so you finally found the golden strategy
that you think is gonna unlock your
millionaire potential in
forex and day trading now it's time to
back test that strategy because
every professional trader knows that
back testing
is crucial when it comes to checking if
your strategy works
well i'm here to tell you that you've
probably been back testing the wrong way
so
in this video i'm going to show you how
to back test the right way
[Music]
welcome back to the channel everybody my
name is artie and this
is the moving average a show where we
discuss everything day trading to keep
you profitable on a consistent basis
okay so we're going to be doing some
back testing today i've got both my
coffees that are high octane
and i'm going to show you what you've
probably been doing wrong in your back
testing strategies so let's jump into
the charts and take a look at euro usd
okay so when it comes to back testing
most people just start back
testing from today and every single time
they get an indication of their trade
they just do it so say for example
you're doing a moving average crossover
so you take your 21 and your 200 and
you're literally just looking for every
single time the moving average
crosses over and so you test this one
you test this one you test this one you
test this one
and the main issue with this is like
every single time you're testing it like
you know this one didn't work because it
happened it consolidated and then it
reversed like
you're doing all of this back testing
and you're not even looking at what time
it is on the charts say for example this
one you know you see
start down trending you see the
crossover you're back testing and you're
getting in on this trade
you're not even paying attention that
for you this is 3 a.m
there's no way you're going to be up at
3 a.m so why are you even back testing
on that time that's the number one
mistake i see
all of these back testing channels do
they just
back test every single time this
occurrence happened
and the issue with that is that during
london session
the indication may be different than new
york session an
asian session is mostly consolidation so
there's no point in back testing your
strategy at that time
you should only be back testing your
strategy
at the time that you actually trade so
if you're a professional day trader
and you wake up you know 6 a.m and
you're on the charts at 7 a.m and you're
trading by market open in london
that is the one time frame that you
should be looking at
when back testing so in order to do this
like to have a clear visual
representation so you don't have to
worry about it
what i want you to do is actually set up
vertical lines
at the time that you're going to be
doing your trading so for me
it is the london session now i don't
like to trade all day
so i only do from when london opens
till about lunchtime when the market
starts to just kind of consolidate for a
second so what i want you to do
is take two vertical lines and set it up
from the point where you start looking
at the charts to the point where you're
done for the day
you don't want to be trading for eight
hours a day nobody does that somebody's
gonna get like two successful trades and
call it quits for the day there's no
reason
that you should over trade every single
day you should have your profit goals
like i wanna make
you know two percent today or four
percent today and so when you hit your
number
you're done for the day if you hit your
stop loss like i'm only willing to lose
one percent per day
when you hit that close the charts and
walk away so
what i want you to do because back
testing is extremely important and you
need to know that this works
over time so for every single trading
day that you do
you want to set up two vertical lines in
the time range that you're actually on
the charts trading
and i want you to do that 100 times the
reason you want to do 100 times is
because that's going to give you a nice
pool to choose from like when you're
back testing a hundred times
and you lose you know 15 to 22 times
you're gonna have an absolute win loss
rate for your strategy if you back test
it five times and then go
you know full cowboy on it odds are it's
gonna be a lower percentage than you
anticipated because you only back tested
it three times
another crucial part about back testing
especially on trading view
is to not do it on a chart that's
already there
you want to have the replay option
available to you the replay
option completely erases all of the
candles from the time you drop that line
forward so you can actually click the
play button and watch the price develop
as if you were trading it in real time
this way you
don't know what's coming up and you
actually have to trade it as if
you don't know where the price is going
to go a lot of people see these charts
and they're like
see i would have won here but you
already know that it's going up like
if you were watching this and saw these
fat rejections live you'd think it was
actually going to reverse and bounce off
of that and it didn't
so what i want you to do is sign up for
a trading view account
you can actually get the premium package
where you get the replay option
for like free for 30 days so try that
and you're going to do all of your back
testing in those free 30 days
and if you feel like that's a useful
tool to you you can actually continue
paying it because when you first sign up
to trading view
it's free but then once your
free trial period is coming to a close
you actually get a 60
discount off of the normal price which
is a slamming deal because the holy
premium package on here is like 850
and you could end up getting it for i
think 245
so that's what i did you should too all
right so to get the replay option you
just click the replay button right here
and you get this big red line and you
can drop it anywhere you want and it's
going to
remove all of the candlesticks to the
right so i've dropped this right here
right on the left hand side you're gonna
see this like speed meter
and it's gonna give you one update every
two seconds it you can adjust the speed
at which the candles populate and then
once you're ready you can
click the play button right here or if
you want to do
like step shifts forward you can just
like
keep clicking this button right here you
