Once in a while I receive e-mails from readers wondering how they can get ideas to test. In order to find profitable strategies you need to test a lot. Looking at my history I guess about 19 of 20 ideas are useless. Even worse, those 1 in 20 potential profitable ones, many turns out to be unprofitable in live trading! Knowing this I can say a lot of potential traders will lose patience/interest quite quickly. Trading is tedious work. However, I believe trading should be a little bit boring to make money.
I test several strategies every day across ETFs and stocks.I have big limitations in my lack of programming skills so for the most part I test in Excel. However, doing it the old fashioned way I believe I find/spot patterns that is hard to see when programming and testing on thousands of stocks.
Anyway, here is my list of the important factors:
- Experience. Nothing can substitute that. I test a lot more now than i used to, simply because I know more. Still, it’s becoming increasingly difficult. The markets are in my opinion getting more random and efficient.
- Live trading. You have to trade to get ideas. Look at stocks. Pull up charts to get ideas. What happens after bigger than average volume? What happens in utility stocks afteer big moves in oil?
- Think outside the box. You have to be creative.
- Read blogs and search on the internet. But never trade anything unless you have tested it yourself.