How to Backtest PROPERLY — Transcript

Full transcript

1. 0:00so you finally found the golden strategy
2. 0:02that you think is gonna unlock your
3. 0:04millionaire potential in
4. 0:06forex and day trading now it's time to
5. 0:08back test that strategy because
6. 0:10every professional trader knows that
7. 0:12back testing
8. 0:13is crucial when it comes to checking if
9. 0:16your strategy works
10. 0:17well i'm here to tell you that you've
11. 0:19probably been back testing the wrong way
12. 0:21so
13. 0:22in this video i'm going to show you how
14. 0:23to back test the right way
15. 0:26[Music]
16. 0:27welcome back to the channel everybody my
17. 0:29name is artie and this
18. 0:31is the moving average a show where we
19. 0:32discuss everything day trading to keep
20. 0:34you profitable on a consistent basis
21. 0:37okay so we're going to be doing some
22. 0:38back testing today i've got both my
23. 0:41coffees that are high octane
24. 0:43and i'm going to show you what you've
25. 0:44probably been doing wrong in your back
26. 0:46testing strategies so let's jump into
27. 0:48the charts and take a look at euro usd
28. 0:50okay so when it comes to back testing
29. 0:52most people just start back
30. 0:54testing from today and every single time
31. 0:58they get an indication of their trade
32. 1:01they just do it so say for example
33. 1:02you're doing a moving average crossover
34. 1:05so you take your 21 and your 200 and
35. 1:08you're literally just looking for every
36. 1:10single time the moving average
37. 1:12crosses over and so you test this one
38. 1:14you test this one you test this one you
39. 1:16test this one
40. 1:17and the main issue with this is like
41. 1:20every single time you're testing it like
42. 1:22you know this one didn't work because it
43. 1:23happened it consolidated and then it
44. 1:25reversed like
45. 1:26you're doing all of this back testing
46. 1:28and you're not even looking at what time
47. 1:31it is on the charts say for example this
48. 1:33one you know you see
49. 1:34start down trending you see the
50. 1:36crossover you're back testing and you're
51. 1:38getting in on this trade
52. 1:40you're not even paying attention that
53. 1:41for you this is 3 a.m
54. 1:43there's no way you're going to be up at
55. 1:453 a.m so why are you even back testing
56. 1:48on that time that's the number one
57. 1:50mistake i see
58. 1:51all of these back testing channels do
59. 1:54they just
60. 1:55back test every single time this
61. 1:57occurrence happened
62. 1:58and the issue with that is that during
63. 2:01london session
64. 2:02the indication may be different than new
65. 2:04york session an
66. 2:06asian session is mostly consolidation so
67. 2:08there's no point in back testing your
68. 2:10strategy at that time
69. 2:12you should only be back testing your
70. 2:14strategy
71. 2:15at the time that you actually trade so
72. 2:17if you're a professional day trader
73. 2:19and you wake up you know 6 a.m and
74. 2:21you're on the charts at 7 a.m and you're
75. 2:23trading by market open in london
76. 2:26that is the one time frame that you
77. 2:28should be looking at
78. 2:30when back testing so in order to do this
79. 2:33like to have a clear visual
80. 2:34representation so you don't have to
81. 2:36worry about it
82. 2:37what i want you to do is actually set up
83. 2:40vertical lines
84. 2:41at the time that you're going to be
85. 2:42doing your trading so for me
86. 2:44it is the london session now i don't
87. 2:47like to trade all day
88. 2:48so i only do from when london opens
89. 2:51till about lunchtime when the market
90. 2:53starts to just kind of consolidate for a
91. 2:55second so what i want you to do
92. 2:57is take two vertical lines and set it up
93. 3:00from the point where you start looking
94. 3:02at the charts to the point where you're
95. 3:04done for the day
96. 3:05you don't want to be trading for eight
97. 3:06hours a day nobody does that somebody's
98. 3:08gonna get like two successful trades and
99. 3:10call it quits for the day there's no
