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Now let's get into trading strategies and how to test them.
This is the fun part!
Learn a Strategy, Create a Plan
The first step is to learn a strategy. You can get a strategy from anywhere on the internet.
Many sites are trying tell people that their strategy is the holy grail of trading strategies.
But here's the big secret that most traders won't tell you…
If a strategy really does have an edge, it may work well for the person sharing the strategy…but it might not work well for you.
It's like any other skill…
Your buddy is an all-state basketball player, but maybe you can barely make a basket.
You are good at car racing, but your buddy is terrible.
Same idea with trading strategies…
So the key to success is NOT just having profitable strategy, but having a strategy that's profitable for you.
Therefore, it's your responsibility to do the following:
- Test the strategy to see if it actually has had a historical edge
- If it does, then trade the strategy in a demo account to see if it works for you
Makes sense, right?
So now go out and find 3 strategies that appeal to you.
Then create an exact trading plan for each of those strategies. To instructions on how to create a plan and get a free PDF download, read this post.
Simply learning a strategy won't make you successful. The following steps will help you master a strategy…
Backtest Your Plan
Creating a trading plan is easy.
Actually doing the work to test is takes some perseverance. This is the point where most traders fail.
So if aren't willing to do the work to test your strategies, you might as well give up right now.
But if you're ready to do the work to be successful, then it's time to backtest your plan.
What You Need
- Charting software that has enough testing data available. You can also use backtesting software, which will speed up the process.
- A spreadsheet to record your trades.
Then simply go as far back as possible on your chart and place “paper” trades in your spreadsheet. Once you are done, tally up your results and see how the strategy would have performed.
You can get the the full backtesting tutorial here.
Start with a Demo Account and Place a Trade
Start with a demo account.
I know that it's tempting to trade with your real account. But you should first prove that your strategy has an advantage, before you trade with real money.
If you blow out your account, then it will be much harder to make money once you improve your skills.
So start small and take it from here.
This is called forward testing or Beta Trading.
You can learn more about how to do it here.
Only move forward with live trading if your testing is successful.
You're doing great! Now you'll learn about trading psychology…