Darren and Walter each share one helpful trading tip – one thing that has helped over the past month.
Walter talks about how his disciplined approach to back testing has helped and Darren dives into the deep thinking he’s been doing on the distribution of winners and losers.
Download (Duration: 09:13 / 10.5 MB)
In this episode:
01:33 – backtesting
03:00 – chipping away everyday
04:22 – distribution of winners and losers
05:20 – take a break
07:44 – psychological break
Set a little bit of time aside every day to do your testing. [Click To Tweet].
It buys you time away from the chart. [Click To Tweet].
Make sure that the next day, you’re in your game. [Click To Tweet].
Darren: The problem is people wants some sort of certainty that they’re doing the right thing at that moment “Oh God well. It’s moving now I could miss out on another 2 pips.” Doesn’t matter, you’ve traded a period of the week. You’ve made some profit, an acceptable amount of profit for trading a week, have a break. Why not?
Announcer: Two traders, Darren and Walter, pull back the curtain on profitable trading systems, consistent money management, and profitable psychological triggers. Welcome to the Two Traders Podcast.
Walter: Welcome back to the Two traders Podcast. Darren and I are gonna do something different today. How are you going today Darren?
Darren: Yeah. I’m good Walter. Thank you.
Walter: Well, I thought it would be kind of cool if we did this: what’s something that you’ve learned in the last month and how did that one thing help your trading? I’ll start first and I’ll talk about this idea of just chipping away at your testing. For some people when I say go out and test, they’ll say “what should I do to get started? And I’d say “go out and test in Forex tester. Take 500 trades and see if you can make these work, if the systems work for you.”
What typically happens is people would either sit down for six hours. Back test the crap out of it. Grow a beard and either really get excited about it or really get upset because it didn’t work. Or they will start doing that for about 20-30 minutes and then say “this isn’t working”. Give up, move on to something else and maybe backtest something else.
Instead of these extremes of starting out or giving up versus just getting really deep into it.
What I found, if you just set a little bit of time aside every day to do your testing, it could be only 15 minutes right? Let’s say that 15 minutes, that adds up over 7 day a week right? So you’re spending over an hour just testing, just getting into your system. What you’ll find is that, after a month that really adds up and you’ll get the trades that you’re looking for.
The advantages of these are: number 1 – you can’t really give up on it in the first one or two sessions like you normally would, if you happen to start on a draw down because you know that you needed to do more trades to get good sample size. If you’ve only done 7 trades and you’ve only tested it for over 30 minutes or whatever it is. 10 trades for over 30 minutes, 2 sessions then you can’t really give up on it yet, you’ve got to wait til tomorrow.
The other thing is: because you don’t have to be so vigilant toward the end of your testing sessions. If I were testing for 6 hours straight, I would get really sloppy at the end. I know, I really get sloppy. I know that I’m not really trading the system that I traded in the beginning of my testing that I am now trading at the end. And that’s just because I’ve gotten sloppy and maybe I even adjusted my rules slightly so it’s not quite the same thing.
Whereas, if I’m just chipping away everyday doing 15 minutes a day, it’s really something I’ll look forward to. Consider up a little routine and listen to a certain music or whatever you want. Like, I like to listen to my subliminal music as many of guys know. Yes, that’s something that I think and I know other traders are doing the same thing.
They’re just tackling these a little bit of a time everyday and it really helps them in terms of seeing how many trades they can get under the belt. Doesn’t feel like they’ll doing a whole lot of work. They don’t get discouraged. They’ve actually look forward to it because it’s only just a slight little window of time you have everyday to do this. That’s one thing, one tip that I wanted to share and I’d be interested to hear what yours is. What’s something that worked for you the last month?
Darren: Okay. I do a bit that myself. I actually do just short spells of testing. Perhaps I’ve kind of going through a bit of rough patch in my head. Mentally I’ve just kind of going to 10 minutes backtesting not even particularly getting the figures for the backtesting almost like a sort of shadow boxing going for the paces of what I should be doing and get back into it sort of rhythm in my trading. That’s something I do.
The one big thing for me at the moment which is massive – It’s like the only thing that’s absorbing my thoughts is the distribution of winners and losers.
If I suggested a strategy to someone with rules what they would do is they go say to January and they test through the whole year to the end. Base their assumptions on the strategy and its performance on that okay.
This is what I’m noticing is that, let’s say you start trading on Monday and you have 2 really good days. The least likely thing to happen is for the next 3 days to be good as well. I’m not saying “they can’t be” but that’s the chances of that happening are going down.
The bigger your win streak is, the chances of it to continue are going down. My big idea is this notion that if you have a really good spell of trading and you’ve been winning a lot, there’s no reason why you shouldn’t just take a break.
There’s no statistical reason for this. What it does, what it buys you is: it buys you time away from the charts. If you trade intraday, for me, for instance, I’m trading on the H1 time frame now.
If I’ve had 2 really good days on Monday and Tuesday and I know roughly what I make each week. Kind of balances it out. I would know if I’m quite a bit over my target. I’m using that as a time to consider whether to stop trading or not and that’s not an idea I really see banded around much. The idea here is you stop at point A and you trade to point B and whatever happens in between you’re not going to change.
Likewise, if you’ve had the first 2 days a particularly bad, there’s a high possibility the next day is going to be a day of movement where you’re going to make profit. Again you can use that to perhaps make sure that the next day that you’re in your game and take your trades.
Whether there is any validity in this or not, it’s something I’m exploring. The market does move in this pattern of movement and then consolidation and movement and consolidation.
To me, it’s got logic. I’ve been through 5 years of charts and tested this, no because it’s not just my style of doing things really. I just like to stand back. Look at the movement of the price on the chart and so you know what, this wouldn’t be a bad approach.
So that’s how I’m playing with it at the moment and put it into practice a little bit as well. It’s a bit out there, that’s my big thing.
Walter: Oh! That’s great. I think we should probably talk about it. A whole week episode on that idea of trading independence and these sorts of ideas when it comes to trading. I know this is something that a lot of traders think about. Even if it’s just in the beginning or later on… because for you it’s more of a psychological thing isn’t it? It’s not only mathematical or a performance related thing but it’s also sort of psychological break.
Darren: Yeah. Definitely. If you trade 5 days a week on the H1 time frame, week in, week out: you do get tired and you do notice it towards the end of the week. You start making more mistakes. The same, towards the end of the day you’re more likely to struggle with those difficult decisions. You don’t really notice it going on until you examine it but it’s going on there.
We are kind of very set on these mindsets that: you start trading at the start of the week and you finish it at the end of the week. Anything like that, I like to question them and see whether it’s true or not. I notice it even on the weeks where I end up losing. There was plenty of opportunities during that week where I could have said “You know what? It’s been a bit of a rough week. I’ve had a nice little break there, I’m up and just gonna call it quits for the week.
The problem is people wants some sort of certainty that they’re doing the right thing at that moment “Oh God well. It’s moving now I could miss out on another 2 pips.” Doesn’t matter, you’ve traded a period of the week. You’ve made some profit, an acceptable amount of profit for trading a week, have a break. Why not?
Walter: Yup. Exactly. That’s great. Well, thanks Darren. See you next time. Thanks a lot for that.
Darren: Okay. Cheers! Walter.