entirely) discretionary, then backtesting loses much of its already-dubious value. This is why forward testing is critical. I personally think that one month of forward testing is worth more than a year of backtested results.

Second, if you really want to backtest a discretionary system, you must do everything you can to blind yourself to the full chart. If you're using MT4, go to a chart that you're reasonably unfamiliar with and then go back in time as far as you can, so you presumably have no internal knowledge...
  • #31
  • Mar 28, 2010 10:55pm Mar 28, 2010 10:55pm
Quoting kk007
Yes. I have tried this method. The scrolling feeling is completely different to historical chart observation. I also tried LHF simulator, again it is another feeling.

Have u tried using the vHandsTrade Simulator ...? It's replays each candles so u can practice your manual trading skills.

I limit my trading to max of 2 wins or 2 losses a day. More than that and my focus will decrease and i will start losing lol ...
  • #32
  • Mar 29, 2010 2:48am Mar 29, 2010 2:48am
Quoting kk007
......That is when I read a chart, I see a lot of profitable setups using my own method, but when I really trade it, it is a quite different story. Loss trade is much more than expected.

For traders who have experiences in overcoming this, please share with me..
What has worked well for me the last several years is taking screenshots on several different timeframes every time I place a trade. (I use SnagIt, but any screenshot program should do okay). Anyway, this gives me a visual 'diary' of all my trades, as SnagIt allows me to place comments, arrows, circles, etc. on the chart. When I close the trade, I make a screenshot of that, too. Nowadays, I only keep the trades that didn't go the way I planned, and it is usually very easy to figure out why. But when I started using this process, I kept them all and used them to tweak my entries to be more consistant and profitable. I have also used this when I began experimenting with another setup/method on the demo account, as it doesn't take many to be able to review and tell if you are on the right track or not.

This has helped me to ensure that I am trading the setups I actually see rather than the ones I want to see. Since the screenshot is taken when the trade is actually opened, there is no guesswork going back to try and figure out what all the charts looked like....you have it in front of you. You can see what each candle and indicator looks like when you make your decision (yep, I use indicators!), instead of what they look like several hours later when you think about it.

By far the best thing I ever started doing to sharpen my skills.

My 2 pips...
  • #33
  • Mar 29, 2010 3:44am Mar 29, 2010 3:44am
Quoting moneymaker2
What has worked well for me the last several years is taking screenshots on several different timeframes every time I place a trade. (I use SnagIt, but any screenshot program should do okay). Anyway, this gives me a visual 'diary' of all my trades, as SnagIt allows me to place comments, arrows, circles, etc. on the chart. When I close the trade, I make a screenshot of that, too. Nowadays, I only keep the trades that didn't go the way I planned, and it is usually very easy to figure out why. But when I started using this process, I kept them all...
Great advice.

When I first read the original post, I was thinking it could be "reaction lag", but is does sound more and more like a case of seeing what one wants to see "in the heat of battle" versus seeing what is really there.

Whilst traders trade, a good mindset to have is " Why should I NOT take the next trade?" instead of focusing only on reasons to take it. Especially since you are more of a discretionary trader.
Without VSA, you're playing checkers while the Smart Money plays chess.
  • #34
  • Mar 29, 2010 4:00am Mar 29, 2010 4:00am
Thanks for the replies. Sounds to me that the only way to overcome "hindsight bias" is to "get used" to forward trading - demo trading or Sim trading, Scroll trading etc. Evaluate the performance afterwards. I think it may possbly the only way for me to moving forward.
  • #35
  • Mar 29, 2010 4:48am Mar 29, 2010 4:48am
Quoting moneymaker2
What has worked well for me the last several years is taking screenshots on several different timeframes every time I place a trade. (I use SnagIt, but any screenshot program should do okay). Anyway, this gives me a visual 'diary' of all my trades, as SnagIt allows me to place comments, arrows, circles, etc. on the chart. When I close the trade, I make a screenshot of that, too. Nowadays, I only keep the trades that didn't go the way I planned, and it is usually very easy to figure out why. But when I started using this process, I kept them all...
since im still a bloody beginner, i do the same as moneymaker. i use myfxbook for this, they recently added the feature to upload a picture for each trade you took, and writing some text too. this. helps me a lot keeping a (organized) diary and explanations on what i thought in the moment i took the trade.
i absolutely recommend doing this.
Patience is key.
  • #36
  • Mar 29, 2010 6:27am Mar 29, 2010 6:27am
Quoting kk007
Thanks for the replies. Sounds to me that the only way to overcome "hindsight bias" is to "get used" to forward trading - demo trading or Sim trading, Scroll trading etc. Evaluate the performance afterwards. I think it may possbly the only way for me to moving forward.
Evaluate the performance afterwards is the key. If you are finding that performance is lacking then there is

