In the last picture, it might look like a large move is needed to reach my intial target. That's just because I zoomed in so much. I just wanted to post another pic of the same chart, but zoomed out. Looking at the bigger picture, with the same highlighted points, you can see that it isn't too large of a move after all, and actually looks quite promising.
My views are different than yours. The market gives me most of the input for my trades. Just for the moment, consider a few things. I would not be taking the trade you took the way you did and I do not set any targets (I don't use stops either). But bear with me for a moment. The attached is your chart and it represents 32 trades for me. At the points of my actions, others are doing trades as well. A way to represent trading and using stoops could be done like the way I combined two different colors of lines. There would be many more lines of each color on the chart. I only did a few so as to impart to you the purpose of each color and to just keep it on a beginner simple level. Do exits as a beginning. This means let your protection dictate the exit for now. The exits are late, to be sure, and they are taken after the prior move has expired. There are 32 of them showing on your chart and they are always profitable. This gives you an attitude with regard to trading. The attitude will be an Ayurvedic one thats comes from two steps in thinking: answering a big question and answering three smaller attendant questions. Deepak Chopra, at one point was asked to "drop everything" (he was trained in western Meds and really doing well. His wife could not understand "dropping everything" since they had kids and a mortgage. He was told the answer for getting money was: "If you do the right thing, it (money) will come from wherever it is at the moment." Deepak and his wife understood this. to find out if you are doing the right thing you simply ask yourself: 1. Is it easy? 2. Is it fun? 3. Are you getting results? For exits, in your mode of thinking (not mine) go out on stops set when the yellow line crosses the pink line at the value of the yellow line. The market will come to the stop or you will do the easy thing of moving the stop to more profitable place at the right time, then the market will come to the stop. The pink lines are lines drawn from the ends of two bars when the trend begins. This is easy and it is fun. The yellow lines are offests from the poorest price of bars as the tend continues. Sometimes these values require you to wait a while until the pink line comes to the yellow line. Dumb people will not wait. If the price gets to the yellow line before the yellow line gets to the pink line, then exit. You can see on the chart that your entry and stop are not related to any of this. The reason is simple. you are telling yourself what the market could be telling you and it is not easy; it is not fun and you are not getting good results. In other words, Ayurvedically speaking, you are not doing the right thing. What are the entries for these exits? ask yourself: 1. Would it be easy to enter in the opposite direction when I did an exit? 2. Would it be fun to enter in the opposite direction as I exit to take profits? 3. Would I be getting good results? So what are the yellow lines really? They are price values the trend has finished using either as it advances or when price is regrouping (internal formations). So lets say you want to make more money than this allows. If you can see that this is easy, fun and gives better results, then that is because you are mentally able to handle this new step in making money. How can you let the market tell you things? You have to make it easy by being receptive. How can it be fun for the market to inform you? You probably have to drop the fear bit that is dominant in your thinking. Maybe drawing easy and fun yellow lines will help since they aren't really stops after all. If you begin to do the right things, you will notice that you are making a lot more money.
Backtest, using in and out-of-sample time periods and following the normal rules like not using numerous degrees of freedom. Quantify your results. Then, forward test the most promising results with real money. That should give you a good idea of what works best.
What you say is fine except that, often many times you will not have enough out of sample trades to see if the system is robust or not, which is why walk forward testing is the best method.
I read "back-testing" or "forward-testing" many times. What are they? How do they help? Which traders can try them out? What is robust systems?
Back testing is using past data to test a trading system. It's useful because if a system was not profitable in the past it will not be profitable in the future. Forward -testing is walk forward testing. In this you optimize a window of data let's say past 1000 bars, then test it on next 200 bars. Then roll the whole thing forward 200 bars and repeat the process. This give you a large out of sample period and allows you to see how stable the system is over time.
Thanks Murray for the reply, So, it is like the one we do when we develop software. So, do all trading platforms have "back-testing" or "forward-testing"?
every software which produces signals has the ability to backtest, you write a script, thats is the code for your strategy in your tradingsoftware, for example 2ma crosses 5ma ( just a simple example ) and test it back lets say 5-6 years in those 5-6 years, lets say in those years your strategy would have given you 300 signals. you are now able to view how your strategys would have done. you can still do some aditional "optimizing" you will also see al the signals in your chart. then in forward testing you just keep your platform on and wait to see the produced signals live and analyze if it still keeps performing the same way as it did in the backtest
Thanks for the answer, flyingdutchmen. So, can a software do both? If yes, can I know the names of them? One thing, how do we traders do such testing, how can we know what we are doing is correct? For, it can be a wrong test parameters or data and we think software is okay. Please explain.
Derrick1983, to learn more of back-testing and forward-testing, please read the following threads, they might help you: http://www.elitetrader.com/vb/showthread.php?s=&threadid=104393 http://www.elitetrader.com/vb/showthread.php?s=&threadid=108534 One thing more, read & hear everything, but, you should do your own research and back-testing is a good way to do it.