Backtesting gives you the insights whether the strategy has an edge or not but forward testing will give you the confidence okay.
Once you have done some visual back testing using that method okay, then you can try to do foward backtesting. The process is the same thing, the only thing that you will take longer for you to know whether if hits your profit target or your stop-loss.
Actually if you think about it, most of the time even if with doing back testing, you have to have a certain belief and confidence in your methodology and strategy in the first place okay.
Even without doing back testing okay, you need to ask yourself this very simple question, why do I believe in this strategy, why do I believe in this methodology in the first place for me to want to do back testing, how does this strategy or methodology create an edge to make money okay.
Before even I do back testing I have to answer all this first. I have to be convinced that this strategy and methodology makes sense to me.
It fits my world view of how things work. So for example in my case, even before I do backtesting on trend line or support resistance, I must understand why does trend line works and I can I can feel confident in trend line, why, is because I’ve seen hundreds and hundreds and thousands of chance okay in my career I’ve looked at hundreds and thousands of charts across different markets across different time horizon and I keep seeing the trend line happening and seeing the pricing bouncing off the trend line and then when he finally breaks that trend line, it just simply turn around keep on going lower from there.
So you see this is my way of doing backtesting because I’ve seen charts for many hundreds and thousands of charts for many many years.
So when you see this happen in history a lot of time before, you build up that confidence then you just continue to do forward testing and just apply accordingly. So the next time if this situation comes again I’m going to trade it.
Interested to receive mentorship opportunities like this with Philip?
Find out more at traderwave.com/innercircle
Latest posts by Philip Teo (see all)
- Using Fibonacci retracement to identify supports/resistances - February 13, 2020
- Adrian Reid, a full-time private trader, Founder and Trading Coach at Enlightened Stock Trading - February 13, 2020
- How I use moving average to gauge the trend direction - February 8, 2020