InvestaDaily

As we started our trading career, our focus is all about making profits. We searched for the What, When, and Where rather the How and Why of trading and investing. As we progress and dig deeper, we eventually stumble to this word which many veterans mostly talk about — BACKTESTING.

What is Backtesting?

Backtesting is simply testing a trading/investing strategy, plan, and rules in the historical data.

Why is Backtesting Important?

As you might already know, one of the components to be a consistently profitable trader is you must have an edge on the market. A trading plan if repeatedly executed will yield a constant profit on your desired timeframe. Some traders can achieve this through a repetitive process of losing money, experimentation, and switching mentors/coaches. Through time, they gain the experience and knowledge that can personalize the summation of the process then compile it to become their own edge.

However, this might take years and an ample amount of tuition fees that you will be giving to the market.

Backtesting will help to minimize that learning curve by testing the trading plan in the historical data of the market. No matter where the strategy came from, it is best that you test it first to check if it is in accordance to your personal goal, style, and availability. This will give you confidence and conviction that your trading plan might yield positive results in the future.

How Does Backtesting Work?

1. You need a precise trading plan that you must commit in testing.

For example:
Entry: Buy at the end of the trading day whenever a Hammer Candle bounce at EMA50
Trail Stop/Profit: Sell 1% below the lowest resistance area
Cutloss: Sell whenever Price is 3% below the EMA50
Risk to Reward Ratio: At least 2
Portfolio Sizing: Max 20%

Note: Any changes in the rules will reset your backtesting process.

2. Open a chart, select a market, and select a date when you will start your testing. It is highly advisable that you check more than 5 years of historical data so that you can capture different kinds of market trends and cycles.

3. Refrain from having a bias at any point of the testing. It is much better to have a bias in finding trades that will disprove your trading plan.

4. Record the data you acquired from your testing process.

5. If you are satisfied with the profitability and accuracy, you can now start to test it out in the actual market by virtual trading or putting on small bets. If not, do the process all over again until it satisfies your desired edge.

Note: It is good to start with a single and simple strategy then slowly adding your desired indicators to filter out your set-ups.

3 Ways of Doing Backtesting

1. Manual Backtesting

The most common way in testing the market. You will manually check the charts of the desired market and list down the data that you will gather in the process.

Advantages:
1. By running through the charts, you will be able to recognize the patterns, DNA, and fractals of the market.
2. It will help you get familiar with the weaknesses and strengths of your trading plan.
3. It will help you gain more confidence in trading the actual market.
4. This will help your approach to trading to be as automated as possible.

Disadvantages:
1. You might have a bias to your strategy especially if you are tempted to check the later part of the chart.
2. This is a long process that might take you months or years to master.
3. Prone to biases and errors.

Tip: You can use the InvestaJournal to store your backtested data.

2. Automated Backtesting

There are applications or programs that will do the testing on your behalf. Some might require you some skills in programming language to be able to test your desired strategy or specific trading plan.

Advantages:
1. Quick way to check if the strategy has an edge.
2. Precise and accurate based on the exact data you input.
3. You will be free from bias and errors.

Disadvantages:
1. You might not recognize the market’s patterns, DNA and fractals.
2. Most of the applications are costly.
3. Requires programming skills.
4. Most softwares are for Forex or Foreign Markets.

3. Semi-Automated Backtesting

There are applications or programs that will assist you in your backtesting process. Some programs may either record data of your manual testing, giving you the feel of the actual market fluctuations or automatically compute your strategies’ edge. One example of this is Investagrams’ Backtest.

Advantages:
1. Same advantages as Manual Backtesting.
2. Faster than Manual Backtesting.
3. Biases and errors will be lessened.

Disadvantages:
1. Slower than the Automated Backtesting.
2. Has scenario restrictions depending on the program.

In Conclusion

Backtesting is one out of countless steps to becoming a consistently profitable trader. This is a good foundation in building your confidence in executing your trading plan especially in times of drawdown.

Past results are not determined by future results, but history repeats itself especially in the market because it is driven by human emotions. Equipping yourself with the edge of Backtesting will at least give you the stamina to finish this marathon.

---

Contributor:

Full Name: Jan-Angel Echano
Investagrams username: @Soral
Channels:
www.investagrams.com/Profile/soral
www.facebook.com/soraltrading
www.twitter.com/SoralTrading
www.instagram.com/jan_soral/
www.anchor.fm/soral
www.youtube.com/c/SoralTrading

About the Contributor:
A passionate trader who aims to share the reality, the HOWs and the WHYs in trading. My goal is to help traders and investors like me to continuously improve and refine our skills to the path of mastery.

---

Whether you’re a newcomer or a veteran in the markets, no one is excused from not having a trading plan.

