BACK TEST YOUR TRADING STRATEGY

TEST YOUR TRADING STRATEGY

Over a period, we build up our strategy and the system to trade the stock. And there we tend to feel comfortable as our policies gain us profits, though not real, in trading of the shares. But, that is the not the end of the story, because all these tasks are to be done with the papers in paper trading. After you are confident that your system is working, you can start implementing.

You need to test regularly back your system and strategy in the way you trade your stock. Of course, it ‘s hard to test our approach, by ourselves, as we need to think out of the box. It is important, as we should not start the trading with losses, instead of the profits and should not end up with emotional pressure with the same.

There are many ways we can back test our trading systems and strategies. Let us see one of the important strategies.

Record the Statistics

All you need to do is to take a notebook. Record every transaction of the stock into the notebook. At the end of every transaction, take this book and pen, write correctly, what you have done and whatever happens in the trade. When you write down, make sure the following information was included.

  • How many shares you bought and had with you
  • Date of purchasing these dates
  • The rate of commission charged on each of the shares
  • What is the quote of the stock
  • How much is the stock with you from each company

The process of recording must regularly be done, literally, after each and every transaction, no matter it is a small transaction or bigger transaction. Do not forget to write the remarks of individual transactions and particular conditions and that piece of information can be very advantageous during the analysis periods in the future. Over the period, you can have your statistics for an extended period.

Now, watch the records at the end of every month and make a short note of the analysis you made in that particular month. So, this is the way you can test your system for every month or couple of months, or even years together. With the new experience gained, you will have a much better analysis of how your system and strategy is working as you can see both the inputs of the procedures and outputs of the plan.

It may sound tedious if you have to make your own format of the stock trading record. No problem, you can take the help of the forms and workbooks that are in the market. If you test for two years, and if it works, that is a real thing and you continue the main strategy for years long until the approach gives you the profits. However, it is important to keep watching the external circumstances. Why late? Start your transaction recorder.

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