100. 3:12reason
101. 3:13that you should over trade every single
102. 3:15day you should have your profit goals
103. 3:17like i wanna make
104. 3:18you know two percent today or four
105. 3:19percent today and so when you hit your
106. 3:21number
107. 3:22you're done for the day if you hit your
108. 3:23stop loss like i'm only willing to lose
109. 3:26one percent per day
110. 3:27when you hit that close the charts and
111. 3:29walk away so
112. 3:30what i want you to do because back
113. 3:32testing is extremely important and you
114. 3:34need to know that this works
115. 3:35over time so for every single trading
116. 3:38day that you do
117. 3:39you want to set up two vertical lines in
118. 3:41the time range that you're actually on
119. 3:43the charts trading
120. 3:45and i want you to do that 100 times the
121. 3:47reason you want to do 100 times is
122. 3:49because that's going to give you a nice
123. 3:51pool to choose from like when you're
124. 3:53back testing a hundred times
125. 3:55and you lose you know 15 to 22 times
126. 3:59you're gonna have an absolute win loss
127. 4:02rate for your strategy if you back test
128. 4:04it five times and then go
129. 4:06you know full cowboy on it odds are it's
130. 4:09gonna be a lower percentage than you
131. 4:10anticipated because you only back tested
132. 4:12it three times
133. 4:13another crucial part about back testing
134. 4:16especially on trading view
135. 4:18is to not do it on a chart that's
136. 4:21already there
137. 4:22you want to have the replay option
138. 4:24available to you the replay
139. 4:26option completely erases all of the
140. 4:28candles from the time you drop that line
141. 4:31forward so you can actually click the
142. 4:33play button and watch the price develop
143. 4:36as if you were trading it in real time
144. 4:38this way you
145. 4:39don't know what's coming up and you
146. 4:41actually have to trade it as if
147. 4:42you don't know where the price is going
148. 4:44to go a lot of people see these charts
149. 4:46and they're like
150. 4:46see i would have won here but you
151. 4:48already know that it's going up like
152. 4:50if you were watching this and saw these
153. 4:52fat rejections live you'd think it was
154. 4:54actually going to reverse and bounce off
155. 4:56of that and it didn't
156. 4:57so what i want you to do is sign up for
157. 5:00a trading view account
158. 5:02you can actually get the premium package
159. 5:04where you get the replay option
160. 5:07for like free for 30 days so try that
161. 5:10and you're going to do all of your back
162. 5:11testing in those free 30 days
163. 5:14and if you feel like that's a useful
164. 5:15tool to you you can actually continue
165. 5:17paying it because when you first sign up
166. 5:19to trading view
167. 5:20it's free but then once your
168. 5:23free trial period is coming to a close
169. 5:26you actually get a 60
170. 5:28discount off of the normal price which
171. 5:30is a slamming deal because the holy
172. 5:32premium package on here is like 850
173. 5:36and you could end up getting it for i
174. 5:38think 245
175. 5:39so that's what i did you should too all
176. 5:42right so to get the replay option you
177. 5:44just click the replay button right here
178. 5:46and you get this big red line and you
179. 5:48can drop it anywhere you want and it's
180. 5:49going to
181. 5:50remove all of the candlesticks to the
182. 5:52right so i've dropped this right here
183. 5:54right on the left hand side you're gonna
184. 5:56see this like speed meter
185. 5:58and it's gonna give you one update every
186. 6:00two seconds it you can adjust the speed
187. 6:02at which the candles populate and then
188. 6:04once you're ready you can
189. 6:06click the play button right here or if
190. 6:08you want to do
191. 6:09like step shifts forward you can just
192. 6:11like
193. 6:12keep clicking this button right here you
194. 6:15hear the clicking
195. 6:16just find a nice comfortable speed to
196. 6:18where it's
197. 6:19faster than normal time but it's slow
