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Guest OILFXPRO

Back Tests Are Useless for Manual Traders

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Guest OILFXPRO

All back tests are useless because the mental edge/phsyche is not tested , and this is 80 % of trading success.The system is backtested , but the trader is not back tested for skills to execute the system , 80 % of the trading armoury is mental skills of the trader.

 

Give a wining system to 100 traders and 99 percent will lose due to impatience , lack of discipline , greed , fear , emotions. ,biases , lack of certainty. , inability to trade with uncertainty ,revenge trades , monkey brain responses , the need to be right , stress responses , lack of knowledge experience and a dozen other psychological reasons.

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All back tests are useless because the mental edge/phsyche is not tested , and this is 80 % of trading success.The system is backtested , but the trader is not back tested for skills to execute the system , 80 % of the trading armoury is mental skills of the trader.

 

They are equally useless for automated systems... But that's another issue

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Guest OILFXPRO
They are equally useless for automated systems... But that's another issue

 

That is why there are so many fre profitabbe systems for free ,and more vendors than traders ......in the zoos of the internet.

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Profitable trading is not all about trade signals. Unfortunately, too many traders misuse back testing beyond what its primary purpose...to only help design a trade method.

 

Simply, traders forget that a trade method is just one chapter in the book called "trading plan". That's why its so common to see so many trade journals by traders that say they are confused or lost for words because they had positive trade results in back testing but can not understand why they are losing money in real money trading.

 

Why ? Traders can not incorporate things like discipline problems, changes in trading schedule, unexpected changes in market conditions and other things into back testing. In fact, a trader can only discover "some" trading problems when one moves into simulation trading. It's those "some" trading problems that will prompt naive traders into returning back to the back testing phase to tweak (fix) their trade method when the problem has nothing to do with their trade method that originally had positive trading results.

 

The problem is the trader in situations as described above and that's why trade methods is just one chapter in the book called trading plan.

 

Therefore, back testing is useful for the sole purpose designing a trade method and shouldn't be used to compensate beyond that because everything else (e.g. discipline) involved in profitable trading can not be incorporated into back testing.

Edited by wrbtrader

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Guest OILFXPRO
Profitable trading is not all about trade signals. Unfortunately, too many traders misuse back testing beyond what its primary purpose...to only help design a trade method.

 

Simply, traders forget that a trade method is just one chapter in the book called "trading plan". That's why its so common to see so many trade journals by traders that say they are confused or lost for words because they had positive trade results in back testing but can not understand why they are losing money in real money trading.

 

Why ? Traders can not incorporate things like discipline problems, changes in trading schedule, unexpected changes in market conditions and other things into back testing. In fact, a trader can only discover "some" trading problems when one moves into simulation trading. It's those "some" trading problems that will prompt naive traders into returning back to the back testing phase to tweak (fix) their trade method when the problem has nothing to do with their trade method that originally had positive trading results.

 

The problem is the trader in situations as described above and that's why trade methods is just one chapter in the book called trading plan.

 

Therefore, back testing is useful for the sole purpose designing a trade method and shouldn't be used to compensate beyond that because everything else (e.g. discipline) involved in profitable trading can not be incorporated into back testing.

 

Why not forward test with real money ?

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Guest OILFXPRO

how do u design useful back tests for the following?

 

Have you done a thorough job? back test design for human errors and mistakes .:helloooo:

 

• If no, stop wasting mine and everybody else's time.

• Are you impatient?

• Are you jumping into this trade ?

• Are you waiting for your need to be right and delaying entry?

• Is this a revenge trade?

• Are you exiting on emotions?

• Are you exiting, not according to the system , but according to your emotional state?

• Are you thinking rationally, after a loss?

• Have you exited to satisfy your mood?

• Do you not have the patience to wait for a high probability trade?

• Are you going to remain a 50/50 trader all your life?

• Can you not think like a high probability trader?

• Can you not pass on this trade?

• Are u putting on this trade impatiently, so you do not miss trades?

• Do you not have the discipline to stick to system rules?

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In trading terms, you can't back test for psychological problems that impacts trading results. Yet, you can keep a daily log and maintain statistics of those things you've mentioned.

 

Also, I would assume that if someone gets professional help via a "psychologist" to improve their ability to manage stressful situations in life...it should be able to be transferable into trading or into any other job. By the way, there are psychologist out there that specifically help those that work in the financial markets.

 

Think about this very carefully, more people today in life (I'm not talking about trading) are under extreme stress in their personal life, relationships, jobs, school and such. Worst, more folks today are not able to properly manage such psychologically. In fact, more jobs today than ever will pay for psychologist, pay leave of absence due to burn-out and some even have a staff psychologist on site at the work place.

 

Further, more jobs today are using employment psychological testing to determine if someone is suitable for the job. I can't remember the occupational agency but its estimated that companies that use psychological testing save millions in comparison to those that don't.

 

How many traders keep daily statistics of their psychological performance while trading ?

 

Its a lot less (I'm guessing < 1%) than those that keep daily statistics of their wins/losses.

 

 

 

 

how do u design useful back tests for the following?

 

Have you done a thorough job? back test design for human errors and mistakes .:helloooo:

 

• If no, stop wasting mine and everybody else's time.

• Are you impatient?

• Are you jumping into this trade ?

• Are you waiting for your need to be right and delaying entry?

• Is this a revenge trade?

• Are you exiting on emotions?

• Are you exiting, not according to the system , but according to your emotional state?

• Are you thinking rationally, after a loss?

• Have you exited to satisfy your mood?

• Do you not have the patience to wait for a high probability trade?

• Are you going to remain a 50/50 trader all your life?

• Can you not think like a high probability trader?

• Can you not pass on this trade?

• Are u putting on this trade impatiently, so you do not miss trades?

• Do you not have the discipline to stick to system rules?

Edited by wrbtrader

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how do u design useful back tests for the following?

 

Have you done a thorough job? back test design for human errors and mistakes .:helloooo:

 

Companies do try this using psychometric tests before hiring.

they also put in place controls and managers and other such elements to ensure traders either have the support needed or risk limits required, or the mental abilities required. They also usually either hire qualified people with proven track records, or they provide training for this.

This is probably as good as it gets and would be the bare minimum rather than simply blaming the trader.

 

As for back testing humans......

If you consider back tests on automated machines to be rather 'interesting' but not much good in reality and then try to apply the same thought processes to humans ----- there is not much to say really other than rethink what you are trying to do.

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Why not forward test with real money ?

 

Well, because if you don't have a tested, prove system, and you just jump in with real money you are far more likely to lose everything you have trying to develop a system, than not.

 

Back testing works. However, that said one needs to understand the context. For example, back testing, especially in manual systems, cannot test the entry on an evolving bar.

 

If you have a trading idea, you need to understand the progression.

 

1. come up with an idea.

2. Back test it.

 

3. Now, *IF* it is working in back testing, the next step is to use a simulated account with real time data to test it over time in simulation.

 

4. If you are successful over the majority of the most common market conditions, then, and only then do you begin to test it with real money.

 

Back testing is only *Part* of system development. If you skip any of the steps in the progression, failure is the most likely outcome.

 

 

 

Futures & Commodities trading is High Risk due to highly leverage markets.

THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL.

THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN ATTAINABLE IN COMMODITY TRADING CAN WORK FOR YOU, AS WELL AS AGAINST YOU.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

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