Creating a to-do list sounds boring and bureaucratic. It reminds me of the trading coaches that insist on keeping trade journals. BORING!
On the other hand, journals are important. They force the trader to reflect on the thinking behind an action.
And… I’m prone to rabbit trails and the like. A known plan with a checklist would keep me organized and thorough. So, it’s with some regret that I’m forcing myself to build a research plan.
The step by step plan for analyzing my strategy
I mentioned in the last post that the strategy’s time frame will be the M1 chart. The current data under study uses EURUSD prices for the year 2011. Whenever the strategy is ready to walk forward, I’ll test it on all of 2012.
Now that most of the ideas came in (thanks to everyone for all of your emails and blog comments), I’ve made a list of things to try.
Before I get carried away with a new idea, I have to check off old ideas from the list. Doing so will keep my efforts disciplined and focused.
- Visualize the problem. This is what I started to do in the group forex trading strategy post. The next blog post in the series will go a step further and look at individual segments of the SMA/price curve.
- Evaluate range bound methods for scaling into a trade.
- Consider reversing strategies that lose dependably since I’m not including trading costs in the test. I.e., I don’t have to worry about overtrading being the cause of the loss
- Add filters to the most promising candidates
- Walk forward to 2012 data
Many of the suggestions that came centered on adding filters. I appreciate everyone’s feedback and for really thinking through the problem.
My personal thoughts are to focus on money management as a technique for improving a strategy. I’m going to leave filters as the final option as a way to potentially polish a mostly complete strategy.
Step 2 is multi layered. The items that I laid out are to scale in:
- aggressively up to a certain, predefined threshold
- slowly up to a threshold
- slowly with a peak in the middle, then taper off the size of new trades. Think of it like a bell curve. The sweet spot should be in the middle of my graphic at the inflection point. (a hat tip to Mark Chapman for sparking that idea).
Writing this information out made me realize that I still feel like I’m guessing which types of strategies may work. So, I’m going to head back to step 1 to visualize the problem better. I’ll start with taking trades immediately on price crossing the moving average. I will then systematically record how performance and the number of trades varies as I get farther from the MA.
Although it’s not quite a strategy at this stage, the goal will be to identify regions under the curve that present better opportunities than others.
This series eventually led to a profitable trading strategy. If you’d like to read through the journey, then I suggest reading the articles sequentially
The initial strategy idea
Selecting an appropriate time frame
A research plan
An annoying surprise in the initial backtests
An attempt at range trading
Range trading results
The moving average envelope scalper