Comments on: Backtesting and Trader Psychology, Part 2 of 2 http://www.triffx.com/trading_psychology/backtesting-and-trader-psychology-part-2-of-2/ Developing Terrific People into Terrific Traders Mon, 07 Mar 2011 19:50:33 +0000 hourly 1 http://wordpress.org/?v=3.0 By: yaqui http://www.triffx.com/trading_psychology/backtesting-and-trader-psychology-part-2-of-2/comment-page-1/#comment-874 yaqui Tue, 25 May 2010 12:42:40 +0000 http://www.triffx.com/?p=1740#comment-874 Yeah, that disparity between backtesting / demo with live trading is unavoidable I think and can be as wide as the Grand Canyon! I don't know if one ever really gets over it? You just become more disciplined I guess... One challenge with backtesting is the type of system being tested - particularly discretionary systems with their levels of subjectivity. If you have alot of discretionary aspects to your trading rules that would make things alot harder especially when starting out with real money. I have alot of respect for these types of traders - that's a whole new level of focus, concentration and discipline right there! Yeah, that disparity between backtesting / demo with live trading is unavoidable I think and can be as wide as the Grand Canyon!
I don’t know if one ever really gets over it? You just become more disciplined I guess…

One challenge with backtesting is the type of system being tested – particularly discretionary systems with their levels of subjectivity. If you have alot of discretionary aspects to your trading rules that would make things alot harder especially when starting out with real money. I have alot of respect for these types of traders – that’s a whole new level of focus, concentration and discipline right there!

]]> By: Triffany Hammond http://www.triffx.com/trading_psychology/backtesting-and-trader-psychology-part-2-of-2/comment-page-1/#comment-856 Triffany Hammond Fri, 21 May 2010 22:02:52 +0000 http://www.triffx.com/?p=1740#comment-856 I think that definitely falls under that "False Sense of Security Category" as it can be easy to forget to check how many days you stay in a trade or how much drawdown you had to go through to get to your PT in your backtesting. Those are significant issues that definitely play into your psychology once live. That's the very reason I recommend the journals - to keep track of that and stay on top of what is really driving your trading decisions overall. It was funny that I posted the "I'll close the trade early because I'm in the black this week." Someone at Tuesday's Webinar asked me if I ever get out of trades early and I said, "Not really that often, but when I do it has more to do with where I'm at than where my trade is," And then I met with that same scenario just two days later where I knew that I wasn't going to be able to capitalize on my trade because my life as a Mom has taken over this week. But, you're right, there's no way you can factor that into your backtesting. That's real life being thrown at you and something you can't really learn until you're experiencing it. Again...that's why I don't recommend backtesting as the end-all/be-all in your system development, it can't be. But it I will always recommend it as the safest place to start. GREAT comments! Thank you, Aby. I think that definitely falls under that “False Sense of Security Category” as it can be easy to forget to check how many days you stay in a trade or how much drawdown you had to go through to get to your PT in your backtesting. Those are significant issues that definitely play into your psychology once live.

That’s the very reason I recommend the journals – to keep track of that and stay on top of what is really driving your trading decisions overall.

It was funny that I posted the “I’ll close the trade early because I’m in the black this week.” Someone at Tuesday’s Webinar asked me if I ever get out of trades early and I said, “Not really that often, but when I do it has more to do with where I’m at than where my trade is,” And then I met with that same scenario just two days later where I knew that I wasn’t going to be able to capitalize on my trade because my life as a Mom has taken over this week.

But, you’re right, there’s no way you can factor that into your backtesting. That’s real life being thrown at you and something you can’t really learn until you’re experiencing it.

Again…that’s why I don’t recommend backtesting as the end-all/be-all in your system development, it can’t be. But it I will always recommend it as the safest place to start.

GREAT comments! Thank you, Aby.

]]> By: Aby David http://www.triffx.com/trading_psychology/backtesting-and-trader-psychology-part-2-of-2/comment-page-1/#comment-854 Aby David Fri, 21 May 2010 10:10:34 +0000 http://www.triffx.com/?p=1740#comment-854 It should also be noted that when trading the longer time frames (4HR+), backtesting plays a much smaller part, you can backtest years and years of data and still find it hard to hold on to trades for 1 month + sometimes more, on these levels, live trading is where you can see all the problems and mistakes that you cannot see during backtesting, political changes, economic changes, reports, news, market sentiment changes, huge retracement candles that scare the life out of you ... all these are powerful movers and can change your thinking within days only for you to discover new news some 2 weeks later which brings your trade back on course ... or not !!! Doubt after every move on the longer time frames is the biggest enemy and backtesting does little to help. grrrrrr !!!! I also think that trades made during backtesting often carry the "I'll take this trade and watch the next candle" syndrome ... something that cannot be duplicated on a live account, and after repeatedly backtesting that way, you can sometimes never really deal with that issue and when moving to live trading still find yourself unsure of whether you should take the trade despite the million trades you took during backtesting ... ... the same goes for the "I'll close this trade out early I'm in the black" syndrome (cough cough Triffany ;-) ) sometimes your system is based on closing out your trades at the final PT, not jumping out the boat at the mere sign of something that isn't a minus sign, these are things that backtesting for some reason never seems to solve, even though in theory that was the whole gain of backtesting .... what I'm saying is that backtesting thinks it solves a lot of the problems that comes with trading and trading the system you have practised but in the end it probably only gives you a tool to work with and be persistent about till your paper/live trading teaches you the truth !!! (That was a bit rough but that’s what it sometimes feels like no ?) It should also be noted that when trading the longer time frames (4HR+), backtesting plays a much smaller part, you can backtest years and years of data and still find it hard to hold on to trades for 1 month + sometimes more, on these levels, live trading is where you can see all the problems and mistakes that you cannot see during backtesting, political changes, economic changes, reports, news, market sentiment changes, huge retracement candles that scare the life out of you … all these are powerful movers and can change your thinking within days only for you to discover new news some 2 weeks later which brings your trade back on course … or not !!! Doubt after every move on the longer time frames is the biggest enemy and backtesting does little to help. grrrrrr !!!!

I also think that trades made during backtesting often carry the “I’ll take this trade and watch the next candle” syndrome … something that cannot be duplicated on a live account, and after repeatedly backtesting that way, you can sometimes never really deal with that issue and when moving to live trading still find yourself unsure of whether you should take the trade despite the million trades you took during backtesting …

… the same goes for the “I’ll close this trade out early I’m in the black” syndrome (cough cough Triffany ;-) ) sometimes your system is based on closing out your trades at the final PT, not jumping out the boat at the mere sign of something that isn’t a minus sign, these are things that backtesting for some reason never seems to solve, even though in theory that was the whole gain of backtesting …. what I’m saying is that backtesting thinks it solves a lot of the problems that comes with trading and trading the system you have practised but in the end it probably only gives you a tool to work with and be persistent about till your paper/live trading teaches you the truth !!!

(That was a bit rough but that’s what it sometimes feels like no ?)

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