198. 6:22enough to actually get you to make a
199. 6:23decision
200. 6:24so when analyzing when back testing you
201. 6:27want to see what the price has been
202. 6:29doing on the time frame that you're
203. 6:30trading
204. 6:31from here you can see we've been on a
205. 6:33big uptrend and now we're starting to
206. 6:35break market structure what do i mean by
207. 6:37breaking market structure
208. 6:39we had you know higher highs and higher
209. 6:41lows
210. 6:42consistently all the way up and now
211. 6:44we're consolidating and drooping down
212. 6:46trading below the moving averages this
213. 6:49is a break in market structure so what
214. 6:51should you be doing when you're seeing a
215. 6:53break in market structure
216. 6:54you should be looking for the opposite
217. 6:57positions the price is probably going to
218. 6:58start trending down
219. 6:59so i've got it set up at one update
220. 7:03every one second
221. 7:04so this is how the price is looking
222. 7:06right now you can see that the price is
223. 7:08coming up
224. 7:09to my trading window i'm only going to
225. 7:11actually start placing trades
226. 7:13once i cross over this line because this
227. 7:16is when i'm actually on the charts
228. 7:18trading but you're doing your analysis
229. 7:20prior to
230. 7:21making sure that you know which
231. 7:23direction you're going to be trading so
232. 7:24now that we're trading below the 21 day
233. 7:26moving average
234. 7:27i'm only pretty much looking for short
235. 7:30positions
236. 7:30we're coming below the 21 we're coming
237. 7:33up to test it right here
238. 7:35we're ejecting it we've broken through
239. 7:37these are the things that you want to
240. 7:39look out for
241. 7:40you know say it's 7 a.m i just opened up
242. 7:42the charts i'm starting to see it
243. 7:44trading below the 21 day moving average
244. 7:46we're kind of breaking out a little bit
245. 7:48but still trending below it so let's
246. 7:50pause it here
247. 7:51let's really analyze what's going on i'm
248. 7:53on a five-minute chart
249. 7:54we're trading below the 21 getting
250. 7:56closer to the 200
251. 7:58moving average in my mind i'm only
252. 8:00looking for short positions here
253. 8:02now depending on what your strategy is
254. 8:05maybe you're a moving average crossover
255. 8:07person or maybe you're scalping between
256. 8:09moving average like you've seen in my
257. 8:11scalping video right here
258. 8:12so that's what i'm going to be doing i'm
259. 8:14going to be using my strategy only
260. 8:16on this time frame during this back test
261. 8:19on every single bracket that i've made
262. 8:22the last 100 brackets
263. 8:23i'm not going to be doing 100 brackets
264. 8:25so it's currently 7 20 a.m on this chart
265. 8:28i know the market opens at 9 00 a.m i'm
266. 8:31usually doing my analysis
267. 8:32for about an hour kind of just like
268. 8:34seeing all of the pairs that i trade and
269. 8:37like looking at where the direction is
270. 8:39going i write those all down on a little
271. 8:41piece of paper and i'm like only look
272. 8:42for shorts on euro usd
273. 8:45so let's slow it down just a little bit
274. 8:47so that we can do this
275. 8:48nice and easy we're seeing the price
276. 8:50develop 9
277. 8:51a.m is gonna be right about here
278. 8:55so at this point i'm gonna start looking
279. 8:57for my positions
280. 8:58i don't like to trade the exact market
281. 9:00open because there's a lot of
282. 9:02fluctuation when the market opens even
283. 9:04at eight am we start getting these long
284. 9:06wicks
285. 9:07so right now 8 am has shown me some
286. 9:10bullish momentum
287. 9:11up above now i'm always looking out for
288. 9:14traps
289. 9:14when it comes to looking for traps you
290. 9:16want to see these like big spikes in one
291. 9:19direction
292. 9:19and wait do not trade those big spikes
293. 9:22in one direction that is the worst thing
294. 9:23that you can do you're literally setting
295. 9:25yourself up for failure
296. 9:26wait until you see the opposite candle
