backtesting<\/a> (and it\u2019s supported by data), the next step is to try using it in actual trades.<\/p>\nBut since it\u2019s risky to jump in with large lots right away, the idea is to first test the method with small lots. This phase of trading is called forward testing.<\/p>\n
I didn\u2019t even realize this process already had a name\u2014I was just doing it naturally. If you think about it, anyone would be scared to throw in a large lot right off the bat, so it\u2019s only natural to go through this step.<\/p>\n
Forward Testing \u2260 Demo Trading<\/h3>\n
Some people might think forward testing is the same as demo trading, but I personally believe they are quite different.<\/p>\n
Mimicking trades with fake funds in a demo account is completely different from trading with your own real money.<\/p>\n
Even if it\u2019s a small amount, the fact that your actual capital decreases if your stop-loss is hit is what makes the difference.<\/p>\n
In other words, although forward testing is done with a small amount of money, doing it with an amount so small that it doesn\u2019t hurt at all defeats the purpose.<\/p>\n
As for when to transition from forward testing to actual trading, that depends on the individual. If you feel ready for real trading, that\u2019s fine.<\/p>\n
\u2026That said, like I once did, people often convince themselves they\u2019re ready without solid reasoning. Even seasoned traders can fall into this kind of trap.<\/p>\n
So, for example, you could set your own rule like: \u201cI\u2019ll graduate from forward testing once I double my initial \u00a5100,000,\u201d or \u201cas long as I don\u2019t have a monthly loss for a whole year.\u201d<\/p>\n
Ultimately, one of the most important criteria is whether your mental state can handle full-sized trades. But since there\u2019s no one right answer, it\u2019s fine to do it in whatever way feels natural and comfortable for you.<\/p>\n
The Importance of Forward Testing<\/h3>\n
To be blunt, forward testing is extremely important. It\u2019s just as important\u2014perhaps even more so\u2014than finding a good method through backtesting.<\/p>\n
If backtesting is like strength training or running drills, then forward testing is like practicing passes and shots or scrimmage matches. Trading with full lots would be the actual match\u2014in sports terms.<\/p>\n
From my experience, transitioning from backtesting to forward testing feels more difficult than going from forward testing to real trading.<\/p>\n
More accurately, the mindset and attention required in those two transitions are so different that they may not even be comparable in the first place.<\/p>\n
From Forward Testing Back to Backtesting<\/h3>\n
Sometimes you start forward testing a method you thought looked good in backtesting, but it doesn\u2019t go as expected. In that case, you might end up revisiting the trade conditions and going back to backtesting.<\/p>\n
To avoid such situations as much as possible, some people use tools like \u201cRCC\u201d to reinforce their backtesting before moving on to forward testing.<\/p>\n
RCC is an indicator for a trading platform called MetaTrader\u2014basically software or an app\u2014that lets you replay charts without showing the right-hand side (the future) and pause the playback.<\/p>\n
In other words, it allows you to test methods in a more realistic, trading-like environment, and since you can fast-forward, it also saves time in testing strategies.<\/p>\n
Other platforms like TradingView or some FX brokers may offer similar indicators, but I haven\u2019t used them yet\u2014though I have purchased them. I plan to give them a try when I get the chance.<\/p>\n
(See this page<\/a> for more on indicators.)<\/p>\n– – –<\/p>\n
Even after a few methods become usable in actual trading, I continue to backtest to search for new ones.<\/p>\n
Some people say you should focus solely on the methods that work, but for me, backtesting has become somewhat of a hobby.<\/p>\n
Unless you’re scalping, even day trading involves a lot of waiting. Sometimes, a really long wait. During those times, writing blog posts or doing more backtesting is the perfect way to spend the time.<\/p>\n
Thinking about it like that, this blog is a collection of those pauses between trades. Maybe I should change the subtitle from \u201cMy backtesting notes\u201d to \u201cBetween Trades\u201d or \u201cIn Trade Pauses.\u201d \u2026Well, maybe that wouldn’t make much sense.<\/p>\n","protected":false},"excerpt":{"rendered":"This post is aimed at people who are about to start trading. Since I mainly do day trading in FX and currency exchange, this is categorized under FX, but I occasionally trade crypto, commodities, and stocks as well.\r\n","protected":false},"author":1,"featured_media":2031,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-2030","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-fx"],"translation":{"provider":"WPGlobus","version":"3.0.2","language":"en","enabled_languages":["ja","en"],"languages":{"ja":{"title":true,"content":true,"excerpt":true},"en":{"title":true,"content":true,"excerpt":true}}},"yoast_head":"\n
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