In this episode of Truth About FX, Walter gives light on the importance of backtesting… But what if you don’t have enough data? He talks on why statistics is important and how this can help you see results even if you don’t have enough data.

According to Walter, it all boils down to being confident with your system and how you work your way towards your trading goals

Download (Duration: 07:18 / 8.4 MB)

In This Episode:

00:38 – move forward

02:92 – shovel in the dirt

04:04 – reward yourself

05:39 – absolute speed

Tweetables:

Reward yourself along the way [Click To Tweet].

It’s all about the expectations  [Click To Tweet].

Focus on what you have [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. I’ve got a question for you. What if somebody wants to backtest and understand the importance of backtesting but they just go so slow that it’s frustrating for them because they can’t get enough data. How would you recommend they move forward?

Walter: There’s a couple of suppositions in there. One is they don’t have enough data. I don’t know. Maybe they do, maybe they don’t. We have to look at that and make sure that’s the case. But, let’s say that this trader feels like he needs to have — I said he because most traders are men but could be a woman. Most really good traders are women. So, let’s say she says, “I need to have 500 trades and I’m only able to knock out 10 in an hour and I don’t want to spend 50 hours doing this.”

Maybe that’s what is going on. I don’t know where that number came from. There’s a point of diminishing returns. In statistics, usually what happens is… I mean it depends on what the question is and so the question dictates the statistic that you use but, in most cases, I hear people say things like “You must have 30 in order to have a statistical significance, blah, blah, blah.” That’s a load of hooey. You could have 10 and it can be significant.

Let me put it this way. Let’s say you were out there digging in the forest and you’re looking for gold. You’re digging in the forest and you’re looking for gold. Holy crap, the first time you sink your shovel into the dirt, ting! You hear this sound and I’ll be darn if I didn’t just see a gold nugget with my shovel.

Now, let me ask you something. Would you be more willing to say, “I think there’s gold in that dirt.” Or, would you be more likely to say, “You know what? We really need to dig 30 tons of dirt out of here before we know if there’s any gold in that dirt.”

That’s the same thing with statistics. You can actually have a really small sample and if it’s really a strong result, there’s probably going to be a lot there. That’s the same thing. Like, that’s why I used the gold digging thing. I just came up with it.

The idea there is if you see gold straight away, then there’s probably gold down there. You could’ve been lucky.