Setting up a winning trading strategy is not that simple. It must be clear, effective and easy to follow. When I started out, I tried several strategies, but none of them was really clear in my head.
The entry point criteria were variable and suddenly, it was practically impossible to analyze… With experience, I managed to put in place a winning strategy. But how can I be sure?
An easy to follow the strategy
An important point in a winning trading strategy is that it is important that the entry points are clear and leave no room for hesitation. For a strategy to be easy to follow, it must be clear in your head.
To verify this, a good exercise is to explain it in a simple sentence, as if you were to say what you do to a child. For example, in my case: “I trade breakouts in the direction of the trend”. If your explanation looks like: “So, I buy, uh… when the candle closes above the moving average X and that uh… the RSI is above X”… You should be able to identify without any problem a point of ‘entry on a graph. If so, you have completed the first step!
Test the strategy
The next step, to be sure that you have a winning strategy, is to test it! And it is not enough to make 10 trades on a chart to be sure that this one works. In reality, it must be tested on hundreds of positions, on several different graphics to be certain that it works in all circumstances.
It is therefore important to backtest your strategy. That is, see how she reacted in the past. So yes, past performance does not predict future performance, but there are no better solutions.
To do a backtest, there are two solutions:
– Manually browse graphs and “note” the results by hand in a file. Which may take a long time and the result may be biased if you say on certain signals: “This one, I do not count it, I would not have taken”.
In a real situation, we don’t know what will happen if we take the trade or not. Seeing what happened next can influence us.
- Use a backtesting tool like that of ProRealTime. The advantage of it is that once the conditions are met, it only takes a few seconds to make an objective backtest since it is devoid of emotions.
Analyze the results: the backtest
The backtest of ProRealTime is unfortunately not fully developed. This does not allow, for example, to take partial gains.
The software gives a report like below, which allows knowing if a strategy is successful or not.
Here, I tested my purchasing strategy on the “TOTAL” share. As I cannot let gains run, by recovering a part, I made a full sale when the objective is at a ratio of 1 to 1 with the stop loss. The goal is to have the percentage of winning trades in my strategy. The result is rather interesting.
By backtesting it on several charts, I know that the% of winning trades varies between 55 and 70%.
The importance of a winning strategy
Having a winning strategy is essential for successful trading, but it is not the most important. The strategy is just the tip of the iceberg.
What makes a good trader is a good portfolio and mind management. Having good signals is great, but you still have to succeed in exploiting them by making enough gains and above all, by daring to seize the opportunity.
In short, do not rejoice too quickly to have found a good strategy, there are plenty! What will make you a winning trader will be everything around this strategy?
Thank you for reading this article!