As traders, we are operating in a boundaryless and limitless environment where we have the opportunity to create our own wealth and achieve financial freedom, but there is also the possibility of financial ruin. Not creating a trading plan can be one of the factors that can lead to continuous losses and forced trades.

It may sound cliche, the need to create a trading plan, this is something we’ve been hearing everywhere since the early stages of our journey. You see it in books, blogs, articles and you hear people talk about it in videos, seminars, and so on. The reason why it’s such a cliche, just like cutting your losses small and letting your winner run, is because that’s how it works and it’s about consistency over the long run.

ADVANTAGES OF CREATING A TRADING PLAN

Creating a trading plan allows you to mentally prepare yourself for what may happen in the coming days. Remember, you will need to create your trading plan for a specific stock at least the night before you plan to trade it. This is so once the times come when the price reaches your entry points, all you have to do is execute your plan. If you plan the trade on the spot, you’re basically making impulse decisions.

The only way to make a trading plan meaningful is to actually execute on it, there’s no point in creating a plan if you always bypass your own rules. Executing on your plan without reservation or hesitation builds discipline over time, and you will definitely need this if your plan is to stay in the markets for a long period of time.

Another thing you need to remember is to “plan your trade, and trade your plan.” If you don’t create a trading plan for a stock and it suddenly goes up 20%, even if it’s part of your strategy, you should have the self-control not to trade it. This will build the discipline to always scan thoroughly for opportunities the night before.

DISADVANTAGES OF NOT CREATING A TRADING PLAN

Now, what happens when you fail to create a trading plan? You get a lot of forced trades, unnecessary losses, and a ton of impulse moments which will lead to you making emotional trading decisions; and we already know that you shouldn’t let your emotions affect your trading.

Some of you may be thinking or have experienced first hand buying a stock that didn’t have a trading plan and having it go up 20%, 50%, or even more. But here’s the thing, do you want to be rewarded by doing bad habits? The market may bail you out a couple of times, especially if we’re in a bull market, but eventually, those who don’t do the right things will be humbled.

You will experience occasional equity spikes from a few lucky trades that go up significantly, but if you continue to take impulse trades then over time your equity curve will continue on its downtrend. The consistency all traders seek in the market will not come to you if you don’t have a solid plan to take advantage of opportunities. Trading success is not a sprint, it’s a marathon. You don’t have to be a millionaire next week.

HOW TO CREATE A TRADING PLAN

The following are the key points you will need in your trading plan:

1. ENTRY. This is the price where you will make your purchase. You can have more than one entry (buying in tranches).
2. STOP LOSS. This is where you will sell your position at a small loss at a predetermined area.
3. POSITION SIZE. This is how many shares you will buy.
4. TARGET PROFIT / TRAIL STOPS. This is a predetermined price where you will sell your shares at a profit. You can also set a trail stop to take advantage of bigger moves.
5. RE-ENTRY CRITERIA. Some stocks may stop you out, but this may just mean you’re a bit too early. Have a re-entry plan just in case the stock meets your buy parameters again.

CONCLUSION

There you have it! Mga ka-Investa, always remember that having the discipline to create a trading plan is a necessity for future trading success and consistency. At the end of the day, we need to properly prepare ourselves to take advantage of the opportunities in the market the right way to achieve consistency in the long term.

So, our extended community quarantine (ECQ) is extended for two more weeks.

How are you?
Still hanging in there?
Or cabin fever is starting to strike?

Staying at home is the sacrifice we can all do so we can save ourselves, our families, and our fellowmen from this distressing COVID-19. However, seeing the same walls and doing the same things for 24 hours, 7 days a week can take a toll on us, especially to those extroverts. So, how can we survive this new normal? How can we maximize our day so we can get out of ECQ with our minds still intact? Here are some simple ways on how to stay sane and productive during this crisis.

1. Wake up and get up

We are currently living in unusual and uncertain times, so congratulate yourself for simply waking up. If you want to take your day up a notch, get up immediately and stay away from the bed. Avoid scrolling through your newsfeed while in bed. Avoid answering emails while half-awake. The longer you are in bed, the more sluggish you will feel, and it will be so hard to jumpstart your day.

2. Have your quiet time

After moving away from your sleeping place, find a private spot to have your quiet time. You can meditate, pray, or read a book that can feed your soul. The world is currently full of anxieties, thus it is important that you get in tune with yourself before you face today’s challenges and discouraging news. It is also important to make gratitude a habit. Reflect on your life and look for things that you want to be thankful for. This simple practice will definitely help you find the bright side during these dark times.

