Well, how you can solve this problem? You may re-backtest discounting these cases. Or you may modify your entries and take profits. I use modifying technique. So my long entries are 0,886XA+spread. And my sell orders’ take profits are 0,382AD+spread and 0,618+spread. As you might have guessed in long entries I’m risking few pips more and in short entries I’m targeting few less. I call these types of errors objective. If the trader being driven by emotions breaks his own rules then I call these types of execution errors subjective. Most traders make subjective errors because they did not spend some time doing backtesting. I won’t even talk about these errors here.
Well, what other objective error you may have? It’s time. Nobody can guarantee that you are in front of your computer at time needed. So, some patterns will be missed. The other error is the necessity to choose between the two patterns. Let’s talk more about the last one. For example, while backtesting you took one pattern at a time. So you didn’t take other patterns until opened orders are closed. But while your orders opened there may some other patterns appear. You ARE to miss them. Otherwise, you’ll break your money management rules having more positions and thus risking more. Risking more than usual means you’ll have some problems accepting the risk. If you don’t accept risk you are susceptible for making subjective execution errors. Well, how can we solve these problems? We can solve them doing FORWARD testing. Many brokers allow free demo accounts or micro accounts. As for me I prefer micro account risking few cents then risking nothing with demo account.
How can you know that you are not making execution errors or you make very little so they almost don’t influence your profitability? Just examine your backtesting equity curve and forward testing equity curve. If they coincide then you have trained yourself properly. Now you can begin real trading. But it doesn’t mean that you are not supposed to continually monitor your suseptibity for making errors.
Ok, that’s all about testing. Let’s jump into some statistics.
I’m not a fan of trading very many currency pairs. So my portfolio is only three pairs: eurusd , gbpusd , audusd . My statistics is these three pairs forward testing statistics. is the only strategy I use.
Last 200 trades:
1. Target 1: 113 (56,5%)
2. Target 2: 75 (37,5%)
3. Zeroes: 38 (19%)
4. Loss trades 87 (43,5%)
We have 56,5% probability that price will hit 0,382AD BEFORE it hits 1,113XA. Some winning trades (37,5%) go further and hit Target 2, some of them go back an stop at breakeven (19%).
Total amount of pips earned:
1. Target 1: 1200
2. Target 2: 1600.
As you see target 2 brings more pips than target 1. Some of you may ask why do we need to close half of the position at target 1 if we can close the whole at target 2? You don’t need to do that. I don’t do that. What you are to do is to move stops to breakeven when price hits 0,382AD. But trading this way you’ll have 7 loosers among 10. You need to have balls of steel to suffer such pain)).
Well, It's all for today. If you like it - click like. If you want more editions - subscribe.
P.S. Bat on the chart is the trade I have taken already. If price returns to breakeven before it hits 0,382AD then the pattern is still valid.