To many of the gurus preach money management and rarely discuss anything else. Further, their discussion of money management is not transparent. For example, the gurus do not discuss their specifics about such...trading capital they're using, position size per trade and many other variables to show exactly how they're using it. Simply, we don't know if they are following any money management rules due to the fact they aren't transparent about such with the details when they're discussing specific trades or chart analysis. Yeah, money management isn't the only important variable in ones trading plan and it can't compensate for other variables in a trading plan that are missing or inadequate. Therefore, we as traders need to stay on the sidelines if something is missing or lacking from the trading plan instead of trying to use money management as a savior. Getting back on topic, not all traders are coders especially discretionary traders (not using automation trading). If they have a poor understanding about their PA setup and rely on manual (eyeball) testing...I would think (I could be wrong) they couldn't fully use the results of any information from the testing to their advantage including not being able to "adapt" their PA setup or "adapt" their application of the PA setup considering the markets change many times during the year. I also strongly believe that the market context of the trading day also needs to be documented for each trading day going forward so that any time in the future when we do testing...we can look back in our personal journal for any given day in the past to see our "interpretation" for the market context for any trading day within the testing results instead of just having statistics from testing as our only information for that trading day. It may seem like a pain in the butt to document every trading day any information about market context but its well worth it...not just for helping to better understand our test results but to also better understand our trading results.
Backtesting (testing PA setups) can be very simple or complex depending upon the trade method and how close one wants to get it to be realistic in application. A lot of traders forget that some methods involves an Analysis and then a Trade Signal. Therefore, testing support/resistance Analysis is more than just the Analysis...its also about the Trade Signal. For example, pretend Trader A and Trader B are using the exact same s/r areas but Trader A is using a trade signal strategy called XYZ while Trader B is using a trade signal strategy called KLM. Their test results of the exact same s/r areas will be completely different due to the fact the trade signals are different. Testing gets more complex when we begin to incorporate other variables from a trading plan that can be quantified. Later, the testing results can then incorporate other variables that's more associated with ones "daily routine". For example, if Trader A never trades on Friday's for whatever reasons...it would be realistic to segregate out Friday's test results. Another example, Trader B only trades between 0500am - 0900am est...it would be realistic to segregate out the results of all other time durations the trade signals appeared because he/she would have never been available to trade during such time durations. Therefore, we're not just testing the PA setup, we need to make sure we're also testing how, when and why we apply the PA setup. I think this is why many traders say their testing results differ greatly from their real trading results. It's because that trader had failed to implement how they would realistically apply that trade setup in their backtesting...reason why Trader A and Trader B can have different testing results and different real trading results via the same trade method. Something to seriously think about the next time when doing testing...the importance of including our daily routine in the application of the trade setup.
All true, which is why I go through six phases of testing in Developing a Plan. However, it is unusual for anyone to show any interest at all in testing, much less how to go about doing it. Those who go through the testing process do well. Those who don't, don't. Which is not much different from school. Those who study tend to do better than those who party instead.
I read your pdf several times over a period of months and could have passed a school exam with an "A" about it... but I didn't grasp the practicality of it. If you go thru the process of "OBFSL": observing to back testing to forward testing to sim trading to live trading... and at each phase it creates expectations that are proven in the next phase... or not. And if not proven you go back to the last phase and tweak it, work it, figure out what went wrong... Do it again until it works. You have a process that doesn't leave you dangling in the wind, not knowing what to do, and just becoming a proficient loser. This is amazing. If you do this correctly, and don't cheat yourself and cut corners, it can work. Perhaps the odds of 90% of people failing can become 90% succeeding? I think I also missed entirely the concept of how this fits into the lifestyle of at least some traders. I'm hearing that most of the experienced traders posting in this tread do this process routinely as part of being a trader. In fact, they may be spending as many or more hours actually giving attention to back testing and this process then trading itself requires? [So often you set a trade and there is nothing to do for a length of time. Whereas this process takes more attention as you do your homework with it. At least in my experience of it so far.] Perhaps you don't have to do it after awhile, but I'm getting the drift that this IS the lifestyle. The market may keep changing, and even if it doesn't you can keep improving. Not at all what I thought trading was when I started. ---- Of course this is just part of it. I really liked WRBtraders comment: We as retail traders spend too much time focusing on "trade signals" while the professional traders spend most of their time focusing on things that retail traders think is not important (e.g. proper capitalization, proper trading environment)...all the other things that one should have in place in their trading plan. ...stuff I'm talking about (proper capitalization, proper trading environment, money management, discipline, stress management, psychology)...these are not popular topics. ....somehow I didn't fully recognize those in my trading plan. Actually a plan. Because my plan didn't make sense before without the OBFSL process. Really appreciate the things you guys are talking about.
That's what the first two steps are designed to address: The first step is to decide what kind of trader you want to be. What do you want to accomplish with your trading? Is it recreational? Supplementary income? A part-time job? Do you want to make a living at it? Even the greenest of the green knows whether or not he wants to make a living at it, trade only part time, trade for recreation, trade for the action, trade to have something to talk about with other traders (for whatever reason), trade only long enough to earn money to do or buy X. Do you have any idea what sort of trading is most comfortable? Long or intermediate-term trading? Short-term trading? Day-trading? Trend-trading? Scalping? (Note here that a short-term trader, for example, does not become a long-term trader just because his stop was hit and he didn't sell; a long-term trader doesn't become a short-term trader because he chickened out and sold too soon. Each of these approaches are selected deliberately and for thoroughly-considered reasons.) How patient are you? How adventurous? Are you a leader or a follower (most people think they're leaders)? The second step is to decide what you're going to trade and when you're going to trade it. Have you found an instrument -- futures, stocks, ETFs, bonds, options -- that provides you with the range and volatility you require but also the safety that enables you to relax and trade in an objective and rational manner? Have you yet found a time (5m, hourly, weekly) or tick (1t, 200t) or volume (1K, 100K) interval that gives you enough trading opportunities but also gives you enough time to think about what you're doing? If you want to limit your trading to the "morning", are you physically and psychologically prepared to trade all day? If not, can you shrug off whatever opportunities you may miss by limiting the amount of time you spend trading? And then comes developing the system . . . Of course, if it's recreational, one can skip the plan entirely.
In hindsight I believe all of my classes, books and hired mentors gave me to believe that the "OBFST" process was taken care of by trading patterns, by using a MacD or Keltner channels, ...the work was done for you. So just jump in and start trading live. Given that background, I couldn't take those two steps above in a realistic way. It just didn't connect with what I understood or expected a trader to be. ...perhaps I was being taught to be an amateur? It just took experience & time to recognize what a professional in step one above actually was or could be.
It seems that most people who investigate Wyckoff do so because they've been through indicators and patterns and didn't find success with either (those who found success with one or the other would of course have no reason to investigate anything else). They may have stopped off at VSA, but didn't care for that either. But few people want to spend this much time on it. They'd rather find some trading room somewhere and not think about it. Or subscribe to some hit-and-miss newsletter. Or follow the advice they read on message boards. What one eventually does depends in large part on how much respect he has for money.