Never think of loss as a target, but rather a limit. I know it's just semantics and it is what you mean, but that you typed "target" raised a flag to me on the psychological side of it.
Thank you Overnight, Yes, I mean loss limit. So let me make sure i understand this correctly and again, excuse my ignorance when it comes to back testing a system. However, I plan to live trade a trading system, rather it be til max loss limit or max profit target, or all day til trading session closes, til 9am, or whatever, I must backtest exactly how I plan to trade it? Wish I had known this months ago during manually backtesting. I should have thought of all these options to trade before data collection. Thanks,
From my experience, there is no need to backtest a system outside of the timeframe you plan to actually trade live, but rather how you plan to exactly trade it. Markets can behave differently at different times of the day depending on a fuckton of variables per market. With that said, if you backtest your system and find it is more profitable over the longer-term in a different time-frame than the one you PLANNED to trade live in, then maybe you could adjust your trading times to take advantage of that more profitable window of opportunities. As you said (and realized), there are many, many options to choose from. So much to consider.
Overnight thanks for response. Yes, so many different options to choose from. But I tell you what I am learning from my mistakes, its best to be confident in your back testing data as possible. Now, I have to start over again manually backtesting for all these different variables i am thinking to trade to meet my personal trading window. Why start over? Cause I did NOT record the time of entry/exit per trade, what if i stop trading after 3 trades, what if I stop trading after X amount of profit, what if this or that. All I did was record the date and the P/L for that trade. So here is what been happening to me since the backtest and going live. I backtest for all signals of the day, but only been trading for a few hours a day in morning. Or on my days off, I get emotional drained trying to take allllll signals even though I have profit for the day. Now i am thinking "wow do I have to take all these trades". Well, the answer yes, per the system back tested profitability.
First off, you have to have enough sample size like 3,000, using June contract of each year for past ten years, otherwise you are just guessing. If you trading crude or ES, both have smaller profits in June contract, at least for me. You want to make stats within stats by the hour profits. For me the first session of day session is best cause volume is greatest, get in and get out, if I am at a loss, have rest of the day to make it up. But if sample size not large enough, it be like having your kids walk on coals cause you saw it done on youtube 35 times, but the other 35 times they ended in hospital was never recorded and it could have all occurred in one week. Before DOW making new all contract highs, my trading was doing what it always has done, and now if taking me much longer to get done as I start with losses, going back in my journals show any time Indexes making New all time highs, trading is more difficult, you want to keep good notes in your journals of when you have losses, what is environment doing.
Thanks Handle123 for comments. Yes my sample size not that big, only about 300 - 400 trades. I need more. My weakness so far is not writing in journal enough data about what I see per day (especially for each loss) or asking the right questions about the system that I trade for future analysis. I need to work on this and redo my spreadsheet to record the right data of how I plan or maybe what works best for the system. I don't want to discretionary trade any more with evidence, its too much headache and thinking while in a trade.
Simples, i believe u got ur question answered by many more better than me but to add to it and to this point specifically coming from someone who trades all systematically, it is waaaay less headach and stress to trade systematically and for me its even worth it sometimes to forgo a bit extra returns versus being discretionary.
I'm analysis the the times of the trades and see if any of those times go negative or just have huge risky spikes from news, then try to limit being in a trade over those times. Still the same back test, your just refining to the better parts of your back test. I did the same ages ago, I found trades in EJ at 1am GMT was actually where I was losing most of my money, on Jpy open/news spikes.
Thanks Turveyd, So do you agree that a system should be backtested and forward live traded exactly how it was backtested for, with no personal unproven deviation from the backtested performance results? Just curious on your thoughts.
Back testing is quick relatively, if you can identify times where your system lost, then add to back test to try to skip those times, then run the back test again. Live testing is always different to back testing anyway, I found totally different but I was running off OHLC data not tick data, what you running off ?? OHLC is kinda cheating, cause most methods will be affected by a large move then get you in before so kinda 59.99seconds into the future, be careful of this. O 10, H 20 L 9 C 19 average crosses up cause of the HC, but still back tests the trade at the O so instant profit.