3. Exercise

The Department of Health is encouraging us to work together so we can flatten the curve. But with our current routine of eat-sleep-repeat, it seems that we are fattening our curves! Thus, we need to get fit. Don’t worry about closed gyms. We can always get our fitness classes on Youtube. Thousands of mobile fitness apps are also available. Exercise is a good way to combat cabin fever for physical activity releases endorphins which gives us a happy feeling.

4. Take a bath

After sweating your heart out with your home workout, treat yourself to a nice bath. Relieve yourself from the summer heat while washing those worries away.

5. Cook great breakfasts and make good coffees

There is something about breakfast that is so comforting. A plate of pancakes, eggs, bacon, and one hot coffee can be your little hugs in these heartbreaking times. So, start your day with your favorite breakfast. You can feel energized while also getting comfort from a home-cooked meal.

6. Groom yourself

It is so hard to jumpstart our work from home (WFH) because we have that concept of our home being a no-work-zone. However, WFH is our new normal, thus we need to do our best to adapt.

One way of triumphing over sluggishness is power dressing. Make your home your workplace by simply wearing your office clothes. It may seem ridiculous at first, but it is an effective way to trick your mind into being productive and finishing your tasks for the day.

7. Get some work done

Now that you are done with your pre-work rituals, it is time to get actual work done. Before you fire up that laptop, make a to-do list first. This simple list can guide you throughout the day. It is an effective tool to stay on track and avoid the temptations of binge-watching on Netflix.

8. Take breaks

Be careful not to wear yourself out during ECQ. Our health is still our priority during these times. To avoid fatigue, try working on 30-minute intervals. That is working uninterruptedly for 30 minutes, take a short break, then continue again for 30 minutes until all items on your checklist are all crossed out. During breaks, stand up and do some stretches. Also, do not forget to hydrate yourself, okay?

9. Learn something new

It is so tempting to work non-stop during ECQ because our laptops are just an arm away. Notifications can ping anytime. However, we must set at least an hour to do something that is non-work related. Let’s take this opportunity to learn something that we are passionate about. What is that thing that you have been wanting to learn? What is that thing that would make your heart alive again?

Go online and you will see many institutions that are offering free lessons during the quarantine period. Study that musical instrument. Learn how to dance. Practice how to cook or sew. Make that furniture. Learn about the stock market. Now that we have all the time in the world, pursue the thing that you have been putting off for a long time.

10. Sleep

Though you are currently working from home, do not be pressured to be overly productive. Our sanity, our health, and our survival must be our priorities. After finishing all your tasks, do not be guilty to watch Netflix and chill. Or better yet, just sleep. Take this once in a lifetime opportunity to take back all those sleepless nights. Tomorrow is another day, another battle. But for now, enjoy your bed, have a peaceful sleep, and forget all the discouragements for a moment.

Make this extended ECQ worthwhile by joining in Investa Online Summit. Whether you want to learn something new or you just want to improve your investing skills, Investa Online Summit has invited top entrepreneurs and master traders to teach you on how to boost your income, how to build crisis-resilient businesses, and how to make winning trades so you can protect yourself and your family from market crashes.

Join Investa Online Summit now!
For more details, visit www.investagrams.com/investasummit

We hear it time and time again, “Busy ako eh, wala akong time para matuto mag-invest sa stocks.”

A familiar phrase to all of us traders trying to get our family, friends, or colleagues to begin their journey in the financial markets. I’m sure we know more than a handful of people who actually do want to begin investing, but their time really is a hindering factor towards their goal. Well, throughout the past few years we’ve been doing our absolute best to develop features that can solve this problem.

First, we started with the InvestaWatcher. We understood that not everyone has the time to monitor the markets because of either school or work responsibilities. This is a legitimate concern because if a stock you’re holding suddenly plummets and you’re not aware, you wouldn’t be able to cut your losses and protect your capital. In contrast, if a stock you’ve been watching for days, weeks, or even months suddenly reaches your entry price and you’re not watching the markets, then that’s a huge missed opportunity.

This is why we developed the InvestaWatcher, so you can receive real-time price and news alerts of the stocks you are watching. So whether you’re in school, work, or wherever you are, you will receive price and news notifications in real-time. We’ve helped a ton of people with this feature, but there was another problem to be solved. There were also a lot of people who didn’t have the time to go through all the stocks in our market during the evening to create a trading plan because of a lack of time after going home from work.

Second, we developed InvestaScreener. Going home after a long day can drain you to the point that many just want to spend time with their family and recharge their batteries, which is totally fair and understandable. However, due to this many are unable to prepare for the market the next day and create a trading plan.

This is the sole reason why we developed the InvestaScreener, so our users don’t need to go through a tedious process when creating their trading plans. You don’t have to go through all the stocks in our market; simply use our screener and enter your strategy to filter out the stocks that fit your parameters. A lot of time can be saved by using the InvestaScreener, and a lot of time has already been saved.

