How do you validate your trading if you are trading on your own

Hi All

One of the things that I struggle with trading is validating my wins and losses. Just because I won a few pips on a trade does not mean that I correctly called the trade it could mean I just got lucky. As the only person that I can discuss my trades with is myself I sometimes think how do I know if I was right or wrong and not just lucky/unlucky. If there are any other traders out there who feel this way would really like to hear from you and how you got through this. I have been trading part time for a while now so am not without experience and have also completed babypips school as well as a PA course which took about 6 months. I am a part time trader about 8 hours a week but hope to go full time next year I have a very good trading plan heavy on the risk management but canā€™t be sure my actual trading is effective. I suspect it is my risk management that keeps me from losing rather than my actual trading.

I would be very intersted to know if anyone would like to start a confernce call on a regular basis where we can discuss our trades and help each other work out what went right or wrong as I believe that someone elseā€™s viewpoint has the potential to have a positive impact on our trading. I live in the south Northants area and would be willing to meet up on a regular basis too.

I am a part time trader about 8 hours a week but hope to go full time next year I have a very good trading plan heavy on the risk management but canā€™t be sure my actual trading is effective.

Regards

Daren

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Hi Daren,

Can you automate your strategy? This would make it easier to back test across hundreds or even thousands of trades. Even if canā€™t be automated, you can manually test how your strategy would have performed on chart setups from past though this could take much longer to gather a meaningful sample size.

It sounds like by what you are saying that you are a discretionary trader, at least in the sense that you donā€™t look for predetermined trade arrangements that have been specifically written out by yourself in a ā€˜rule bookā€™ per se. If this is the case, then itā€™s going to be very difficult for you to validate each trade - if they canā€™t be linked back to a specific 'trading system / method" for at the very least (1) Entry, (2) Exit and (3) Trade Management then you really donā€™t have much to go on?

But at the same time, it sounds like you do have a trade plan?

What I would work on doing, all be it very time consuming but worth while in the long run, is to quantify every element of every trade so that you have a fixed criteria. That way, when this criteria is presented in the market you can take this trade as it agrees with exactly what you are looking for. The outcome of this trade is then purely down to your performance - not how lucky or unlucky you were.

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Hi RISKon FX,

Yes you are correct my trading is discrentionary but does come with rules albeit not hard and fast. Maybe the right thing to do is firm the rules up and gain some data which in turn will help my validation. Thanks for the advice.

Thatā€™s right, but the more often it happens, the less likely it is to be just luck, of course, so in that sense thereā€™s safety in confidence in numbers.

Both the issues you address can be helped with a good trading plan and a good trading journal, especially if you keep the journal somewhere online where more experienced traders can comment on it. You may get some helpful insight that way. Itā€™s not easy, though.

Donā€™t forget to include in a trading journal ā€œtrades you nearly took but didnā€™tā€ because if those turn out collectively to be profitable, there are things to be learnt there, too.

I suspect not, and the longer you remain profitable for, the greater is the chance that Iā€™m right.

I think youā€™re better doing it online. People are more interested in that, and itā€™s less of a fixed commitment.

However you do the interactive bit, you need to be very careful about who the people are. Itā€™s very difficult. In a forum like this, for example, there are endless people offering ā€œadviceā€, sometimes for reasons of their own which gradually become apparent, or sometimes just to blow their own trumpets, or for something to do, and some of them have no real idea what theyā€™re talking about. (RISKonFX isnā€™t one of them!).

ā€œHeavy on the risk managementā€ is definitely a good thing, but however good that might be, youā€™re not going to make consistent profits without positive expectancy as well.

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Hi FOREX, I am unable to automate my strategy but will take a closer look at my trading rules which in turn should give me better data to check my trading performance, thanks for the advice.

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If you can clock about 100 to 200 trades per month for a period of 1 year, with each trade having a stop loss and set target. See for yourself, if the ROI per month is worthwhile pursuing or not. Also check if there are any losing month, preferably no losing months. When your livelihood is on the line. Its no joke. A full time traderā€™s commitment to trading is extremely hardcore. The road to Rome is not built in a day.