hear the clicking
just find a nice comfortable speed to
where it's
faster than normal time but it's slow
enough to actually get you to make a
decision
so when analyzing when back testing you
want to see what the price has been
doing on the time frame that you're
trading
from here you can see we've been on a
big uptrend and now we're starting to
break market structure what do i mean by
breaking market structure
we had you know higher highs and higher
lows
consistently all the way up and now
we're consolidating and drooping down
trading below the moving averages this
is a break in market structure so what
should you be doing when you're seeing a
break in market structure
you should be looking for the opposite
positions the price is probably going to
start trending down
so i've got it set up at one update
every one second
so this is how the price is looking
right now you can see that the price is
coming up
to my trading window i'm only going to
actually start placing trades
once i cross over this line because this
is when i'm actually on the charts
trading but you're doing your analysis
prior to
making sure that you know which
direction you're going to be trading so
now that we're trading below the 21 day
moving average
i'm only pretty much looking for short
positions
we're coming below the 21 we're coming
up to test it right here
we're ejecting it we've broken through
these are the things that you want to
look out for
you know say it's 7 a.m i just opened up
the charts i'm starting to see it
trading below the 21 day moving average
we're kind of breaking out a little bit
but still trending below it so let's
pause it here
let's really analyze what's going on i'm
on a five-minute chart
we're trading below the 21 getting
closer to the 200
moving average in my mind i'm only
looking for short positions here
now depending on what your strategy is
maybe you're a moving average crossover
person or maybe you're scalping between
moving average like you've seen in my
scalping video right here
so that's what i'm going to be doing i'm
going to be using my strategy only
on this time frame during this back test
on every single bracket that i've made
the last 100 brackets
i'm not going to be doing 100 brackets
so it's currently 7 20 a.m on this chart
i know the market opens at 9 00 a.m i'm
usually doing my analysis
for about an hour kind of just like
seeing all of the pairs that i trade and
like looking at where the direction is
going i write those all down on a little
piece of paper and i'm like only look
for shorts on euro usd
so let's slow it down just a little bit
so that we can do this
nice and easy we're seeing the price
develop 9
a.m is gonna be right about here
so at this point i'm gonna start looking
for my positions
i don't like to trade the exact market
open because there's a lot of
fluctuation when the market opens even
at eight am we start getting these long
wicks
so right now 8 am has shown me some
bullish momentum
up above now i'm always looking out for
traps
when it comes to looking for traps you
want to see these like big spikes in one
direction
and wait do not trade those big spikes
in one direction that is the worst thing
that you can do you're literally setting
yourself up for failure
wait until you see the opposite candle
whether their spikes down or spikes up
you wait for the opposite candle
if that opposite candle is engulfing
that's a trap and you should go in the
opposite direction
just like that 8 a.m happened we had
these weird wicks
it started spiking up trading above the
21 day moving average
we bounced off of the 200 and this is
what
caught people this bounce right here
even though we've been consolidating and
trading below the 21
showing a slight downtrend this bounce
off the 200 moving average
got people excited and they think that
this is a rejection of a support level
and it's going to continue up and what
did it do it started going up like crazy
and we had these big
long green wicks and then if you were a
patient trader like i've taught you to
be
patient you wait for the trap to be set
and you go with the person
setting the trap you don't fall for the
trap you're not a rookie so we get this
big
fat bearish engulfing i'm looking for
shorts at this point this is even before
market open
but i'm getting in on a short position
right here i'm keeping
my stop loss quite large at this point
because there's a lot of volatility in
the market in the morning and i'm not
willing to get stopped out so you can be
looking at this point for
20 pips 30 pips but throughout the day
i'm pretty sure you can get 50 pips out
of this
massive volatility so let's keep our
stop loss here
nice and comfortable above we can adjust
it once the price starts going in our
direction
it's just the beginning of it that you
want to prevent a stop out so
we let this play out trade is going in
our direction
that's nice
so at this point the trade has been
going in your direction for
quite a nice amount of time at one point
you were up
about 30 pips so depending on
how much money you actually want to make
like you have to have a strategy of
i want 20 pips per trade or looking for
a
to one risk to reward ratio but you also
have to keep in mind
that once market structure is broken
that's when you want to get out of a
trade you want to only look for the
moves you don't want to be
in a trade when it's consolidating so
i'm seeing market structure right here
being respected
creating you know lower highs and lower
lows but right here
i'm starting to see a little bit of
consolidation so at this point
you could close your trade there's no
reason holding it
if you're seeing a break in market
structure and right now you're up 20
25 pips you know market's been open for
an hour and a half
is it gonna continue in your direction
who knows but you know that you're up 25
pips so what i'm saying is it's okay to
close a trade early but at this point
what you can do is actually adjust your
stop loss you know that it's respecting
the 200 moving average and it's down
trending so instead of having your
stop-loss way up here to avoid the
market breakout wicks
you can now drop it closer to the 200
moving average
or seeing as how your trade is already
in profit you can actually set your stop
loss to a little bit in profit that way
