May I please have your recommendations of authors?

I do not want to start backtesting or forward testing until I have all the parameters and reason why for these parameters that I need to collect.

I don't understand how one makes the decision.

For me, I would not want to backtest manually some data for a month or so, to find out I missed some critical information.

I just bought a book by Kevin Davey, Building Winning Algorithmic Trading Systems, although I don't know how to program, not yet anyway, I look forward to his method on building and testing systems.

My approach is to start with my goal.

My system (which is a series of subsystems) initially, set out to estimate what the HOD and LOD would be and which one was first. I then added estimating what the first leg of the day would be - where and when would it start and end.

I have set a rule that I want trades of 6pts or more (ES). From this other things flow.
For example, if I want 6PPP (6 pt profit potential) then it is not worth trading days of less than 12 pt range.

You asked about risk management / stop loss for setting your rules.
I think of it the other way around. Where is the profit potential?

"where do I place my entries/exits?"

MAE/MFE can help you to understand the type of trades you take

for example if you consistently loose money and your average MFE is 10, then
probably you are putting the targets too far, as on average you could have
taken 10 profit

if your average MAE is 20, and you are profitable, it means your trades on
average go quite a bit against you, before they start, you could consider
tweaking your entries if possible

etc...

Thank you rleplae,

For my backtesting, i will make target with atleast R:R of 3, this way i can measure my MFE more efficiently.

What about stop loss and measuring MAE? If I use too tight of of stop, I may not be able to measure the MAE efficiently. I guess if I keep getting stopped out, I know in need to increase the stop.

Thanks aquarian1 for the help,

ok, let me know everyone opinions and I seriously hopes this helps someone in the future. After losing $7500 trading without a plan, I definitely want to test a plan now for sure.

I will simplify everything and start with a simple goal and testing plan below. I strongly believe in risk vs reward trading. If I risk X, I want to make X back or 2 times X.

I do not want to lose more then $150 per trade and I want to make $300 per trade. ES, one contract.

Once I am winning by 3pts, stop goes to break even.

I then exit the trade at 6 points, if it gets there.

Here is the data I will collect for data analysis after about 50-100 trades to see if the strategy is worth further testing. The goal is to collect the right data to make good decisions.

I am testing a Breakout Strategy Using Stop Market and Retracement Strategy using limit orders.

Data Collection in spreadsheet in columns:
1. Time of Trade
2. Price
3. Long or Short
4. Contract Size
5. Win
6. Losses
7. MAE
8. MFE
9. Profit made if not break-even after up $150. No breakeven testing.
10. Max stop loss that could have prevent a loss for fake-outs.
11. Profit when trailing from previous low/high to catch a higher R:R

Am I missing something.

Personally i prefer to make the difference between :

1 stop, which serves as an emergency
2 condition that says, that the trade does no longer make sense (exit at best possible condition

For the ES I don't think it will work out that well. (1)

From my own trading experience and watching others via journals other traders go from stops ofI also been watching the /ES for about 3 years on the 3 minute chart only. I agree with you, stop placement is crucial, but all depends on entry placement:
1-2 pt ( 6 month) almost all trades taken out
2-3 (6mo to 18 months)
7+ and sometimes no using stops (1.5-24 months) sometime losing a lot of money in this stage
back to 5 to 7
all of this is ES. I will be collecting data on CL and NQ as well because ES just doesn't swing at times.Better experience for me.

(BTW whether you have "hard stops" or "soft"=not entered at trade entry - is a BIG discussion going for pages ... just let me point out: 1 - hard stops are seen by all including your brokerage 2 your brokerage can legally trade against you - quaintly called "internalizing the trade" It is very frustrating to see you stop take out to the tick and the the trade reverse. Since I track the HOD and LOD I have even had them take out my stop - on a short trade - at GREATER THAN THE HOD!! - yes, yes, I could argue. Well try it. "The feed we give you is not the feed we use to settle disputes on trades and according to paragraph 27 sub article 32....." blah, blah, blah. = we the house = always win and tough titty)I definitely understand what you mean and appreciate it. I do you hard stops to protect against a bigger lost, however when time to break-even, I don't use stop, I just watch it. I am aware of the market coming back to my stop and then going in favor. Thanks for the info.

(My own conjecture)
I have noticed the "floor traders" - manipulators - whatever - know where your stops better than you. It's almost like a "gameplan". Let's do play 46.

Play 46
three or 4 bounces in a sideways channel to form a pattern "retail" will see as a range = channel 3 pts wide
false breakout
retrace back into channel by 1 pt
continue for real breakout.

Play 46B -retail adjusts to 1.5pt stop inside channel
three or 4 bounces in a sideways channel to form a pattern "retail" will see as a range = channel 3 pts wide
false breakout
retrace back into channel by 2 pts
continue for real breakout.

etc.
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ES is so much 2 steps forward one step back. Most days it doesn't trend well. As Big Mike observed sometimes it trends better in the o/n session.

Now I don't mean to be discouraging that's not it. But as George Angell (Sniper Trader) wrote to all "new" traders (say less than 5 yrs):
Have respect for the opposition. These guys are pros with a lifetime of experience and taught by pros. They have resources and advantage you don't. they have knowledge and experience. Respect what/who you are competing against.
(paraphrased from memory)

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So your 3pt stop might work, It might not. You will have to study the charts to see. From my observations (in setting stop adjustment) moving your stop sooner than 5 pts got me taken out - that is the retracement is often that. Now please understand I am only targeting larger swings.

Categorization of days ranges (RTH):
cabbage = <8pts
narrow = <12 pts
average = 12-18 with mean about 15pts
wide = >18 points

So if an average day is 15 pts and I wait until after the HOD is in (that is let it fall about 3 pts) I only have 12PPP left. (But I don't really I have 12 left as it could be 12-18 so on the narrow end 12pts). Will I exit exactly at the LOD? probably not so 9-1.5=7.5 pts ===> if I'm correct and the min trend of the day ("dir") is down. So I might make 7.5 and might lose 5

(If one has several contracts, then yes, runners can make one more pts)

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All this is not to say your 3pts with 6pt target won't work. It depends on ES and on your setup.

So if you have some way of knowing the channel break will be to the downside, you can short the top edge with two (or 3) and close one (or 2) at the lower edge and hold the remainder for a downside break.





Note: (1) These comments are generalizations and your entry setup will determine if 3 pts will work out well

so in addition to:
1. Time of Trade
2. Price

Price and time of:
leg 1
Retracement
final swing end

You will want to be able to answer
What was the first leg (after trade entry)
What was the retracement (after leg1)
What was the final swing low/high (regardless of where you exited)

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