Forex Side-Testing Account: How to Leverage Fantasy Sports Dynamics

Do you play fantasy sports? Maybe you have participated in an office pool or played with some friends. I play fantasy (American) football every year with some friends and I came in second in my league this past season.

It is a fun diversion and it makes watching the games even more interesting.

Of course, trading players led me to think of the correlations between Forex trading and fantasy sports.

Although they are not directly related, I believe that there is an element to fantasy sports that can give you huge leverage in helping you achieve your full potential as a currency trader.

Here’s what I mean…

How Fantasy Sports Can Help Traders

You will never get Lionel Messi, Christiano Ronoldo, Gareth Bale and Neymar Jr. on the same team in real life. No team has that much money.

But what if?

This is what makes fantasy sports so much fun.

We have the opportunity to manage a team of players that we think would win the championship, without annoying restrictions like salary caps, owners, complex contracts or player egos.

Now what would happen if we did something similar in trading? But instead of trading fantasy players, we traded Forex with the same disregard for many of the constraints of your normal trading.

At this point, you are probably thinking that this sounds a lot like the free demo account that you can get from any Forex broker.

It’s not.

I call it a Side Testing trading account. 

Who a Side Testing (ST) Account is For

A Side Testing account is an account that you open to answer these two questions:

• What would my performance look like if I took the trades I decided to pass on?
• What would my performance look like if I took the trades I missed?

So a ST account is for traders who:

• Feel that they are being too indecisive.
• Feel that they are missing out on a lot of profitable trades.

If you fall into one, or both of these categories, keep reading because here's how a Side Testing account can help you.

Benefits of a Side Testing Account

The bottom line is that a ST account will allow you to see:

• If you are talking yourself out of good trades.
• If you are missing good trades and more importantly, how to fix that.

Let's break these down individually….

Talking Yourself Out of Good Trades

No matter how much you test a trading system, trading it with real money can be a totally different ballgame. You might second guess your entry every time you see a potential setup. This is especially true if your setup is more on the discretionary end of the spectrum.

So a ST account gives you the freedom to take a trade that looks good, even if you would have passed on it in your primary account. When you add the results from your ST account to the results in your live account, you can track if the trades you are passing on would have improved your profitability.

We often beat ourselves up about the trades that we didn't take and worked out, but we tend to forget about the trades that we passed on that ended up being losers. Keeping these trades in a separate account allows you to get a totally objective look at your results.

…without putting your primary account at risk.

Missing Profitable Trades

Another thing that a ST account will help you figure out is what your trading results would look like if you were able to take all of the trade setups that you missed.

You might miss trades because:

• You were sleeping
• You didn't check the charts that day because you were too tired from work
• You had technical difficulties like a bad internet connection or a computer malfunction
• You had to work

Obviously, you cannot avoid some of these scenarios. However, tracking your missed trades will allow you possibly figure out ways around them. For example, maybe you can automate part of your trading or you can put backups in place so you are prepared for unforeseen events.

Another realization that you may come to is that you have to find another trading strategy or change your trading timeframe because your current strategy doesn't work with your lifestyle.

You might also be beating yourself up over your current trading results, when in reality, you are simply missing a few trades that would make you much more profitable. This realization can be a huge psychological boost and give you the confidence to keep trading.

Now that you know how a ST account can help improve your trading, let's get into how to actually setup an account.

Side Testing Account Requirements

There is really just one requirement that needs to be fulfilled before opening a ST account.

You will only open a ST account if you have a trading method that has been tested and has passed a backtest and/or forward test. If you do not have a strategy that has positive expectancy in testing, then a ST account is useless.

Go back to testing and find a strategy that works. Once you have that, you can now move on to opening your Fantasy account.

Choosing a Broker

I personally believe that your ST account should be a live account with real money. You need to simulate some of the the psychology of trading real money and a demo account will not do that. Ultimately, this is your call, but this is what I recommend.

However, it does not have to be a normal sized account. You can use a small account at a broker that allows nano lots.

Obviously, small is relative to your current situation. It could be as little as $100 or as big as $1,000. Using nano lots allows you to take the optimal amount of risk on each trade, even with such a small account.

Your account should also be at your current broker, if possible. Then you won't have to flip back and forth between different brokers. The less friction there is in the process, the more likely you are to do it.

Many brokers allow you to open a sub-account without submitting additional paperwork.

Take advantage of this.

Trading in Your Side Testing Account

Since there are are both real-time and hindsight elements to a ST account, placing trades will take a little more work than with a regular live account, but it's worth it. Here's what you have to do to make it work.

Position Sizing in Your Account

One thing that you should not change in your ST account is the amount of risk on each trade. For example, if you have figured out your optimal risk with this guide, then take that same amount of risk in your account.

For example, I risk 0.7% per trade on a trending outside bar setup. So I would take the same amount of risk in my ST account.

Journaling Your Trades

The key to an effective ST account is your trading journal. In this case, a simple spreadsheet is the best way that I have found to keep track of your trades. Log both your real-time and hindsight trades on the spreadsheet.

It doesn't have to be fancy, it can simply have the following:

• Open date
• Currency pair
• Open price
• Stop loss
• Take profit
• Percentage risk
• Close date
• Close price
• Percentage profit/loss

Analyzing the Results

Then add up your results at the end of the month and see how much better or worse your results would have been if you had taken those trades in your primary account.

Remember to calculate everything in your ST account in terms of percentage profit or loss. This way you can roughly tell how much your ST trades would add or subtract to your trading.

Keep it simple and you can get all of the benefits, without much additional work. 

Other Benefits of a Side Testing Account

But that's not all!

There are a couple more potential side-benefits of a ST account.

When you are taking every single trade that you see and you even get to “trade” the trades that you missed, it acts like a “release valve” that can reduce the pressure to take every single trade in your primary account.

A second benefit is that you might start to see further optimizations that could increase your returns. You have to be very selective when trading your primary account.

…and for good reason. To give yourself the best shot at being profitable at the end of the month, you need to only take premium setups.

But using a ST account gets you involved in more trades. When you look at more trades, you will get more practice, which will ultimately make you a better trader. 

Conclusion

A Side Testing account is not for everyone. However, it you are struggling with indecision and/or missing trades, this technique can help you gain more confidence in your decisions and figure out how to stop missing profitable opportunities. This just one of the ways that you can address your trading weaknesses.

This is just one of the many strategies that we teach inside TraderEvo, our complete program for taking you from zero to hero in Forex trading.

To learn more, click here.