Let’s do something a little bit different:
I’m going to share 3 proven ways to become the worst possible trader ever.
To lose your money fast.
To feel truly beaten by the markets.
And then feel deeply ashamed and humiliated.
Wouldn’t it be interesting to discover what these 3 proven account-destroying ways are? 🙂
Let’s begin with the first one today:
#1: Living in the dreamland of backtesting equity curves.
Let me ask you a question:
What do you believe is the validity and significance of a backtesting equity curve?
Here’s the answer you probably won’t be happy to hear:
Nula. Nichts. Null. Nichego.
No, I’m not exaggerating.
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I used to be one of these guys who loved living in the dreamland of beautifully fine-tuned, overfit, over-optimized equity curves. And then projecting their performance well into the future.
Until I lost money.
Until I felt the pain, shame and humiliation myself.
And to be honest with you, it took me quite a lot of time and a lot of money to learn this truth about trading:
Backtesting is nothing more than an exercise in finding what worked in the past – but will probably fail in the future and could destroy your trading account.
Yes, I’m dead serious.
Most traders seem to be so engaged in backtesting. Optimizing. Tweaking. Re-coding. Improving.
But often, all they’re really doing is fine-tuning the past, while dramatically securing their future failure. (Because with overfit and over-optimized strategies there is no other way).
So, after more than a decade of being a fulltime trader, my advice would be:
Ignore your backtesting equity curve… until…
You run the strategy through extremely demanding robustness testing procedures and it passes.
And then – run it AGAIN…
Through even TOUGHER robustness testing procedures.
Because what you initially thought was a good robustness testing procedure, was most likely far from being sufficient.
Do not stop. Do not be ‘satisfied’. Never, EVER compromise on robustness testing.
Go far beyond what everyone else does, because most traders lose money.
Most traders use weak robustness testing procedures and then they’re surprised they’re losing money.
So, always go far beyond what the majority of (losing) traders do.
Abandon weak and obsolete robustness testing procedures and start using tougher ones.
Otherwise, you’ll be living in the very dangerous dreamland of backtested equity curves forever. Or at least until your trading account is gone.
If you are completely new to robustness testing, do yourself a favor and get Robert Pardo’s free tips for better robustness and optimization.
And if you’d like to learn more about my own robustness testing procedures, read about The flow chart that changed my life.
How do you REALLY know your strategies aren’t just over-optimized rubbish?
✓ 3 key mistakes traders make when over-optimizing systems that lose money soon after live trading
✓ How to make your optimizations really robust (including a downloadable step-by-step checklist you can follow to make sure you don’t miss any of the key steps)
✓ Loads of tips on how to fix common strategy problems and create better performing strategies