A) a chance that what you are aiming for doesnt hold as viable edge as you have seen.

B) the market condition may not be suited as current to your models.

For example, my backtesting of my way of trading to me holds and edge which I exploit when the opportunity presents itself. I know within a fairly short term (for me that may be just beyond a day which for some is like a lifetime) whether it has a good chance of working or not. My tests have been conducted over a period of 10+ years and over that time there has been times of drawdown, times of inactivity and times of growth. By doing all this and having a positive outcome through a decade of test I can safely assume that my probability of success is good provided I take my trades when I need to. I know that there will be periods of drawdown and there will be periods of inactivity so I KNOW that when I experience a few losses that it is nothing to be worried about, which is something that few people understand or acknowledge.

If you take the time to compile results from the past and you build a plan of attack with all the key focuses on those results then there is a likelihood that you will have some success in the future.

Razor
  • #37
  • Mar 29, 2010 6:37am Mar 29, 2010 6:37am
Hi Razor,

Thanks for your reply. You said you test 10 years of chart, do you daytrade or trading the D1 chart?

cheers,

kk

Quoting Razor_trader
Evaluate the performance afterwards is the key. If you are finding that performance is lacking then there is

A) a chance that what you are aiming for doesnt hold as viable edge as you have seen.

B) the market condition may not be suited as current to your models.

For example, my backtesting of my way of trading to me holds and edge which I exploit when the opportunity presents itself. I know within a fairly short term (for me that may be just beyond a day which for some is like a lifetime) whether it has a good chance of working or not. My...
  • #38
  • Mar 29, 2010 6:42am Mar 29, 2010 6:42am
Quoting kk007
Hi Razor,

Thanks for your reply. You said you test 10 years of chart, do you daytrade or trading the D1 chart?

cheers,

kk
Most of my trading is conducted with weekly and daily references. If I see something that fits my criteria then I will trade it and I may go as low as 1 hourly but I have very limited time due to running a fulltime business so I am more inclined to taking trades of daily charts however my outlook is long (days, to weeks to months if they happen to fall that way) so therefore there will be times when I get a signal but the market doesnt move straightaway.
  • #39
  • Mar 29, 2010 6:46am Mar 29, 2010 6:46am
Hi,

I find the strategy tester on Mt4 pretty good, I just put in the dates I want to test, and once has started I put on a tepmlate with all fibs, S&R, etc. that I use.

I've been trying to use it to go over the trades I've taken to see the where I've gone wrong/jumped in or out too early. Also using it to gain confidence recognising set-ups I know have a high probablity of succes and attempting to gauge the times, (like now when momentum is rather lack-lustre) when I'm best off standing aside.

Is that what you mean?

Cheers.
  • #40
  • Mar 29, 2010 7:09am Mar 29, 2010 7:09am
I use the LFH simulator in the strategy tester. And you?

Quoting annieb
Hi,

I find the strategy tester on Mt4 pretty good, I just put in the dates I want to test, and once has started I put on a tepmlate with all fibs, S&R, etc. that I use.

I've been trying to use it to go over the trades I've taken to see the where I've gone wrong/jumped in or out too early. Also using it to gain confidence recognising set-ups I know have a high probablity of succes and attempting to gauge the times, (like now when momentum is rather lack-lustre) when I'm best off standing aside.

Is that what you mean?

Cheers.
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