If you’ve decided to begin a career in trading stocks, then a key element to focus on first is trading systems trading systems. Unfortunately, a lot of traders take this for granted. You should realize though that this is the one process that can mean a lot of difference to your career. Here are some vital facts about it to mull over.
#1- You can’t do away with testing and still expect to make profits.
You may have already heard countless traders say before that trading success is very much dependent on following a good system. They are correct to put systems on a pedestal but the more appropriate perspective here is that, for success to be within reach, you need a system that has passed a back test with flying colors.
The plain and simple fact is that you can’t expect to earn much if you don’t get into this process. This is because it is in the tests that you get into that you are able to determine if a plan has a good chance of working well in current market conditions. Unless you make the effort and take the time to look in detail at your system, you will not get anywhere close to earning a decent income through trading.
#2- There’s no need to worry because money won’t leak out.
Aside from having to pay for the tool used for tests, there is no real huge cost involved in back testing. This is because in the actual process, there is no money involved. What actually happens during the procedure is that your trading plan will be taken into historical trading conditions or situations. Results will then be presented on how well your system performed under these conditions.
Understandably, you might feel a bit skeptical over the accuracy of test results. After all, how can it provide you with good insights if current market information is not taken into consideration? There is no real need to test using real data. Pieces of past trading information are good enough to use for gauging system value.
#3- The best results come with the best software.
Just like most everything else, back test tools aren’t all equal. You need to find one that is good enough for your needs. Charting software sometimes come with their own testers but you need to look at what is actually being offered. If the default tool can’t test systems across a diverse trade portfolio, it might not be good enough for you. Third party testing facilities are often best.
#4- There are no perfect results in tests.
There is no use trying to modify systems to reach perfect results. Perfection just isn’t feasible or possible at all. You will never stumble upon a system that will give you a hundred percent success rate. What you should do instead is to get a couple of systems through tests and then pick that one plan that can give you minimal losses.
With so much at stake in stock trading, you can’t afford to belittle back testing. Before you start your own trading account, running tests on your trading plan is the one thing you can do to make sure you don’t go down the loser’s path.
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