So, the thing about discretionary trading is that because as discretionary trader, we are really flexible with what the market tells us, which means that when market conditions change, when the edge changes, as discretionary trader, you should be able to see that happening over time. Alright? So, I will say that the backtesting part for discretionary trader is that when you look at enough charts, you have enough experience, you will realize or you’ll be able to realize when market condition changes.

Okay, so when market condition change, this is where it causes a lot of pure systematic trader. I want to know trader to hit a bad patch because when they use algorithms, they can’t really see how the market is changing, where the market is changing or not. But as a visual treat, visual trader, right? If you look at a market all the time, you’ll be able to see, oh, when the market is trending, when the market is going sideways, when a market is actually heading down.

Alright, so either systematic trading or algorithm trading you can, you can see that, you can only… once you start seeing losses then you have to go back and look and say, “oh, okay, market condition has changed.” Now I use another set of algorithm. So you kept the changing algorithm only ways to incurring losses. So for discretionary trader, I would say the way we backtest is that we just look at the past price action and see if the methodology that you use happens frequent enough for that particular chart that you look at or for the particular market that you look at.

And then what I will do is usually I will just follow test, and follow test and to see whether that, what’s that generates a positive expectancy or R-Multiples for me based on the strategy that I look at.

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Philip Teo

Founder & CEO at Traderwave Pte Ltd
Philip Teo is an entrepreneur, speaker and trading coach who specialises in the field of Technical Analysis of the financial markets. He is currently the Founder and CEO of Traderwave Pte Ltd, a financial technology company that offers a web charting application to global traders. He has conducted many trading seminars and appeared on national television before. He is also currently an official speaker and trainer with SGX Academy. Learn more about him at his Google+ Profile, LinkedIn Profile and Facebook Profile

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