7 min read
The Ultimate Guide to Backtesting
Backtesting is a methodical approach where traders evaluate the effectiveness of a trading strategy by applying the rules to historical data to see...
I just did a podcast about how to set the right trading goals. I felt I needed to address this after a recent YouTube Live video where, when asked, traders said that their goals are to make a certain amount of pips, percentage and money. And, of course, those things are very important as traders, but they cannot be trading goals.
If you prefer listening, I also made a recent podcast about it. And you can find all my past podcast episodes here: Traders Improved Podcast
You cannot control how much you take out of the market. You cannot control how many setups you get within a week or within a month. You cannot control how many of your trades will go on towards your TP and how many fail. Of course, over the long term, you can have fairly accurate statistics about your performance and expectations, but the short term follows different rules. Anything can happen on a week to week basis.
Thus, having results-based goals can be detrimental to a trader’s performance. If you hit your goal early, are you going to take the rest of the week/month off and miss potentially profitable trades? If not, why do you have such a goal in the first place?
If you are short of your goal, you are more likely to over-trade or take excessive risk. This will, most likely, bring you further away from your goal and lead to an overall bad trading quality.
Finally, where do those results based goals come from in the first place? How did you come up with them? Most likely, they are just made up. I have seen countless of traders performance wishful-thinking calculations where they pull up a spreadsheet and backward engineer how much return they have to generate to meet an artificial goal, such as making 1 million Dollars within a given time period. Obviously, this has nothing to do with reality and the market and the world could care less about what you want. Your one and only job as a trader is to make the best trades possible, but you cannot control when they happen.
The famous trading quote “Just make the best trades possible. Money is then the natural byproduct” should be your inspiration when it comes to setting the right goals.
Your goal should be to become the best trader possible and the money will follow. Aim for small weekly improvements, steady progress and adopt the long game mentality.
Trading goals that are worth adopting are:
In our Edgewonk.com trading journal, the Tiltmeter-Challenge is the first challenge a trader will go through. It forces a trader to become more aware of how he/she trades and mistakes will become obvious very quickly. Many traders reported that this first challenge has helped them turn their trading around rather quickly.
You can probably already feel how such trading goals will have a much more positive effect on your overall life. Chasing money is one-dimensional and just forces an outcome where you have no control over. But becoming the best trader you can be will transform your whole life and turn you into a winner.
Every Thursday we send out a brand new trading newsletter with trading tips, the chart of the week, and insights into the world of online trading.
external link:
7 min read
Backtesting is a methodical approach where traders evaluate the effectiveness of a trading strategy by applying the rules to historical data to see...
5 min read
Bull flags and bear flags are among the most popular chart patterns and especially trend-following traders should study those common trend...
5 min read
As a Forex trader, you can choose from dozens of currency pairs to trade from, but which is the right choice and what are some common pitfalls when...