this trade is zero risk whatsoever
even if it goes back down there you're
still gonna make money so let's
say we get it right there a little bit
in profit
our original take profit level was 50
pips it is now the end of our trading
day our trading window that we've set up
for ourselves from 7 am to 12 or
whatever your trading window is
and right now we're up 30 pips close
your trade take your profits
and look for the next trade you don't
want to be holding your trade
like through to the next day because it
might start consolidating here and have
these weird spikes
asian session might take it the opposite
direction 100 pips and you will have no
idea you know what's going on right now
because you're watching the charts take
your profits
and then wait for the next day it's as
simple as that so you didn't fall for
the trap
you got your profits you adjusted your
stop loss so it's no risk trade
and that's how you back tested this one
trade you did full
analyzing on price action and you
focused on one
pair now we crank up the speed and we go
to the next day
okay so this is the next trading day we
can see our brackets showing up now
we're going to be looking for our
entries
and look at what has been happening here
we've been dancing along the 21 moving
average
still trading below the 200 but it is
consolidating like
crazy when it's consolidating like this
i tend to not trade it because i don't
know if it's gonna spike up or spike
down so i wait until i see that
rejection and spike
in that direction sometimes it won't
even happen throughout the day and
that's a no trade day for me
because i only trade that pair okay so
we've broken away from that 21 moving
average
we've seen this nice bearish movement
but again you don't want to fall for a
trap
so what you want to be doing is waiting
for a confirmation of this
it might actually come back up and test
the 21 day moving average if we have
that break
and retest and then a continuation on
the downside then we can get in on a
short position if not you do not trade
that day
you have specific rules that you set up
and you do not get into a trade unless
that trade meets all of your rules
okay so we are now testing the 21 moving
average again
but what it's doing is actually breaking
market structure
so you can see market structure was
higher highs higher lows
and now we're spiking above that and
this high has broken this high so we've
broken market structure so we may
actually be looking for a break of this
21 moving average
up to the 200. so this is the trade that
i'm looking for
i'm going to scalp between these moving
averages and boom like
nothing happened here nothing that i
liked happened here so i did not trade
this day
okay so we're at the next day we're
still consolidating like crazy i'm not
really liking what i'm seeing here i
might not even trade this one as well
and you need to keep that in mind that
not every day
is gonna have a trading opportunity for
you do not force a trade because when
you force a trade you fall for a trap
because you're you're just hoping at
that point you're not analyzing i mean
look at how close
this 21 moving average is to the 200
moving average
this is a clear sign of consolidation
you want to see a nice
fan out in a direction
now you can see the entire trading
window that i have that 7 a.m to 12 p.m
that whole window was a consolidation
basically of 19 pips
i'm not getting into a market that's
moving that slow
whatsoever okay so this back test is
gonna be a little bit different because
my camera died while i was recording but
essentially what we're seeing here is
this i've already played it out so
we started to see this nice drop in
price over the new york session a little
bit of consolidation over asian session
but now we are trading above the 21
moving average
so we're starting to see a trend
reversal we're starting to see the price
go in that direction
i don't know if it's gonna have a huge
continuation up but i don't care
what i'm looking for now that my trading
day has started right here
i'm looking for rejections off of the
21. so
i see these rejections start to happen
right here here and here
so i'm placing a trade right here on the
21 moving average
targeting the 200 moving average i'm
keeping my stop losses
at a nice distance away from previous
lows
because i don't want to get wicked out
so keep your stop you don't put your
stop loss here
you put it a nice comfortable distance
below this is gonna be a one-to-one risk
toward ratio because
the 200 moving average is so close so
i'm targeting this
i let it play out and boom sure enough
it goes up to that 200 moving average
i close my trade and i walk away i don't
care what the price is gonna do after it
because
you don't wanna have like buyers or
sellers remorse so of those last
few back tests that i did two of them i
did not trade at all and two of them
were winners
so as you can see you're not going to be
trading every single day and when you're
back
testing you should be doing it according
to your rules
so a recap make brackets around every
single trading window for the last
100 days have a rules-based strategy
where you do not get into a trade
unless you see these things happen you
need to be systematic about it then
do not force a trade do not trade on
times where you do not see
all of your things line up for your
rules-based trading then once you've
back-tested your strategy a hundred
times
you have a specific win to loss ratio if
that number is good for you
and you have proper risk management with
your risk to rewards on your trades
then you can start forward testing it on
demo you want to forward test your
strategy
for a week two weeks or whatever on demo
be consistent
trade only during those times and see
what your results are on demo
if you're in the blue put in real money
and start doing it for real
stop watching those stupid back testing
videos
on youtube where they're testing every
single occurrence when it doesn't even
relate to the time frame that they're
trading
they just want to show you results i'm
showing you the practical way of
back testing and this is what you should
be doing if you guys are still watching
this video
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and we will see you in the next video