Trading System Development: Intro To Historical Analysis

One of the biggest reasons that traders fail is that they get stuck on the Trading Silodrome. This is when they jump from system to system because they think that the last method didn't work.

Of course, there is a chance that the system itself did not work. But it is more likely that they did not take the time to:

1. Understand how it has traded historically
2. Tailor it to their personality
3. Practice the method

So every time they start losing, they give up on the trading method and jump to the next “new thing.” This leads them to a vicious cycle that only results in them chasing their tails.

I asked myself how I can help traders change that.

First, I can provide you my recommendations on trading courses that I have tried and recommend. So if you are interested in learning from professional Forex traders, you should check them out.

But I also wanted to provide analysis that you probably cannot get anywhere else. So that led me to start this Historical Analysis (HA) series.

In upcoming posts, I'm going to break down different chart patterns and show you exactly how they have traded in the past, so you can start to understand if they really have a shot at working in real trading conditions.

This Is What Successful Traders Do

In talking to traders like Chris Lori, Walter Peters and others, I have discovered one common trait among their successful students. They did a ton of screenshots and examined as many setups as possible.

This engrained the chart patterns in their minds and gave them the confidence to trade it. So that is what I want to do with these upcoming posts. But first let's set some expectations for this information.

Reasonable Expectations

If you have been reading my blog for awhile, you know that I want to be completely realistic about successful trading. So if you are new here, keep these very important points in mind.

1. Past performance does not guarantee future performance…ever.
2. Actual results will vary among traders. Even if 10 traders use the exact same method, their performance will always be different.
3. I'm not providing you a shortcut. So do not start trading this method just because it looks like it might work here. This study is simply a building block for possibly creating a trading method that works for you. There is still work to be done after this HA.
4. I may have made some mistakes in my analysis. Yes, I do my very best to analyze this pattern to the best of my abilities, but I my have missed something. If you see an error, please let me know in the comments section. This analysis should not be taken at face value, but merely as a way to begin a discussion that I hope will make us all better traders.

Now I'm going to give a rundown of the flow of these studies. This will prepare you to follow along and hopefully contribute to the conversation.

Getting Trading System Development Spreadsheet Data

The first thing that I will need to do is get a spreadsheet of prices for the timeframe I need. The easiest way that I know how to do this is by using Forex Tester 2.

If you have never done this before, then read this post on how to do it. The process is actually quite easy if you use the software.

I won't always use a spreadsheet. But as you will see in future HA posts, sometimes it is the easiest way to get some information that we are looking for.

Identifying The Pattern On The Charts

Then based on the information I get from the spreadsheets, I will manually mark off the pattern on the charts. I will usually start with weekly charts because it is much easier to identify all of the opportunities.

A screenshot of each setup will be provided and I will write notes on each setup. This information will include, possible reward/risk ratios, possible stop losses and more.

In HA, I won't actually place any practice trades. This is because I want to examine the opportunity without any preconceived notions.

Conclusion

So if you want to stay off the Trading Silodrome, these Historical Analysis posts can be the first step to you actually finding and sticking with a system that works for you.

Again, there are no guarantees in trading. But I will do my best to present the facts and help you take it from there.

Disclosure: I do get a commission if you buy through some of the links on this page. But it does NOT cost you anything extra, it helps me create more useful trading stuff and I donate a portion to my charity partner.