Discussion in 'Technical Analysis' started by Swan Noir, Aug 15, 2009.

  1. I have read Al Brooks Bar by Bar, a number of Joe Ross' books and various and sundry price action treatises. I think Al's book is great ... I just wish he had written it in English.

    I also read traders here who believe unless it is back tested it is not just worthless but is so worthless that two day old dog crap has more value

    I am am fairly new. I am a marginally profitable swing trader (read nickles and dimes of profit ... not yet folding money) of a single NQ contract exclusively on a 5 minute chart except for the open where I use a one minute or a tick chart. I like the $5 tick as opposed to $12.50 and typically risk $50 to $65 on a trade and refuse to risk more than $90 all in including a $5 commission on any single trade. I like to move my stop closer the action after a minute or two or three

    Here is my conceptual problem. My experience is that in business to be marginally profitable may not mean you are on the verge of success. It is just as likely you have had a run that is essentially random and that you have no read on where you are. If anything you may be at more risk than if you are losing because it is easy to convince yourself you are doing well for a novice and believe that as you build on your experience the deal starts to deliver more money and more consistency. Random success can, and frequently does, prevent novices from looking for a truly profitable business model.

    Trading is obviously even more prone to random runs than most operating businesses; although I think most underestimate how often random sweet spots deceive the new guy in almost any field. IT HAPPENS ALL THE TIME!

    I would like to hear from PA and back tested traders, but particularly PA traders, who can remember being where I am and progressing at some reasonable rate toward the land of milk and honey. I want to hear from guys who made PA + hard work and astute observation pay off.

    Testers, please chime in but refrain from telling me there is no downside to back testing and I am the world's biggest A** Hole for not realizing it. I am familiar with that point of view and concede that it is rational and frankly maybe even compelling.

    Their is clearly a huge divide in the trading community -- Discretionary vs Tested with of course a middle ground of guys that do a bit of both. I would love to see a spirited debate across this divide.
  2. in for discussion as i fail to see how or why anyone would use a system without backtesting and forward testing beforehand.
  3. Price action can be tested.

    It is more difficult to do with a computer than filtered (indicator) action but it is doable. Alternatively it can be done by a person who is sufficiently aware of the tendency to fool oneself in such work.
  4. I too think there are alternatives to backtesting and I have used them with success. Backtesters though have a very strong argument for you to answer. Would you ever trade a system that backtested unprofitable?

    I think some confuse necessity versus sufficiency when thinking about this. Backtesting is viewed as necessary but not sufficient. Price action (well read) is sufficient but not necessary. You can make money other ways. Some people make money while totally oblivious of price action. For example, value investors with good knoweledge of fundamentals, an exceptionally non-trivial task.

    IMO if you trade a system you better backtest it first. If you are not sure what you are trading, then you can skip backtesting. If your system cannot be backtested but it is well-defined, you may have a chance.
  5. Nattdog


    U can do some basic backtesting by hand. for a discretionary trader the value of backtesting is largely in validating your trading concepts. you do not have to become mechanical. One can actually do some decent backtesting of daytrading ideas with daily bars. for example, daily bias, tests of prior high/low, open range breakout, and other things.
  6. It may very well be to soon to tell anything from it but I consider it interesting that no one has stepped up to say that they trade price action profitably.

    Anyone care to tell us that they trade PA profitably?
  7. The issue isn't so much if it's price action vs back testing.

    It's really about mechanical systems versus discretionary systems and it should be obvious which of the two back testing will carry a lot of weight with.

    Therefore, if the method is a mechanical system...back testing is useful and will shed a lot of light upon the potential of real trading as long as the trader allows the mechanical system to do it's job.

    However, if the method is a discretionary method...back testing is only useful for the trader that did the back testing and not useful for others.

    That's why discretionary real trading results differ considerably in comparison to discretionary back testing results from one trader to the next trader because of different interpretations or perceptions of the price action.

    Further, I think its only fair that if someone wants to see back testing results...they should equally be interested in the real trading results of the back tester because I've met too many traders here at ET alone that say real trading results is meaningless while demanding back testing results. :confused:

    I'll say further that anybody that ignores real trading results or think it's less important than back testing results...

    That's a trader or none trader not worth debating with.

    Last of all, everything can be back tested...some via a computer code while others only via manually.

    Many price action traders in the following thread that say and show that they trade profitably although they are not going to share their method...

    You can also research online blogs (many out there) that have price action traders (discretionary traders) posting more than just their broker statements as proof.

    However, if you're waiting for someone to knock on your door and say I'm a profitable price action only trader...don't hold your breadth because they are already saying it most trading days elsewhere in a more control environment than ET.

  8. the problem with most backtesting, is that most people do not sufficiently forward test it. and even if they do, they think that guarantees that it works.

    It is just an approach. You still have to go out there and make consistent good coin with it.
  9. Yes I trade PA SR profitably.

    Lots of people do.
  10. MARK ...

    Not expecting a knock on the door or someones trading plan. What you have posted (as well as comments from others) confirms some things for me and shines a bit of light on some others. Thanks for taking the time.
    #10     Aug 16, 2009