In this episode of Truth About FX, Walter talks about one of the biggest walls in trading: how to get consistent profits. Walter recommends building confidence by backtesting different strategies. And the most important thing you should probably ask yourself: “Why am I changing my strategy?” According to him, following your rules is more important than following someone else’s strategy.

Download (Duration: 05:44 / 6.57 MB)

In This Episode:

00:36 – sound of noise

01:18 – backtesting rules

03:05 – surfing event

05:04 – trader’s belief

Tweetables:

Stick with your strategy [Click To Tweet].

Build up confidence by backtesting  [Click To Tweet].

Understand what you believe [Click To Tweet].

Hugh: Hi, Walter. This is a question we’ve got from a listener. His biggest problem is consistent profits.

He thinks that it is his trading Psychology, where he jumps in and out of trades the slightest sign of market noise.

What would you recommend for that?  

Walter: This is lack of confidence. This trader probably has not tested. My guess is that the trader has not tested this strategy or strategies so that he knows or she knows like, “Okay, the average winner is 2.4R and the average win rate is 52%.”

Once you know those things, you’re more inclined to let it play out. You’re probably, you’ve lost your confidence. You think that when the trades go bad, you need to get out and that’s not necessarily the case.

What really needs to happen is you need to focus on what you should do. What you should do is exactly what you did when you did your backtesting. That’s the other thing.

People can still backtest but not follow the backtesting rules when they go live. That’s what I would do. I would’ve encourage more backtesting for this trader so that he or she can work through this confidence thing.

You can get 700 trades under your belt and when you look at those win rate and the stats and all that. When all that lines up, you can look and go, “Wow, if I’ve been trading this for the last three years, I would’ve made x amount of money.”

That’s a real confidence booster. You’re more likely to stick with your strategy and focus on executing your strategy rather than worrying about any individual trade. Let’s face it, what any individual trade does doesn’t matter.

What matters is that as a whole, you’re able to follow the rules that you did during your backtesting phase and you will get probably, most likely very similar results. That’s the way to approach this.

Build up the confidence with backtesting, sit down and ask yourself, write it out. When you make changes to your trades, write it out and say, “Why am I changing this trade one out? Why am I making this decision? Why am I doing that? Is it because it’s my rules? Is it because I’ve got a hunch? Is it because my psyche told me to?”

What are you doing here? There’s something really weird going on. That’s what I would do. That will also help for you to see it from a different perspective when you write it down.

You’ll be like, “Okay, wait a minute. Hang on, what am I doing here?