Backtesting Method
I guarantee if you implement this backtesting method you will finally become profitable/break
through that profit ceiling you’ve been stuck at.
Almost every trading guru teaches strategy because most of them know nothing else and
couldn’t pull $10k p/m if they tried. What they don’t tell you is that you will never be profitable
or break profit ceilings with any strategy if you don’t have the fundamentals in place - this
method being one of the main ones. Read this back to front and implement everything I tell
you, it’ll change the way you trade.
Step One - Software
The software is called ‘FXReplay’, and it allows you to pick and point in time and sieve
through by the minute. 15+ years of data on many different assets. This is extremely
powerful if you know how to use it properly.
You can use other replay softwares too but this is the best.
I won’t waste your time by explain all of the details of the software, you can find out more here:
Video
Step Two - Narrative Journaling
Most people who reach out to me backtest like this. Just
looking for entry models and using hindsight to say ‘I
would have taken that trade’. Even if they’re using a
software like FXReplay, they’re just hunting for entry
models, being trigger happy and skipping through data.
It does not give you accurate data that you can
extrapolate your live trading and it certainly doesn’t
help you in any way when you step on the live charts.
We want to replicate exactly how we would trade on the live charts. This is where narrative
journaling comes in. I can’t say to the tee how this would work for you, because we have
different systems, but I am assuming your live trading involves some element of top down
analysis. Even if you’re a 1min scalper you get a higher TF narrative. If not and you're just
hunting entry models, I suggest you try out some other ways of trading and see what works.
I start on the weekly, do my analysis and see where we’re headed, then scale down to the
next day’s print, analyse, get a bias, see if it’s probable conditions and look at likely points of
interest.
I journal all of these things in my narrative journal. Use the notes app or a doc and you want
to start from top down, screenshotting everything, writing down all of your thoughts, reflecting
on when expectations are met and when they’re not.
Even though my system has provided results for a long time, I still do this everyday as it’s one of
the pillars of trading performance.
Here is an example:
I have hundreds of pages of these. Literally hundreds. It gives you such a deep
understanding of your strategy.
Step Three - Live Entry Models
Now this is the important step, do not mess this up. When it comes to your entry models and
placing trades within FXReplay you do not speed through the data. At that point you’re just
wasting time. When it comes to the session and you’re on a timeframe where you would be
hunting entries, turn it to the lowest speed possible and really think about your decisions.
Obviously within reason, if your entry TF is the 4HR then don’t waste time at the lowest setting,
but essentially, go very slow. Go through the session as if you were live, watching the feed,
and really analysing your decisions, writing your thoughts in the narrative journal too.
Have your entry parameters written out extremely clearly and stick to them like glue. For
some reason even when backtesting people have an issue with breaking rules. When I was
unprofitable and backtested I would break my rules too, do you know how insane that is? It
isn’t even real money. It led to me thinking my strategy was bad and doubting myself which
led to years of unprofitability. You should put so much effort into backtesting properly that
you actually feel the sting when you lose, because you put so much time into formulating
the idea.
Step Four - Data Interpretation
Just going through these motions will do wonders for your trading and your psychology, but
if you want to make it even better then you should know how to interpret the data you’re
collecting.
You're obviously going to get the numerical metrics from FXReplay and this will tell you things
like win rate etc, you can use this to essentially conclude whether something is wrong with
your system, whether you need to work on something and to work out future projections.
At the end of each backtesting session, you want to write a conclusion going through how you
performed, how you felt and what to improve on. I always ask this list of questions:
- How did I perform?
- Am I more confident?
- In what areas did I lack?
- What areas are my strong point?
- What things did I miss out on?
- Did I stick to rules?
- What can I do on the live charts to stop these errors happening?
Then, go through and read the journal in your free time, whenever you can. This will build so
much clarity and confidence that you will carry onto the charts if you practice consistently.
I won’t insult your intelligence by saying this is the only thing that made me and will make
you profitable. Your ability to be aware, be disciplined, not revenge trade or break rules are
vastly improved with this technique, but there are a few others that increase them even
greater. I will be releasing these very soon so stay updated.
Any questions message me on telegram - @noahevola
