Back testing is tough, back testing is boring. Back testing is #$%^&. No doubt. But while I was looking back charts, programming codes, ideas and thought flowing into my mind.
I was having some thoughts over the process of developing my trading system. At the earlier days when I first started Dummy trading, I simply jumped into a trade as long as a valid dummy spot appeared. I can’t say that was right or wrong. But by trading this way, it reduced the expectancy and accuracy of my system (well, I thought I did have a system! lol). When you have a system with positive expectancy, chances are you will be profitable in the long term. But when you have a system with low accuracy, you will have a tough time fighting with yourself to handle the strings after strings of losses (even though they were just small losses!). I had a discussion with Dave on this topic recently as well.
I decide to have a look at the core element of dummy trading. TREND. Yup, basically, I am looking to buy pull back or consolidation within an established trend. During the choppy day, I will be bleeding. I will be better off if I can analyze the current trend before I establish a position. Again, I can spend the whole day drawing lines, calculating moving averages, but day trading requires fast and accurate decisions, so , it will be helpful to have something built to reduce number of decisions I need to make during trading session.
I have drafted out a high-level chart to illustrated my work now.
My task now is developing a Trend Evaluations system. Of course, by no mean, this is a holy grail. It might be just a Moving Average crossover system, drawing some lines or just an ADX calculation system etc. No rocket science. It just to assist me to understand and see the TREND in a faster, and handy way. I am trying to find a method that will keep me at the right side of the market, (well, of course, it can’t be 100% accurate, at least, it put me at the high probability side of trade) regardless of what other system rules (such as Dummy) I might be following. So the end result will be, I have a “system” that takes a position as soon as I find a trend and then exits when the trend is over.
The reason is, if I start from a basis where I am already on the right side of the market, then whatever entry and exit rules I superimpose on my calculation of trend SHOULD only continue to improve my results.
Well, work is still in progress. Just to share something that I am currently doing, and I hope it helps me to grow as a better trader.