Friday 30 July 2010

Val was Struck by Lightening

Why back test your idea any way? EL has mentioned many times in his posts that you need to back test your or his setups before putting any money at risk. I asked myself the question above many times and did not find any credible answers for me. I am this kind of guy who does not listen right away and sometimes never. The first thing EL told us to do is, you guess, back test “our setups”. Since I paid money, I forced myself to do it. Why forcing? Programming is not my strength, therefore I would need to do it “by hand”, which requires plenty of time. So I went over 2 months of range bar charts with EL’s indicators on them looking for “my setup” and validating it for a profit or a loss.
After encountering about 10 trades a “lightening” bolt struck me. It can’t be! It is the Law of Large Numbers that makes the whole concept of “having a plan and trading it” work. If you studied maths at an elite university as I did, then discovering the Holy Grail during such a simple procedure makes you embarrassed. After 5 years of studying in-understandable stuff for most of people you should have seen this without back testing. I continued with my back testing and discovered all the nuances that made me feel confident that “this stuff works” with or without the Law of Large Numbers.
So, if you very often do not listen like me, please just do that: go over your charts and find 10 trades to validate your setup. I guarantee you, even if the lightening does not strike you, you will see the picture of your setup more clearly than before. And this is the first tiny step for all of us on our way to CP.
Hang in there,
Val

2 comments:

  1. The only worthwhile comment you offered is that you tested "by hand"...you will learn far more than spitting out results from a programme.

    Your second paragraph is a complete contradiction...re read first and second sentence and line it up with the last.

    CP theory or no CP theory ...you should not entertain the idea of trading without an extensive learning curve.

    Your luck is that EL may be just the guy to guide you in the future...BUT trading comes down to the individual.

    Good luck,

    Digger

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  2. Digger,

    I might have expressed myself equivocally. I just meant that back testing by hand makes you believe. An academic explanation as "Law of Large Numbers" could be just an additional factor in making you believe, but not a substitute.

    My luck is the time I have invested in reading and studying EL's blog and charts before joining the training. I have "back tested" the idea that EL is the right guy to guide me, my dear!

    Good luck to you too,
    Val

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