"It's the quantity of the trades, but the quality."
I've heard many wise traders before me say that and I'm finding that to be more true than ever now.
The end of 2022 was a an amazing time to trade.
I don't know if I can say the same for the my start in 2023. I find myslef in a 3% drawdown and I have to say, I'm amazed at that low drawdown percentage.
Don't let what I'm about to tell you make it seem like traders don't experience losses because we all do, but to know exaclty where my drawdown percentage is is a good thing.
Why? Because I'm keeping track of my numbers. Almost all professional traders keep track of their numbers and this is something I'm getting better at.
My 3% drawdown is telling me to do a very important thing that does not involve me trading to dig myself out of the loses.
My 3% drawdown is telling me something in the market is changing and if i don't adapt I won't come out of the drawdown anytime soon.
It was telling me to backtest.
Backtesting GBPUSD to find my problem area
At the beginning of the year, you girl got a little cocky. My ego was high because of the great end to 2023. I felt like I was on cloud nine, which wasn't the best frame of mind to trade with. Overconfidence humbles the most confident traders.
I found myself winning trades and then giving my profits back. I took two significant losses after two good wins, and then a series of losing trades hit me like a ton of bricks.
What bought on these losses? Well, lets recap:
I needed to see where my losses came from, so I traded every opportunity I saw. Before you asked, yes, I followed my trading rules. I always do, but I changed one thing: my risk percentage.
I risked 1% per trade when that number should have been 0.25%. Why? Because I'm trading with a prop firm that only allows me a 3% daily drawdown and a 6% relative drawdown.
So the math behind why I'm in a drawdown comes from a few things:
Taking larger losses
Scaling down my risk and not being able to recover the losses
Low risk to rewards
Being stopped out of trades before they go my way(big one)
See the trade below. This is what I'm experiencing. I'll win a trade, but the next trade takes me out before going my way. Sometimes I'm stopped out on a pair with no prior profits taken on that currency pair. This is what's leading me down the rabbit hole.
The best thing I could do was backtest. So, that's what I began doing. I began backtesting, holding my trades longer to get a higher risk to reward opportunities and getting back to my roots.
Truth moment, my strategy works. But, truthfully, I'm not working on it to the best of my ability.
Being both a trading coach and trader isn't easy. You're likely to do things you wouldn't do to get other people the results they desire. In the end, it hurts you. Unfortunately, this isn't talked about enough in this industry.
I love holding trades. Sadly, most people, even those I teach, may not want to hold trades as long as I desire them to, and I won't change that about them. I have students who use my strategy to scalp the market and do it quite well. But, it's easy to take on another trader's persona or problem. That's what trading coaches do. We solve other people's problems, but who solves ours?
Anyway, that's another story for another day. So, my focus while backtesting was to figure out my sweet spot(timeframe) to find my long-term swing trades since I am a swing trader.
I won't bore you with the few long-term trades I backtested. That's why I recorded it and want you to watch it. You even follow alongside the setups and see how you do too.
What I found was eye-opening.
I changed how long I hold trades because of prop firms
I'm overtrading my trading strategy
I'm not using my weekly and monthly targets
I also recorded my findings in another video on my Tradingview Channel. Keeping these videos as journals has been helpful as well.
I don't do it solely for me but for you too. I like to think my success in trading and failure is a documentary until I get to what success looks like to me.
Backtesting gives me the tool I need to improve my skills as a trader freely.
It is like a video game; you know I love it.
I'm the player and get as many retries as I desire until I'm ready to play the game.
If anything, backtesting teaches me not to change my strategy but to continue to improve it and go back to the drawing board as much as necessary.
I hope you enjoyed this blog post. If you did, be sure to comment if you backtest or what questions you have about backtesting so I can answer them.