Do you have to validate your trading ideas? - Page 195
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  1. #1
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    Do you have to validate your trading ideas?

    Hi, traders!

    This is Value trader, I’m back from vacation and I want to start my activity on the forum with the article on pretty interesting thing that is rarely spoken about.

    How do traders find their trading ideas? Process of finding any trading idea or building algorithm consists of several steps – first they find idea, then they test it on historical data, calculate profit-factor and other parameters (if they aren’t satisfied with). In other words, they validate their hypothesis – they find confirmation for their ideas in the past. This type of thinking is very popular and wide spreaded, though it might not be very efficient – markets rarely provide good setups with linear correlation between event and outcome.

    The opposite type of thinking is to find events that don’t happen or happen very rarely and bet against them. Our brain might be confused with that – we are taught to find repetitive patterns and validate them with historical examination. But once you find a good pattern, you may notice that its' efficacy decreases over time. The more and more traders will notice a pattern and good opportunity will disappear or become less profitable as more traders try to benefit from a pattern. It is especially true when we talk about very popular currency pairs (or other trading instruments), for example – EURUSD, this pair attracts many traders and is often very overcrowded.

    It’s harder to think in terms of what will not happen rather than in terms of what will happen.

    Let me provide you couple of examples.

    Many traders like to trade-off possible reversals. If we see price that we consider as «high», we tend to seek for possible reversals whereas it is very tough to identify exact moment when price is starting to move in the counter-trend direction.
    If you would like to validate the idea of reversal, you would have to seek for possible reversal patterns that may look like this:

    Attachment 10883

    But if you examine real price action using strategy tester in MT4 trading platform or any other software that allows you to simulate historical data, you would recognize that it’s pretty tough to spot a reversal – you would have approximately 4 losing trades in a series of 5 trades. Of course, if you keep your losses small and gains bigger, you can eventually trade with a profit. But if you start to think in terms of what will unlikely happen, your view has to become completely different. You may examine fake reversals and find most of reversal patterns can provide you good entries in the direction of the existing trend. You may have more modest profit/loss ratio in this case, but nevertheless you can achieve 2/1 or greater. And what is important – you will have probabilities on your side.

    I have put fake reversal patterns in the screenshot below with possible continuations. I employ them in my own trading, so can you.

    Attachment 10884

    When it comes to reading real market context, we could have seen very obvious situation on GBPUSD so far. Strong trend could allow you to trade in the direction of existing trend at least 2 times:

    Attachment 10885

    Those trades may not seem very attractive, moves are modest, but after all, you build your account out of winning trades, not of losing ones, don’t you? Two winning trades are better than two losing ones, that’s obvious.

    Good luck!

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  2. #1941
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    You can succeed the business by having good validation of any trading method you want to make use of. Because as a matter of fact, you get to become profitable depending on how much experience you have been, so it will be better for you to become the sort of trader that makes use of the demo account to learn and then validate your trades before you can succeed.

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  3. #1942
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    Quote Originally Posted by Makaveli View Post
    You can succeed the business by having good validation of any trading method you want to make use of. Because as a matter of fact, you get to become profitable depending on how much experience you have been, so it will be better for you to become the sort of trader that makes use of the demo account to learn and then validate your trades before you can succeed.
    demo account learning is easy for us but this is if we have good experience if we do not have good experience simply we can lose, validation of system is necessary on demo because if we use demo we can use same strategy for more and more time,so whenever we do this we make sure we can do well, repeating the thing make us good and able to earn something well here

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  4. #1943
    Trader cutiekc's Avatar
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    Ideas are a lot in the market, because of that, I will always suggest that trader should look at the way they will handle the market and then stick to one trading strategy, because that will be the way the trader can possibly increase their best way of being profitable in the business. validation is always needed to be sure to know how the market works for you.

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  5. #1944
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    You don't just come up with an idea and rush to start executing them in the live account without first passing a proper test in forex. Validation of an idea can help to see if it can bring about great potential or not. So an idea must pass the validation stage so as to be certified as a great system any trader would follow. Ideas are better ways to improve and this will surely grant us the opportunity to realize what works.

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  6. #1945
    Rookie layigold's Avatar
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    There is need to carefully analyze the market either through technical or fundamental analysis before any meaningful trade decision can be taken. There are so many trade opportunities that tend to appear on the charts but you will still need to go further to get them confirmed before you can settle for the one considered to be highest probability trade. It is very important to validate your trade ideas before they are taken

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  7. #1946
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    Quote Originally Posted by layigold View Post
    There is need to carefully analyze the market either through technical or fundamental analysis before any meaningful trade decision can be taken. There are so many trade opportunities that tend to appear on the charts but you will still need to go further to get them confirmed before you can settle for the one considered to be highest probability trade. It is very important to validate your trade ideas before they are taken
    fortunately, the first process i always do before i make a trade decision is to analyze market. i can't make any decision without knowing any ideas from my strategy and before i can confirm if there are any opportunities in market which can be taken to trade. after doing my work with my strategies, then i can validate every single calculation with further analysis to improve my planning better.

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  8. #1947
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    Quote Originally Posted by Sascha View Post
    fortunately, the first process i always do before i make a trade decision is to analyze market. i can't make any decision without knowing any ideas from my strategy and before i can confirm if there are any opportunities in market which can be taken to trade. after doing my work with my strategies, then i can validate every single calculation with further analysis to improve my planning better.
    this is real step and we all do if a trader is expert or newbie but he must do this so we can understand we have common sense without any analysis we can not trade, if we do not know how market will be in next time if we do not know its direction then simply we can not earn, so analysis is the basic and necessary part for all of us we must need to do it

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  9. #1948
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    Quote Originally Posted by touqir View Post
    this is real step and we all do if a trader is expert or newbie but he must do this so we can understand we have common sense without any analysis we can not trade, if we do not know how market will be in next time if we do not know its direction then simply we can not earn, so analysis is the basic and necessary part for all of us we must need to do it
    Our combined efforts in drawing good signals from our strategy and using a stop loss adequately help us to grow ourselves in this business. To do a good analysis we need a well practiced strategy that helps us find proper set ups on our charts and make future estimate of price movement. Our strategies can be labelled as good only when they have been validated and this validation gives us the confidence too.

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  10. #1949
    Trader cutiekc's Avatar
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    For sure, you should be able to validate your trading ideas, you should be able to know what will work and then what will not work, be more practical about the way you trade the market. I have always been the kind of trader who has always given time to the demo account just to know if I am going to have the best of trade with the said strategy or not.

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  11. #1950
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    Quote Originally Posted by touqir View Post
    this is real step and we all do if a trader is expert or newbie but he must do this so we can understand we have common sense without any analysis we can not trade, if we do not know how market will be in next time if we do not know its direction then simply we can not earn, so analysis is the basic and necessary part for all of us we must need to do it
    Good analysis of the trader will have to come first, then the common sense will follow. Traders can not say that they are likewise validating their strategy with common sense, they have to validate what they are doing with strategies which are trading the market. Traders can only use the common sense to guide themselves on the view that what they are doing is still according to the experience and plan they have.

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