Backtest As Secret Traders Weapon

Trading is an unique business. Being an entrepreneur who offers products or services to people, getting clients is the most important part of the entire entrepreneurship. Before you even get clients you need to have office or warehouse for products, legit company, paid taxes and lots of money for the beginning to pay employees, accountant and stuff.

But trading is completely different. You can test your strategy for free, you can use trading platform for free – MetaTrader, Ninjatrader, Ctrader and another platforms. You do not invest even a cent into this business until you decide to fund your account.

Isn’t that amazing? It allows you to save money while you are learning how to trade properly, where to put your stop loss and more.

Trading costs you 0$ until you start to trade with real money. All you have to do is master your strategy on historical charts, for each instrument usually for 3 years. Is there any other kind of business that offers that? I guess not.

So how to use this advantage?

Backtesting.

What does that mean?

Test your strategy on historical data while replaying back or forward charts with any speed you want. For example you chose Nasdaq as the one tradable market and now you just turn on platform called sierrachart, click on pre-defined timeframe you want (1M, 5M, 4H) and start replaying.

While replaying you look for pattern you trade and write down each presence of pattern and then you’ll collect more than 200 trades (each trade write down to the trading journal).

Well, let’s make it clear.

I chose 1M TF – Double top, double bottom. Check charts below how my system looks like.

1. Firstly determine the direction – in this case it’s downtrend
2. Wait for my signal, then put trigger
3. While market creates my pattern I start visualize the size of stop loss and profit target and calcul the potential RRR, if it’s more than 1:3 (risk 1% to reach 3%) once I receive valid signal I entry
4. I set the stop loss and take profit
5. Sit on the hand until it’s over

Determine trend, entry zones and link potential double top

Determine trend, entry zones and link potential double top.

Then after few market moves you get valid signal.

trading, price action, double top, double bottom

Then I sit down to my hand. Do not micro manage your trade.

price action, how i trade double top

RRR 1:7,46. And this is how I use money management. Risking only 1% to potential reach 7,46% within 20 minutes allows my account to grow fast.

So before backtesting you need to know:

  1. Entry zone

  2. Stop loss (put your stop loss on last swing high or low, S/R and stuff)

  3. Profit target – in logical zone as above (last swing low)

  4. Add odds like trendlines, S/R lines

Please check my last article about trading journal where I define each stuff I write down while building a strategy.

Once you got 200 trades, you can get your %win ration, average RRR. Then you start trade again to get better entries with tighter stop loss, write down rules when you will not entry and stuff.

My trading plan and strategy has 35 pages where I specified details and rules that allows me to trade profitable, awoid blind entries. I start to trade only when market is in my „entry zone“ – its pre-defined place where my attention rises and I am about to put my trigger.

You should write down all those rules to specify your trading system.

If you want me to send you my strategy, comment bellow.