297. 9:29whether their spikes down or spikes up
298. 9:31you wait for the opposite candle
299. 9:33if that opposite candle is engulfing
300. 9:35that's a trap and you should go in the
301. 9:37opposite direction
302. 9:39just like that 8 a.m happened we had
303. 9:42these weird wicks
304. 9:43it started spiking up trading above the
305. 9:4521 day moving average
306. 9:46we bounced off of the 200 and this is
307. 9:49what
308. 9:50caught people this bounce right here
309. 9:52even though we've been consolidating and
310. 9:54trading below the 21
311. 9:56showing a slight downtrend this bounce
312. 9:58off the 200 moving average
313. 10:00got people excited and they think that
314. 10:02this is a rejection of a support level
315. 10:05and it's going to continue up and what
316. 10:06did it do it started going up like crazy
317. 10:09and we had these big
318. 10:10long green wicks and then if you were a
319. 10:13patient trader like i've taught you to
320. 10:15be
321. 10:15patient you wait for the trap to be set
322. 10:17and you go with the person
323. 10:19setting the trap you don't fall for the
324. 10:21trap you're not a rookie so we get this
325. 10:23big
326. 10:24fat bearish engulfing i'm looking for
327. 10:26shorts at this point this is even before
328. 10:28market open
329. 10:30but i'm getting in on a short position
330. 10:32right here i'm keeping
331. 10:34my stop loss quite large at this point
332. 10:36because there's a lot of volatility in
333. 10:38the market in the morning and i'm not
334. 10:40willing to get stopped out so you can be
335. 10:42looking at this point for
336. 10:4320 pips 30 pips but throughout the day
337. 10:47i'm pretty sure you can get 50 pips out
338. 10:49of this
339. 10:50massive volatility so let's keep our
340. 10:53stop loss here
341. 10:54nice and comfortable above we can adjust
342. 10:56it once the price starts going in our
343. 10:57direction
344. 10:58it's just the beginning of it that you
345. 10:59want to prevent a stop out so
346. 11:02we let this play out trade is going in
347. 11:04our direction
348. 11:05that's nice
349. 11:09so at this point the trade has been
350. 11:11going in your direction for
351. 11:13quite a nice amount of time at one point
352. 11:15you were up
353. 11:16about 30 pips so depending on
354. 11:20how much money you actually want to make
355. 11:21like you have to have a strategy of
356. 11:23i want 20 pips per trade or looking for
357. 11:26a
358. 11:26to one risk to reward ratio but you also
359. 11:29have to keep in mind
360. 11:30that once market structure is broken
361. 11:34that's when you want to get out of a
362. 11:35trade you want to only look for the
363. 11:37moves you don't want to be
364. 11:39in a trade when it's consolidating so
365. 11:41i'm seeing market structure right here
366. 11:42being respected
367. 11:43creating you know lower highs and lower
368. 11:46lows but right here
369. 11:47i'm starting to see a little bit of
370. 11:48consolidation so at this point
371. 11:50you could close your trade there's no
372. 11:52reason holding it
373. 11:53if you're seeing a break in market
374. 11:55structure and right now you're up 20
375. 11:5725 pips you know market's been open for
376. 11:59an hour and a half
377. 12:00is it gonna continue in your direction
378. 12:02who knows but you know that you're up 25
379. 12:04pips so what i'm saying is it's okay to
380. 12:06close a trade early but at this point
381. 12:08what you can do is actually adjust your
382. 12:11stop loss you know that it's respecting
383. 12:13the 200 moving average and it's down
384. 12:15trending so instead of having your
385. 12:16stop-loss way up here to avoid the
386. 12:18market breakout wicks
387. 12:19you can now drop it closer to the 200
388. 12:22moving average
389. 12:23or seeing as how your trade is already
390. 12:25in profit you can actually set your stop
391. 12:27loss to a little bit in profit that way
392. 12:30this trade is zero risk whatsoever
393. 12:32even if it goes back down there you're