However, there are people who aren’t able to use the screener to the best of its ability. The usual reasons are they either don’t know how to use it, don’t have a concrete strategy, or are subjective when they do their screening. We identified the concern, and we began developing a solution.

This is why we created the InvestaPRO, to automate further the entire screening process. We developed an algo-based generated watchlist through our proprietary formulas to create an objective-based watchlist for everyone. We also developed a ranking system that scores the stocks based on the parameters, and of course, those at the top of the list are the high priority stocks to take a closer look at.

With the InvestaPRO we have greatly decreased the time needed to go through the screening process, all you need to do is pick a watchlist you would like to check among our pool of watchlists and see the results instantly. We created a few free filters so that all our users can experience InvestaPro for themselves, here you can filter out a few bottoming out and momentum names.

However, the premium watchlists are much more selective and make sure to get the best results. There may be times that the premium watchlists captures more stocks in the watchlist because of the additional filters, but it also makes sure to be selective and only choose the best out of the group.

As we continue to push towards our vision of impacting the lives of 10,000,000 Filipinos, we will also continue to strive towards a trading environment suitable for the ordinary Filipino. The Investa Team will continue to do its best to identify possible chokepoints that stop people from starting on their journey and find ways to solve the problem via real-time automation. Hopefully, the InvestaPRO has added value to your trading as well.

For those of you who are curious on how to access or use the InvestaPRO, you can view our tutorial here.

---

As we all know, the stock market is the ultimate equalizer of wealth.

Partaking in the financial markets, regardless if you’re a day trader or a long term investor, can multiply your wealth to levels you didn’t even imagine was possible. Well, if you do it the right way at least.

There have been countless traders who made their fortunes by trading the markets, but there have also been MILLIONS who have lost a tremendous amount of wealth through common trading mistakes.

Through time, there have been three bad practices that have led to the financial disaster of traders:

1. NOT CUTTING LOSSES
2. OVER SIZING
3. OVER-TRADING

 

In this article, we’re going to be focusing on the third one: OVER-TRADING.

We’ve all experienced this at some point in our trading journeys; you get a loss or go through a series of losses, and it’s getting on your nerves. You’re at a pretty bad drawdown for the month, but you can’t accept being in the negative. You feel the urge to begin trading even more, to churn the motor faster, to increase your position size per trade, every chart you look at shows an opportunity, you go for Grade C setups. You fall for the urge and eventually, end up losing even more.

Sucks right? We know, we’ve all been through it. The urge to want to gain back all the losses in a short period of time is a strong force that can persuade us to do things we know is wrong. Over-trading is also another form of revenge trading, but probably even worse. Of all the symptoms, the worst would probably be going for Grade C setups; meaning you trade stocks you normally won’t but nevertheless still go for it. When you’re unable to find Grade A setups, you start settling for low probability trades which will most likely just lead to more losses.

If you don’t stop there, it gets worse. You incur more losses from taking Grade C setups, so now you’re even more frustrated compared to before. You now begin to increase your position size in the hopes of getting one home run winner to regain all your losses. Sure, you may get lucky a couple of times. However, if you do this consistently over a long period of time, we all know it isn’t going to go well.

There’s a reason why over-trading is one of the culprits for the financial ruin of hundreds of thousands, if not millions, of traders, it’s because we all go through it at some point. And those who have the psychological fortitude and intense discipline are those who are able to avoid over-trading consistently. So now, what’s the best thing to do if you’re at a drawdown?

Mark Minervini, a well known Market Wizard, and Mark Ritchie II, respected Momentum Master, both agree that it’s best to lower down activity during periods of underperformance. The reason why it’s best to both decrease your churn rate and lower down your position size is because you’re in a losing streak because you’re most probably out of sync with the market. So the focus during these losing periods is to focus on Grade A setups with a controlled position size until you get the “feel” of the market back on your side.

In contrast, the best time to ramp up exposure and increase your churn rate is when you’re winning, also for the simple fact that you’re experiencing this winning streak because your strategy and psychology are at sync with the market. As if you’re sailing the open seas, you want the wind to be at your back. You want to be one with the market and be trading at the heels of previous profitable trades.

The logic here is you’re trading your most and your heaviest when you’re winning and you’re trading your least when you’re losing. Just like a basketball player having a good shooting night, it’s as if you’re shooting the basketball in the ocean, you can’t miss. However, when he’s having a bad game, he could always focus on other things like assisting the ball or rebounding. Same goes with trading, when you’re having difficulty nailing down profitable trades then the focus should be protecting your capital and confidence.

---