I keep track of my trading system performance with R multiples. I examine expectancy and accuracy of my system. This is a common practice applied by many other traders as well.

Something is missing here. When I trade ‘my system’ or ‘my plan’, it should be something that fits my risk appetite, my personality and my time of trading (morning, afternoon or like me, in the middle of the night) etc. So, I think it is neccessary to integrate these elements when evaluating a system.

How am I going to do that? Mechanical backtesting is just part of evaluation and it means a little. No emotion was involved. Some dumb numbers from backtesting sytem give me false sense of security and confidence. We can obtain some statistics from backtesting, that’s true. For example, you can get expected drawdown amount, number of continuous losses, expectancy, accuracy etc. The hard, cold figures.

Trading is an action by trader. Trader is the center of the system. And trader, I am referring to human (creatures that sometimes act like monkey, but will never admit they are relatives of monkey). Same system will have different performance when it is operated by different traders.

I like forward testing. I trade the real money, with small amount of money, for example, in futures trading, I would only trade 1 contract. I will try to carry this testing for 100 trades. Try my very best to follow the trading signals. During these 100 trades, I will meet problems like tiredness when trading at 1 am in the morning or unable to take losses etc.

If backtesting shows me that there will be a string of 10 losses, I might feel ‘No big deal’. But when it comes to real money, I might have chickened out after a string of 5 losses. So , in reality, the system does not suit me, even though I felt ‘No big deal’ when backtesting told me I shall expect a string of 10 losses.

So, here is the summary of how do I evaluate my trading system:

• Mechanical backtesting to obtain figures such as expectancy, accuracy, maximum draw down and number of continuus losses. (optional, since you will have a real result later)
• Trading 1 contract by strictly following the sytem signal for 100 trades. (The more the merrier.This is a chance to test your discipline)
• Recording down the details of real trades (amount earned, lost, and R-multiples, calculate the expectancy)
• Stop trading if maximum draw down has hit your comfort level, I mean financially. This is a strong signal that telling me the system might not suit me well.
• I will be very cautious if the system shows me negative expectancy after 70 trades. And I will stop trading and review the system if it shows me negative expectancy after 100 trades.

This might be nonsense to some people. But I like to focus on psychologcial aspect of trading. If we agree that trader is part of the system, then forward testing is crucial when evaluating a system. A trading system which can be operated well and with confidence by me is the best system for me.

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A short one. I am still confused. After the price feed resumed, I rechecked again, in fact, there was no setup in E-mini Nasdaq. I had a break even trade in Mini-sized Dow .Price feed availability is another risk of trading. Coincidentally, Jason was having similar problem with price feed as well.

First trading day of September did not start well as expected.
Anyway, fight another day.

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Wake up! Summer is over , it is time to start trading again!

I was giving myself a break for the past few days. I refrained myself from reading any chart or trading related material. And I totally forgot about trading. My mind was freed from the stupid buy and sell thingy.

It’s time to trade again. I think now I am dumb enough to do dummy trading. So, I know I will do better this month.

This is the business we have chosen ~ The GodFather, the movie

Dear diary,

I am pretty selective on dummy setup. I do not want to get whipsawed during this pre holiday trading week. (Excuse to take a day off).
Ok, Maybe I was being a coward. I exited the trade early. There were few reasons that prompted me to cover short position of mini-sized Dow early.

• It failed to reach my 1-R break even point gain, and the worst , it was just 2 ticks away. Market was slow and reluctant to sell further.
• After the initial break down, it gave me a doji immediately at the next candle. That disgusted me further.
• The position was opened for around 1.5 hours and going nowhere. FOMC meeting was scheduled at NY time 2pm. People were waiting..
• “Bro, it is pre holiday trading week. In fact ,you are not supposed to trade!”

Well, am I writing something to cover myself from breaking the rules? Maybe I am.(Anyway, this decision was right for this particular trade, market rallied back in the later session).

These are not rules of trade, but some judgement calls under certain conditions.

Dear diary,

This is gonna be a short one. Basically, I did not make any trade today. Monday blue? Definitely no. I was basically too tired with some symptoms of getting flu. The weather in Singapore is killing me.

Ok, Looking back the chart retrospectively, There were dummy setups in mini-Dow and E-mini Nasdaq at 1030am (chicago time). Though E-mini Nasdaq trade would most probably end up with break even. Mini-sized Dow would give a minimum 1-R gain.

I will be kinda inactive this week, due to some personal commitments. Some traders are taking a week off as well, Trader Mike is doing that. However, I will make sure myself come back with full strength in September.

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Dear diary,

It is getting more obvious now, I am likely to end the week with loss. In fact, I am preparing the performance chart now, DARN.

There were a couple of setups appeared in E-mini S&P, mini-sized Dow and E-mini Nasdaq. I chose mini-sized Dow and missed the entry of Nasdaq.

It really involved a little bit of luck here. I chose a bad one. Nasdaq was running without me happily, and it hit a 1-R gain easily. While, the old man Dow was enjoying its strolling. I was extremely tired, physically. In fact, after putting my stop order, I dozed off in front of my screen. Dow was 2 ticks away from 1-R gain, AGAIN!?! , this time I decided to move my stop to break even point and subsequently covered the short position with some very small gain after realising my tiredness.

This is a trading day that my broker is the only one who is pleased. But, at least I put a pause at my string of losses. I will really slow down and strict in stocks index trading now until U.S larbor day. I am shifting my focus to currency trading for the time being.

Time to have some coffee. Let’s fight another day.