394. 12:34still gonna make money so let's
395. 12:35say we get it right there a little bit
396. 12:38in profit
397. 12:43our original take profit level was 50
398. 12:45pips it is now the end of our trading
399. 12:47day our trading window that we've set up
400. 12:49for ourselves from 7 am to 12 or
401. 12:51whatever your trading window is
402. 12:53and right now we're up 30 pips close
403. 12:56your trade take your profits
404. 12:57and look for the next trade you don't
405. 12:59want to be holding your trade
406. 13:00like through to the next day because it
407. 13:03might start consolidating here and have
408. 13:05these weird spikes
409. 13:06asian session might take it the opposite
410. 13:07direction 100 pips and you will have no
411. 13:09idea you know what's going on right now
412. 13:12because you're watching the charts take
413. 13:13your profits
414. 13:14and then wait for the next day it's as
415. 13:16simple as that so you didn't fall for
416. 13:17the trap
417. 13:18you got your profits you adjusted your
418. 13:20stop loss so it's no risk trade
419. 13:22and that's how you back tested this one
420. 13:24trade you did full
421. 13:25analyzing on price action and you
422. 13:28focused on one
423. 13:29pair now we crank up the speed and we go
424. 13:32to the next day
425. 13:36okay so this is the next trading day we
426. 13:37can see our brackets showing up now
427. 13:39we're going to be looking for our
428. 13:40entries
429. 13:41and look at what has been happening here
430. 13:42we've been dancing along the 21 moving
431. 13:44average
432. 13:45still trading below the 200 but it is
433. 13:47consolidating like
434. 13:48crazy when it's consolidating like this
435. 13:52i tend to not trade it because i don't
436. 13:54know if it's gonna spike up or spike
437. 13:55down so i wait until i see that
438. 13:57rejection and spike
439. 13:59in that direction sometimes it won't
440. 14:00even happen throughout the day and
441. 14:02that's a no trade day for me
442. 14:03because i only trade that pair okay so
443. 14:05we've broken away from that 21 moving
444. 14:07average
445. 14:08we've seen this nice bearish movement
446. 14:10but again you don't want to fall for a
447. 14:12trap
448. 14:13so what you want to be doing is waiting
449. 14:14for a confirmation of this
450. 14:16it might actually come back up and test
451. 14:18the 21 day moving average if we have
452. 14:20that break
453. 14:20and retest and then a continuation on
454. 14:23the downside then we can get in on a
455. 14:24short position if not you do not trade
456. 14:26that day
457. 14:27you have specific rules that you set up
458. 14:29and you do not get into a trade unless
459. 14:31that trade meets all of your rules
460. 14:33okay so we are now testing the 21 moving
461. 14:35average again
462. 14:36but what it's doing is actually breaking
463. 14:38market structure
464. 14:39so you can see market structure was
465. 14:41higher highs higher lows
466. 14:43and now we're spiking above that and
467. 14:45this high has broken this high so we've
468. 14:47broken market structure so we may
469. 14:48actually be looking for a break of this
470. 14:5021 moving average
471. 14:52up to the 200. so this is the trade that
472. 14:54i'm looking for
473. 14:55i'm going to scalp between these moving
474. 14:57averages and boom like
475. 14:59nothing happened here nothing that i
476. 15:01liked happened here so i did not trade
477. 15:03this day
478. 15:07okay so we're at the next day we're
479. 15:09still consolidating like crazy i'm not
480. 15:11really liking what i'm seeing here i
481. 15:13might not even trade this one as well
482. 15:14and you need to keep that in mind that
483. 15:16not every day
484. 15:17is gonna have a trading opportunity for
485. 15:19you do not force a trade because when
486. 15:21you force a trade you fall for a trap
487. 15:23because you're you're just hoping at
488. 15:24that point you're not analyzing i mean
489. 15:26look at how close
490. 15:27this 21 moving average is to the 200
491. 15:30moving average
