How To Find Ideas To Test
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.
Is it possible to find strategy that have similar results on different markets?
What is your requirement for strategy? For example, min. PF, how many signals… etc.
I modified Bollinger Bands and this is results for NZD/USD, only short position (from 2005 to 2013)
prntscr(dot)com/vv5ag
100 fills, 63 wins …. 5230 pips, profit factor = 3,13
Is it good result or not?
I don’t have any experience in the forex markets.But your numbers from the strategy is good, but does it only work on the short side?
I only look at numbers of fills and that the equity curve is upward sloping. Nothing else. And of course having a little logic behind the strategy.
Hello Oddmund
Great website, have it bookmarked and read it weekly. Appreciate the insight and advice.
I have endless ideas of strategies, my only problem is testing them.
I use ameritrade as my trading platform and has some limits in backtesting. I have no programming skills.
What software do you use to backtest ideas?
Thank You
Ron
Hi, Thanks for the nice feedback! I’m only using Excel and Metastock (a 15 year old version). I guess 90% is done in Excel. Works for me, and I guess it should work for most others as well!
Hi Oddmund
do you use yahoo for data for the excel spreadsheets?
I will try a simple strategy in excel
Thank you
Ron
Hi Ron,
Yes, mainly Yahoo! However, if it involves high and low i use IQFeed.
Oddmund,
I take it from your comment that IQFeed High and Low is more accurate than that of Yahoo! Is this correct?
I was not precise anough: what I do is that I use intraday data from IQFeed and convert it into EOD data. The “raw” EOD data has too many misprints.Intraday data is more accurate. For liquid papers Yahoo! is mostly correct for open and close.
Hello Oddmund,
I am glad I found your blog. By far, one of the best sources of information that I have found.
How can you backtest your ideas in excel? Is it possible to backtest a portfolio?
Hi,
Thanks for your nice comments. Yes, you can test a portfolio, but not as easy if you coded through something else 🙂
Hi Oddmund,
As you will see I am a beginner.
Why day trading is so difficult?
In theory you have 50% to win on a trade and 50% to loose.
You just need to find an edge and keep repeating the same trade everytime it happens risking and targeting the same amount of money.
If you win 55% of the trades and you loose 45% you win money(besides comissions and slippage).
I found your site very interesting and the more serious I found in the whole web, but for a beginner, you put things very difficult to understand……
It would help if you accompanied the posts with youtube videos, as I think you assume many people know and understand many concepts you use.
Just an advice.
Cheers
ps:Do you teach trading?
No, I don’t teach trading. Thanks for your advice, but as you can see this website is for free so I won’t put more time into it than I like.
I wish it was so easy to daytrade as you describe. Unfortunately, edges come and go, and sometimes also with huge drawdowns.