Hey, what’s up, guys?
So there’s a question at the top of my mind for a while now.
Let’s say you want to look at some charts at the end of the week or month, etc., to evaluate what you did with your deals. What would those charts be?
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Do you mean what time frame those charts would be using?
Let’s just say you want to evaluate what you did at the end of the month. Which factors would you consider to conclude that whether you were successful this month or not? Like you would consider profits, your account balance, your win ratio, etc.? I want you to tell me, which factor would be more important to you?
In an ideal world (and I do not always take chart snapshots when I enter and exit a trade), you would review your trade journal, and that trade journal should record reviewable information. Below are some extracts from my trading plan that may help you.
Trade Journal – A simple trade journal shall be maintained in Operate stage, and all trades shall be reviewed on at least a monthly basis to identify and analyze mistakes. Mistakes are defined as outcomes that result in an unintended consequence. If the outcome of a trade does not conform to the documented algorithm used to setup, enter, manage, and exit the trade, the mistake shall be logged as a required amendment to the decision process, and a code shall be used to establish which Requirement was broken.
E11 Journalling Done Right = $$ - part of G7 Forex Journal Do's and Don'ts (Podcast Episode 11) - YouTube
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Episode E11 Journalling Done Right = $$
Spreadsheet with only 5 columns. Reason – to find mistakes in past trades and eliminate them
Use assumption – every mistake eliminated contributes 1% improvement to ROI
1 Instrument (pair),
2 Long/short,
3 PIPs gained/lost,
4 link to screenshot of the trade (eg via imager service). On the screen shot, draw lines where entered and exited.
5 the comments section. Comments section – no comment for a winning trade as per plan, no comment for a loss as per plan. To point out mistakes – eg ignored indicators, exit was too early, etc. Feedback for continuous improvement – see Elimination video).
Babypips – 4 ways to avoid missing good trades
Set alerts and orders
Journaling
Decrease your position size
Look at the big picture – shrugging off missed trades is equivalent of not booking to journal is equivalent of not minimizing problems.
BACKTESTING JOURNAL
The Journal (Spreadsheet)
- How many currency pairs are you going to test this out on?
- Are you going to tweak the settings on these indicators? If so, how many times?
- How far back are you going to test these? Make this answer the same for everything you test.
Now that you know this info, your spreadsheet should look like this:
EUR/USD
| Indicator | Settings | Win | Lose | Win % |
|---|---|---|---|---|
| A | B | C | D | E |
You can figure your Win % by dividing your wins by the total number of trades. You can even set your spreadsheet up to do this for you.
C1/(C1 + D1) = E1
The Test
Here is what determines a win or a loss.
1 – Start from today and go back in time until you see your indicator give a buy or sell signal.
2 – Find the value of the ATR at the time the buy/sell signal was given. We do not care what the ATR was at any other point in time. We only care about what it was when we got the signal.
3 – Then find out which happened first. Did price end up hitting the value of the ATR first, or did it hit the value of 1.5 x ATR int he opposite direction first?
For example: If the ATR at the time of the signal was 80 pips — which happened first? Did the trade make you 80 pips of profit, or did it lose you 120 pips? Which occurred first?
If the profit happened first, it’s officially a WIN. If the loss happened first, it’s officially a LOSS.
Make a mark off to the side somewhere to track wins and losses.
Repeat this every time the indicator gave you a signal, all the way back to the point in time you decided to stop recording.
*You will find times where your indicator gave you a signal to go the other way before price had the chance to become a win or a loss. Just chalk this up as nothing and move on.
4 – Take the information you have recorded, and enter it into the spreadsheet
5 – Repeat for every indicator and every setting on that indicator you want to test out.
Now, once you have done this for every confirmation indicator you are considering, you can sort column E to see who the top performers are.
And don’t get rid of the sheet once you’ve finished! Every time you find another indicator, enter it into this same sheet and compare it against the indicators from before. This sheet will last forever!
Most of these win percentages should be reasonably high. This is not a difficult test. You’re asking an indicator to get to a smaller number before it gets to a larger number in the opposite direction.
But your top 3-5 performers, even though we don’t have all the information we need in our algorithm, are still going to out-perform the others 99% of the time. So keep them around and start forward testing them now.
How far back to test? 2 years.
In the past 2 years, we have seen dead markets, wild markets, elections, over-compensations, and all things in-between. Because in real life, all of those markets are going to happen again. So why have an indicator that’s going to get you destroyed once market conditions are no longer favourable?
A real killer confirmation test indicator is going to give you signals when the market is right for it, and avoid giving you signals when it’s not. And this is how you figure out which ones have the potential to become that special indicator for you going forward.
As for testing Exit Indicators, we can’t really do that yet, because we have yet to go over Trailing Stops. Trailing Stops is what your Exit Indicator is ultimately going to be competing with. All in due time however. Getting this right first is what’s important. Going slow, going step-by-step in this whole journey and making sure we have the early parts right before moving on to other things, is even more important.
BABYPIPS
For journal detail in trade management – algorithm review for continuous improvement
Underrated Metrics You Should Add to Your Forex Trading Journal - BabyPips.com
MYFXBOOK
myfxbook.com is a good place to keep track of your trades. It links directly to your trading account and statistics are all automatically calculated as your open and close trades. It is free to use so worth checking out.
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