I am new here and relatively new to trading. I have some experience with papertrading futures with good success but never had a well developed plan as I have learned I should recently. Finally in a place financially where I can start trading very small. Looking to start by trading strictly options only with a $2000 initial account. Looking to start in futures as that is what I am most familliar with. I am currently reading the Five Waves to Financial Freedom to learn the Elliot Wave system and just purchased The Psychology of Trading. I plan on paper trading this time for up to a year while I learn the necessary skills and develop a sound trading plan. I will not trade real money until I have established no less that 70% profitable paper trades over hopefully 25 years of data (if I can find that much) in many different futures markets.
This is my initial plan. I would appreciate any and all input and suggestions on how I can take this plan further.
How are you going to trade 25 years of data? Trading replay is only good for developing what works or what doesn't work. I suggest you trade live price action while it happens to perfect your method. This way you can react to current market conditions and you can see the market unfold real time so there isn't any differences when you make the switch. You'll have more of an edge if you trade price while its happening because you'll have a better understanding of what the market has been doing.
I agree with Itchy. My belief system says that back testing is about a 95% waste of time. But some people's belief systems say otherwise. So you have to find out what works for you personally. But there would probably be very little correlation with something testing well in 1989 and that same strategy working in 2012, but again, that's just my belief, and I read one Hedge Fund Wizards case study of a guy who puts a lot of weight on very long term cycles, going back to the 1800s, so you never know.
The following user says Thank You to josh for this post:
What about "back testing" through the last couple years or so just by scrolling through the charts? I see both of your point as to paper trading that far back may not coorelate with the current temperment of the markets.
It may also depends on the specific nature of your trading system. You must know and master the parameters involved. Many times not all variables are strictly related to market behavior. In many intraday systems you don't need any specific optimization and/or backtesting (or you may eventually backtest on a longer time range without any risk of curve fitting, which is the same).
A good alternative would be WFO (walk forward optimization).