Indicator Trading Probability (IMPORTANT) – Why I Back Test Trading Strategies ONLY 100 Times?
I have tested many different strategies on the Trading Rush Channel, right? Occasionally, someone will ask, Why I only Back test A strategy 100 times, and not 10000 times. They say Testing a strategy only 100 times, won’t show the Win Rate Accurately. Yes, that is true. But we don’t have to test a strategy 10000 times to see if it is a profitable strategy or not. We can do it by testing it only 100 times. And I’m going to prove it, how you can back test a strategy 100 times and start making money.
Remember the Back Tester Feature in the Official Trading Rush App? Well, I have Modified it just for this video. I’m going to use it to prove a point.
In my videos, Once I’m done testing an indicator 100 times, I always say, the win rate of this strategy is approximately this and that. I heavily use the word approximately whenever i talk about the win rate.
That’s because, when testing an indicator strategy 100 times, I’m not trying to show the accurate win rate. I’m trying to be close enough to the actual win rate of a strategy. That’s All we need, to see If that strategy can make money or not.
Let me give you an example.
Lets say, an indicator works 70 percent of the time. In other words, an indicator has a win rate of 70 percent. But we don’t know that yet. If we wanted to know that number accurately, we would have to test that indicator at least 10000 or more times.
But anyone who has been trading for a while, can tell, that testing an indicator strategy 10000 times is a very difficult task to do. It is very time consuming even if you automate the entire back testing process. because it will take more time to learn how to automate the back testing process, and how to code in the first place. It can take days to learn how to code, if you have no background in coding. It only takes 1 hour to back test a strategy 100 times manually. And You can easily find if the strategy works or not by back testing it 100 times.
But why do we want to know the win rate of a trading strategy so accurately? You don’t need to know the probability of an indicator that accurately to make money in trading. All you need to do, is find the approximate Win rate of a strategy. And you can do this by simply testing a strategy 100 times.
It will take these 100 random trades 10000 times. Once it is done taking 100 trades 10000 times, we will see how close we are to the accurate win rate when we back test a strategy 100 times. In other words, we will see what is the probability of being close to the accurate win rate of a trading strategy, if we only Back Test it 100 times.
That’s all. Now you know why I back test strategies only 100 times. There is a high chance that the win rate i will find by testing 100 times, will be very close to the accurate win rate of a strategy. All we need is to find if the strategy is profitable or not. If we find the win rate to be 70 percent after back testing, There is high chance that we are only off by approximately 5 percent above or below the accurate win rate. In other words, there is a very high chance that the strategy is a profitable trading strategy. It takes around 1 hour to back test a strategy 100 times. If we find the profitability of a strategy by testing it 100 times, why waste time by testing it 1000 or 10000 times. What are you going to do by finding the accurate win rate of a strategy, when most of the success in trading is based on psychology of the trader.
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