Thoughts about bat pattern. Some tips and secrets. Part IX.
Welcome back, traders. It’s Wednesday and we have another edition of “Thoughts about Bat pattern”. Today we’ll discuss batpattern types. Or… If we treat bats a vivid creatures I’d better say species)).
But first we should talk about backtesting. I do backtesting in three passes. The first pass is called eye-test. It’s quick. You need to draw your pattern and see if it works or not. The second pass is optimization pass. You change something in the pattern and see how changes affect the profitability. This pass may have multiple cycles. For example, I want to know how bats profitability changes if B doesn’t touch 0.50XA. I need to test the history period and find bats with this criterea. It’s cycle number 1. Then, I want to know how bats profitability changes if C-point goes beyond 0,886AB. Again, I test the same history period finding bats with this criterea. It’s cycle number 2. And so on. Whatever idea about the pattern you have you test in this second pass. Alternative entries, alternative exits- all rule of engagement are tested here. And finally, when I have all the ROE tested I do the last, trading pass. It’s done as if I was really in that moment trading this bat)). I draw equity curve, write down the time of trades, count average win and average loss, profit factor, expected payoff and so on. In this pass you mostly test your money menagement strategy. If you want to optimize your strategy, again you will need several cycles). After backtesting is done print euity curve drawing, print it and place it right in fron of your eyes. This curve is your ideal result. You are to compare your account equity curve with your backtesting equity curve to find similarities and differences. If the curves are different – it means you do execution errors, you are trading NOT the same way you have been trading in the third pass.
My realtime trading equity curve was not the same as my backtesting equity curve. I mast have been doing some execution errors.
You can read more about trading errors here:
After correcting my trading style the problem didn’t dissappear. Equity curve looked bettern but not as well as backtesting curve. Then I began to scrutinize my backtesting trades. What was so special in my backtesting trading that I cannot repeat in real life? And I found it. It was frequency of trades. In backtesting I had 1-2 per day. In real trading 3-6. I began to study my backtesting more carefully and found lots of bat patterns that I didn’t noticed when I was doing backtestings. After checking these bats I found most of them to be loosers. Why the heck I didn’t notice them? The answer is in the mindset I had when back testing. I just looked at the chart and picked up bats that did catch my eye. I was relaxed and had fun. Whereas in realtime trading I usually FORCED myself to find bats (especially after a series of losses: “I NEED some bats to enter the market. If I don’t enter the market I won’t get my money back”). When you force yourself to SEE a pattern, stalking every tick, strained you will trade EVERY pattern coinsiding with your ROE. But when you are relaxed, feel fun and joy, your mind blocks your perception from seeing those patterns which are typicly loosers. It’s quite simple. Every looser causes emotional pain. Subconsciously you know what type of pattern causes more pain. Your mind is simply tries to aviod pain distracting your attention or somehow else. This type of pattern just don’t catch your eye. If you don’t see anything in the chart at first glance then skip it. Do not try to force youself to see something.
Continuation is in comments...
But first we should talk about backtesting. I do backtesting in three passes. The first pass is called eye-test. It’s quick. You need to draw your pattern and see if it works or not. The second pass is optimization pass. You change something in the pattern and see how changes affect the profitability. This pass may have multiple cycles. For example, I want to know how bats profitability changes if B doesn’t touch 0.50XA. I need to test the history period and find bats with this criterea. It’s cycle number 1. Then, I want to know how bats profitability changes if C-point goes beyond 0,886AB. Again, I test the same history period finding bats with this criterea. It’s cycle number 2. And so on. Whatever idea about the pattern you have you test in this second pass. Alternative entries, alternative exits- all rule of engagement are tested here. And finally, when I have all the ROE tested I do the last, trading pass. It’s done as if I was really in that moment trading this bat)). I draw equity curve, write down the time of trades, count average win and average loss, profit factor, expected payoff and so on. In this pass you mostly test your money menagement strategy. If you want to optimize your strategy, again you will need several cycles). After backtesting is done print euity curve drawing, print it and place it right in fron of your eyes. This curve is your ideal result. You are to compare your account equity curve with your backtesting equity curve to find similarities and differences. If the curves are different – it means you do execution errors, you are trading NOT the same way you have been trading in the third pass.
My realtime trading equity curve was not the same as my backtesting equity curve. I mast have been doing some execution errors.
You can read more about trading errors here:
Continuation is in comments...
