You should always have the result of your backtesting in front of your eyes. While doing backtesting you were to write down all the trades, results and times. Then you were to draw an equity curve and a pip (percentage) curve. These drawings are NOT what you need to have in front of your eyes. Pip curve should be a steadily rising curve, a series of higher highs and higher lows. This curve MUST NOT have drawdowns more than 30%. Otherwise, you are to change some rules, optimize the set. Equity curve will repeat the move of a pip curve if you don’t use MM. If you use MM, increasing the position size, then it should look like a rising parabola. Note that 10% drawdown in the pip curve may easily cause a 30% drawdown in the equity curve. Especially when the drawdown began immediately after you have raised your position size. No matter what MM rules you have)). See picture 1 and picture 2. This time you should not change the trading rules optimizing the set. It won’t help. This time ONLY portfolio will solve the problem. How to add pairs to your portfolio? Backtest another pair and see the curves. If they are similar to picture 1 and 2 then add this pair. If they are not, then discard the pair. After you have chosen pairs consisting your portfolio, write the results of ALL pairs down in order of their appearance (hope you have written the times of trades, otherwise start all over from the very beginning)))). Draw the curves of the united results. If your 30% drawdowns haven’t disappeared it means that your portfolio consists of pairs moving the same way. For example, you portfolio consists of eurusd and usdchf only)). In other cases you huge drawdowns will disappear. See picture 3 and 4. Print these drawings. This time they ARE what you need in front of your eyes). If your realtime trading curves are not similar to the curves you had in backtesting it means that you are BREAKING your rules or you make some other execution errors. Find these errors and eliminate them.
It was a preface. Now we came to the point. What is TIP #3? It’s as simple as this: don’t trade bats on USDJPY M5 and USDCAD M5. They show NEGATIVE expectancy.
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