492. 15:31this is a clear sign of consolidation
493. 15:34you want to see a nice
494. 15:35fan out in a direction
495. 15:39now you can see the entire trading
496. 15:41window that i have that 7 a.m to 12 p.m
497. 15:44that whole window was a consolidation
498. 15:47basically of 19 pips
499. 15:49i'm not getting into a market that's
500. 15:51moving that slow
501. 15:52whatsoever okay so this back test is
502. 15:56gonna be a little bit different because
503. 15:57my camera died while i was recording but
504. 15:59essentially what we're seeing here is
505. 16:01this i've already played it out so
506. 16:04we started to see this nice drop in
507. 16:06price over the new york session a little
508. 16:08bit of consolidation over asian session
509. 16:10but now we are trading above the 21
510. 16:11moving average
511. 16:12so we're starting to see a trend
512. 16:14reversal we're starting to see the price
513. 16:16go in that direction
514. 16:17i don't know if it's gonna have a huge
515. 16:18continuation up but i don't care
516. 16:20what i'm looking for now that my trading
517. 16:23day has started right here
518. 16:24i'm looking for rejections off of the
519. 16:2621. so
520. 16:28i see these rejections start to happen
521. 16:29right here here and here
522. 16:31so i'm placing a trade right here on the
523. 16:3321 moving average
524. 16:34targeting the 200 moving average i'm
525. 16:37keeping my stop losses
526. 16:38at a nice distance away from previous
527. 16:41lows
528. 16:42because i don't want to get wicked out
529. 16:44so keep your stop you don't put your
530. 16:46stop loss here
531. 16:47you put it a nice comfortable distance
532. 16:49below this is gonna be a one-to-one risk
533. 16:51toward ratio because
534. 16:53the 200 moving average is so close so
535. 16:56i'm targeting this
536. 16:57i let it play out and boom sure enough
537. 16:59it goes up to that 200 moving average
538. 17:02i close my trade and i walk away i don't
539. 17:03care what the price is gonna do after it
540. 17:05because
541. 17:06you don't wanna have like buyers or
542. 17:07sellers remorse so of those last
543. 17:09few back tests that i did two of them i
544. 17:11did not trade at all and two of them
545. 17:13were winners
546. 17:14so as you can see you're not going to be
547. 17:15trading every single day and when you're
548. 17:17back
549. 17:18testing you should be doing it according
550. 17:20to your rules
551. 17:21so a recap make brackets around every
552. 17:24single trading window for the last
553. 17:26100 days have a rules-based strategy
554. 17:28where you do not get into a trade
555. 17:30unless you see these things happen you
556. 17:32need to be systematic about it then
557. 17:34do not force a trade do not trade on
558. 17:36times where you do not see
559. 17:38all of your things line up for your
560. 17:40rules-based trading then once you've
561. 17:41back-tested your strategy a hundred
562. 17:43times
563. 17:43you have a specific win to loss ratio if
564. 17:46that number is good for you
565. 17:48and you have proper risk management with
566. 17:49your risk to rewards on your trades
567. 17:51then you can start forward testing it on
568. 17:53demo you want to forward test your
569. 17:55strategy
570. 17:56for a week two weeks or whatever on demo
571. 17:59be consistent
572. 18:00trade only during those times and see
573. 18:01what your results are on demo
574. 18:03if you're in the blue put in real money
575. 18:05and start doing it for real
576. 18:07stop watching those stupid back testing
577. 18:09videos
578. 18:10on youtube where they're testing every
579. 18:12single occurrence when it doesn't even
580. 18:14relate to the time frame that they're
581. 18:15trading
582. 18:16they just want to show you results i'm
583. 18:18showing you the practical way of
584. 18:20back testing and this is what you should
585. 18:21be doing if you guys are still watching
586. 18:23this video
587. 18:24that means that you like the videos so
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