Hi Guys,
That’s my top10 and my 2 cent!
1) Thinking that the 1million dollar strategy you just developed is a 1 million dollar strategy
If that was the case i would be billionaire by now ,-)
While assessing a strategy efficiency you need to take in consideration:
- The time frame of your back testing, anything less than one year is not going to give you any kind of indication on how good is your strategy
- The number of trades, if your strategy traded only 100 trades during the past year well your sample is just too small and you cant really draw any conclusion unless you got 80% winning trades.
- The Equity at risk, making a million buck with an equity risk of 20% is fairly easy.
2) Not taking in consideration the spread
The more it cost to trade a pair the wider your stop loss needs to
be, if the spread is 4 pips, a stop loss of 20 is a guarantee for
failure. The cost of trading should be maximum of 10%, for instance if
the spread on EUR/USD is 1 then your stop loss needs to be 10 pips
minimum.
3) Not taking in consideration the trading hours
For instance a cross over at peak hours(8 AM EST) is a lot more meaningful than a crossover at 6PM EST.
4) Thinking that an increase of volume always mean something
The volume is increasing naturally during peak hours and decreasing
afterwards, a decrease of volume after 5PM EST does not give you any
kind of information. .
5) Not Optimizing.
The best thing with developing strategy is that you can actually
optimize by changing pretty much everything from trading hours, to TP/SL
ratio, you original idea might be a good one but the optimizer might
have a better one, so dont put your strategy live before optimizing.
6) Making the entries point as complicated as possible
It take a good mix of indicators to build a good strategy but they
need to bring something different from each other, 3 momentum indicator
within the same strategy only help to get the strategy more messy.
Mixing one Momentum with Resistance and Volume is more efficient.
7) Lot size is too big
Most traders want to be millionaire and they want to be millionaire
within one month, well that’s unlikely to happen so take the time to
learn and to adjust your robot.
8) Ratio SL/TP is too wide
It’s unlikely that in the long run a ratio of say SL 10 pips for a
take profit of 80 pips will work, main reason being that the market
usually swing all the time and do big moves quite rarely so unless you
are able to detect the big moves just increase your stop loss / take
profit ratio to at least 1/3. Myself I am a big fan 3/1 ratio as it work
in both Trending and Non trending environment.
9) Not taking in consideration Support and Resistance
Your strategy could have the perfect setup but if EUR/USD is
getting close to an historical support and resistance, like say
currently 1.45 then you indicators are pretty much useless if big player
are getting ready to gun!
10) Lastly but not least, not doing an analysis of the trades and relying only on the final results.
Your strategy could be making tons of money because the strategy is actually not working or benefiting from extreme market conditions. For instance a Currency that only buy because of a bug could make a lot of money if a pair has been bullish for an extended period of time.
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