In my last article, I took a look at using the System Builder in ProfitSource to back test a trading system. This week I want to take a different approach and run through the ways in which you can simulate a trade setup.
It is one thing to look at a stock chart and then go back and see how a certain trade setup might have turned out. The problem with that is, there is always a certain amount of cheating that goes on. “Cheating…but Neil we don’t cheat when it comes to back testing!” Now be honest, I know that we can be a little guilty at times of cheating. Because folks, I have been there myself.
Does this sound familiar: “I would have stayed in that extra day (to take advantage of that massive gap day in my favour)”; “If I was trading that in real life, I would have exited that trade before it gapped against me!”? The list goes on and believe me; I have used them all and have heard many more!
What if instead of using the Pre Computed Scans built into ProfitSource, we went back in time and selected a day in the past? Here is the part I like about how ProfitSource does this. If I go back in time, let’s say to May 1st 2006 as shown in the diagram below, all I have to do is simply un-tick the box that reads ‘Use Current Data’ and select my desired date. I am able to see the exact same list of Pre Computed Scan results as appeared on that particular day. So in effect it’s just like looking at your ProfitSource on the day.
click chart for more detail
Once you get to this point, as you click through the Pre Computed Scan list on the left hand side of the screen, you will notice that the stock chart in the main part of the screen has also been adjusted via the Walk Thru feature built into ProfitSource. So you can view the stocks just as they were on the particular day.
The reason I like to use this process is because I use a few other methods for determining my entry and trade plan on a stock. For example, I like to use the Risk to Reward Tool to ensure the trade is a minimum of 3:1. By doing this kind of analysis in ‘real time’ my personal opinion is that you are getting a more simulated experience of how your trades are put together compared to setting up a System Builder Test and simply clicking a button and viewing the results. Keep in mind both techniques have their own merits. There is no right or wrong and I do use both, but it will depend on the type of trade I am intending to use it for.
So there you go, strap yourself into your time machine and simulate your trading plan in a ‘real time’ scenario. But no cheating, stick to your plan!
Good luck with your trading!