The best stock trading tip that you can ever follow is to have a trade system of your own. Often though, it is not enough to simply draft a game plan and follow it step by step. You need to make sure that the system you’ve come up with offers you the best chance of making profits. You can only determine this through back testing.
Unlike other money making ventures, investing in the various markets is not entirely a hit or miss undertaking. You don’t have to wait until you are deep into making trades before you find out if you have high chances of failing. You can always test your plan first without using actual trade capital before you decide to implement it.
Not every trader understands the importance of back testing because not all stock trading tips offer insights about it. Back testing is simply a way of determining system effectiveness through trading historical data. A good plan will most likely yield good results and will therefore most likely work well under present market circumstances.
Back testing can’t be a hundred percent accurate. It can however, help you discover the weaknesses in your system so you can adjust the right components. Moreover, it will help determine if a system is at all profitable and if it is likely to meet your specific expectations. After completing the process, you will be better able to make investment decisions with greater discipline and confidence.
Various stock market trading tips also don’t take into consideration the possible consequences of not testing plans. You might think that system testing is still more accurate if you perform it under actual trading circumstances. This however is simply the fastest way to lose money. What may happen if you choose to apply an untested system is that you might get tempted to modify or bail out of your plan. Doing so is almost like investing without a guide at all. Hopping around undecided will definitely get you nowhere close to making profits. It is the act of back testing that will give you enough confidence to commit to using your system no matter what happens.
Expert stock trading tips sometimes advise skipping testing if a trader chooses to trade using a previously proven plan such as the Darvas system. Some specifically choose to follow plans that have already made millionaires out of their creators. People however are obviously not all the same. You might not share a system maker’s specific goals and risk level tolerance. This only means that what may be a perfect guide for one may not help you achieve your exact trading expectations. Before you use any plan, take the time to determine what will work well for you.
Once you are ready to back test, you may want to consider a stock trading strategy tip from an expert back tester to find out the best ways to test systems. Some maintain that manual testing is still the best process because you retain full control over every aspect of it. Take note though that this can be extremely time consuming and will require some degree of technical skill on your part. If you aren’t crazy over technical details and procedures, you should opt for using testing software instead.
No comments:
Post a Comment