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Day Trader’s Best Friend – Backtesting

What is backtesting in Day Trading?

Once you have a trading plan and you have found some trades that you feel comfortable with and that SEEM to work continuously. Now you need to backtest the shit out of them.

The thing is, and I got caught up in this trap, without data you think you take good trades, but in reality you can be losing more than winning with them. The mind has a funny way of remembering things incorrectly. If you don’t keep track of them, you will never truly know. So you need backtesting. 

For example, at this point I look for 4-5 trades that I feel the most comfortable with. I have data on these trades that go back months. I know the percent of the time they work. This also really puts my mind at ease and I can enter almost with my eyes closed (once all the green lights are on).

The trades that I love most are about 75% win ratio. In the day trading biz if you have trades that are winning 60% it’s considered great. I know some super successful traders that are at 40% wins (but they can sit thru the super long profits – something I can not nor do I want to do). I like to be in and out within 10 minutes (and even that is really long for me).

I know that if I take the trades I have back tested I will profit 3 out of the 4 times I take it, some are even up to 80%.

The problem that can happen, when it is slow in the market, some set ups look similar to what you take with a few orange lights rather than green lights. It’s super tempting to take them.

When you do that little switch and haven’t backtested this is what happens:

1. If you don’t take it and it works – you get angry at yourself saying why didn’t I do it
2. Backtesting – with these trading setups can tell you why it worked or how often it doesn’t. If it works more than it doesn’t. You will have plenty of opportunities to take these same trades again on another day.

NOTE – backtest at least 30-45 days (if not more).

You will have times when the trades that work out 25% of the time will come up. Especially if you haven’t taken any trades that day or are sitting on a loss – sure you might win this time around.

But the goal for day trading is CONSISTENCY!!!

If you break your rule now, you will start this as your new norm, and unless you have hard data to back it up, you will start to lose 75% of the times.

So before you ever go into a trade, even if you learn my trades, backtest it, keep track of it. First of all, it will help you really know the trade and feel comfortable with the entry. It will help with the automation of the trade and the routine of it.

Plus, backtesting and keeping track of your trades is a habit that you will need to start from the get-go. Once you have established what you think are good trades. You need the numbers to prove this.

I resisted this for years. I have no idea why, but with trading self-sabotages seem to creep out way more than they usually do. This was one of my biggies.

Finally, after a lot of convincing me from my mentors, other traders and even my husband who has seen me have way too many breakdowns, I found a tracking system that works.

And, yes, I see many trades that look like they can fall into my ‘type’ of trade. But instead of jumping into it, I start to backtest it.

day trading backtesting

Day Trading for Beginners

If you want to learn more about my journey you can read it here. Or you can watch on my YouTube channel.

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Day Trader's Best Friend - Backtesting