PS : Try not to average your position more than once.

100 to 200 trades a month!!

I place less than 100 a year, far less!

I see that you are a position trader.

To an extent, but never holding for more than 24 hours. I just have a very narrow criteria that I look for.

Well so long the ROI is a positive one. I guess the number of trade doesnā€™t matter.

I trade part time so trade max 4 per week so will struggle with 200 per month. If I tighten my trade rules up will probably be less, am probably getting to the point where I need to rethink if I want to progress from steady to profitable

Not necessarily, so donā€™t be put off.

Trading more than 30 times a month is not common, above 50 times a month sounds like trading on steroids. Being patient pays in trading, so donā€™t forget that.

I average 8 trades a month, for example.

I see. Then perhaps i think you may not be suitable to trade full time. You only make 4 trades a week. It is not necessary for you to commit yourself full time in forex. There isnā€™t a need for you to do full time. Keep the day job. Treat forex trading as a form of investment. As long your trading ROI is better than fix deposit bank interest. Itā€™s better than no profit.

May the force be with you

I think your right on.

I dont validate my trading on a trade by trade basis. Validation for me is the long term net result of my system.

I dont try to predict the market because I cant. Therefore, a winning trade doesnt mean I was right and a losing trade doesnt mean I was wrong.

If I go short its not because I think the market is going down or if I go long its not because I think the market is going up.

When I enter into a position, its only because a low risk opportunity to capitize in the event the market moves in that direction has presented itself. I trade with the mindset that I have no idea what the market is going to do. I also operate under the default assumption that I will lose, and I allow that assumptiom to drive my risk management.

Hi PanchoVilla84

Thnk you for your comment beginning to think I was the only one who thought like that, I never considered approaching the market assuming I would lose it may further reinforce my risk management to do things that way.If you donā€™t mind me asking is your trading syatem set on a clear and strict set of rules

To all posters thank you for your comments so far has really made a differnce in the last 24 hours.

Kind Regards

Daren

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Hello Daren.

Operating under the default assumption that every trade will lose was a radical concept for me as well.

I heard it from an interview with a pro trader. His theory was that by using strict risk management and only trading low risk setups under the proper market conditions, 70% of his trades will lose, 30 % will win and a small % of the 30% of winners will win BIG. The small % of BIG winners alone will be enough to offset his loses and account for a large % of his annual profit.

Incorporating this mindset into my approach has improved my risk management, trading psychology and overall results.

As far as my system is concerned, my risk management, pre trade preperation, in trade management, and entry execution is strict and non negotiable in principle.

I try to be as mechanical as possible with my execution and I believe that my overall strategy is well defined and governed by a strict set of rules.

My system does allow for a limited amount of discretion with respect to identifying and determining the strength of setups, as well as the interpretation of price action, trends, significance of s/r levels and market conditions.

However, I strive to keep my discretionary analysis confined within the framework and philosophy of my overall system. And as an added fail safe to guard against abusing my discretion, I will only trade what my analysis concludes to be the absolute best possible setups.

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Hi PanchoVilla84

I virtually follow this type of trading with my overall trading plan, the exception being my trading system it is much more discretionary however I have started to put a more strict program of rules together my only worry with this approach is I will learn less about trading as a whole. I also enjoy the way I trade and would not like to lose that yet, maybe just not ready to take the last leap into serious trading.
Regards
Daren

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Thats understandable.

Personally, I dont feel that the rules of my trading strategy are a barrier to learning more about trading in general.

My approach is to learn as much about trading as possible first, then I try to take the information and strategies that resonate with me and fit my style to develop my own system.

Once im comfortable with a strategy, Iā€™ll try to develop other strategies for different price action patterns and market conditions.

I think itā€™s wise of you to take your time and stick with a system you enjoy and are comfortable with for the time being.

Sounds like your approach is rite on.