Last update: August 2021
Tonight’s Show: Backtesting Trading Systems Part 1 with Coach Tyler Craig, CMT
Join us for tonight’s Cash Flow Club: Chartered Market Technician, Tyler Craig will host today’s session titled “Backtesting. You can do it, put your back into it!” Tyler will illustrate how he uses ThinkorSwim’s ThinkBack® tool to backtest trading systems. You’ll learn how to plot the equity curve of your system under varying market environments to discover exactly how your rules would have performed. Bring your backtesting questions and prepare for enlightenment!
Important Note!
** In backtesting, past performance is no guarantee of future results. **
Watch the Replay
If you missed last night’s show or you would like to watch it again, check it out on the player below (PRO Members Only).
Notes from the show
Build the rules of your Naked put system
Step #1 Security Selection
- Pick a stock/ETF that I think I can make money on selling puts over time. And I want test to see if it would have worked over the past 6 months, 1 year, 3 years, whatever!
- If I use a stock – then I have to deal with earnings every quarter
- If I pick an ETF – then there are no earnings!
- USO
- XME
Step #2: Entry
- Date: Every 45 days
- Strike: Sell a delta closest to 0.20
- ALWAYS on approach. I want to passively sell puts EVERY SINGLE MONTH on USO
- Why? B/c I think it will rise over time and systematically selling puts will generate better returns than buy and hold (hypothesis)
- When I’m 45 days out I will look at the trend. Only sell the put if we’re above the 50-day moving average (filter)
Step #3: Exit
- Ride to expiry and let put expire if it’s OTM.
- If ITM at expiry, buy to close the put to avoid assignment.
Metrics worth Measuring
- Number of wins
- Number of losses
- Win/Loss ratio
- Average dollar gain
- Average dollar loss
- Biggest loss
One of the biggest mistakes is to have a good system but bet so much that you give up on a bad month.
Backtesting Series [FREE Articles]
- Baby Got Backtesting Part 1 – Why Backtesting?
- Baby Got Backtesting Part 2 – How to Backtest?
- Baby Got Backtesting Part 3 – Backtesting Execution
- Cash Flow Club: Backtesting Trading Systems Part 1
- Cash Flow Club: Backtesting Trading Systems Part 2
Tackle Trading Resources on Backtesting
Why backtesting? What are the benefits? How to run backtesting? How to collect and analyze data? What types of trading systems can I backtest? What are the tools available to run backtests?
These and many other questions have been already answered in our extensive pool of articles on backtesting.
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Friday Feature: The Scouting Reports Backtest Series Epilogue
“[…] It all comes down to mindset. Chipper talked about how it takes a strong will to be able to fail 70% of the time and press on, practicing, playing, and striving to be better without the failures weighing down on you.” Trust your system, traders.
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Learn more about HOW the Tackle Trading Journals can help you become a professional trader.
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Financial freedom is a journey
Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.
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3 Replies to “Backtesting Trading Systems Part 1”
6-29 cash flow link?
https://tackletrading.com/cash-flow-club-replay-june-29-2017/
This was very helpful.
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