Friday Feature: The Scouting Reports Backtest Series Part III: How backtesting shaped my trading | Tackle Trading: The #1 rated trading education platform

Friday Feature: The Scouting Reports Backtest Series Part III: How backtesting shaped my trading

In the System Development 101 series, we will teach you how to build your own successful trading system from scratch. Click on the image to get instant access.

Last update: August 2021

“What has made me subpar at trading directionally? After backtesting and going through my journal from the past year there was one key element that was missing from my trading: Profit management rules.”

Justin Driskell —
Friday Feature: The Scouting Reports Backtest Series Part III: How backtesting shaped my trading

Hey #TeamTackle, it’s Justin Driskell. Back again with the third and final edition of my backtesting series. We initially talked about WHY I started backtesting. Next, we covered WHAT I learned from the backtest. Now, we will cover HOW the backtesting has shaped my own trading. Let’s talk about what I’ve learned about myself, not only through these backtest but through trading altogether.

I’ve been trading since April of 2018. That’s almost a year and a half of winning and losing and finding what I like and dislike and what fits me. During this time, I’ve come to learn that I’m good at cashflow strategies and not so good at directional strategies. But why? What has made me subpar at trading directionally?

After backtesting and going through my journal from the past year there was one key element that was missing from my trading: Profit management rules. I had no problem taking a loss. I had very concrete stop loss rules that I followed religiously. My problem was how I managed my profits. What I found was that I failed to let my winners run. I’d always get scared of giving back my gains if the price action ran out of steam even for a day. There were a good handful of trades in the past year that if I had good profit management rules, they could have made up for all the losing trades put together.

Let’s look at a couple of examples. First, we’ll look at a trade I made on 3M Company ($MMM). We’ll look at what the chart looked like on the day of trade entry.

3M chart 1 ($MMM)

Now let’s fast forward a few days to when I took the trade completely off.

3M chart 2 ($MMM)

MMM was severely oversold and at a major support zone. A retracement was almost certainly imminent and I was scared I would give back all my gains plus we had hit my first target so I pulled the trade completely off. Now lets peak at what MMM did shortly after.

3M chart 3 ($MMM)

If I had followed the rules that I developed in my backtest I would have only taken partial profits at my first target and let the rest run with a trail stop. It would not have gotten stopped out until this last candle. Using this method would have more than doubled the profits I took off the table.

Next, we’ll look at a trade I did on Apple ($AAPL). Here’s the chart on trade entry:

Apple ($AAPL) - chart 1

… and the chart a couple of weeks later when I took the trade-off:

Apple ($AAPL) - chart 2

The price hit my target and was starting to slow down. Now, let’s take a look at what Apple did over the next few weeks.

Apple ($AAPL) - chart 3

Talk about a slap in the face. Apple had a beautiful run up staying above the 9EMA until the day before earnings, which is when my backtested rules would have had me exit. This would have nearly tripled the profits I took off the table.


jan tinneberg f3PRhiYEfkM unsplash

Patience! That’s my weakness. At least when it comes to swing trading. It’s a mindset problem for me. When putting on cashflow strategies, you tell yourself before placing the trade that the profits will most likely take time. So its already understood what timeframe to expect, but with swing trading, what I’ve found through backtesting is you really have no idea how long you will be in a trade.
A week?
A month?
A few months?
I like to know these things. My personality requires time expectancies.


Let’s talk about personalities for a second. You’ve heard it said many times that you have to find who you are as a trader. I didn’t understand this until these last few months. I came into the trading world hoping someone would just tell me what to do and I could just do it over and over again until kingdom come. Unfortunately, it doesn’t work that way. There are so many strategies out there. Which ones you like to trade might not be what others like to trade. Along with what strategies to choose, you have to determine what trading time frame fits your personality as well. Are you a day trader, swing trader, position trader, a long term investor, or a combination of them all? There are no right or wrong answers. Just an infinite combination of trading styles, timeframes, and strategies to pick from. There is no “one size fits all” in trading. 

With all this being said, I’ve come to determine through my backtesting and live trading that I am primarily a position trader for cashflow and a day trader for speculation. My position trades consist of cashflow strategies like vertical credit spreads and calendar spreads. These trades have clear cut time expectancies. There is an expiration date that I know I will be out of the trade by, usually 1-2 months. Day trading also has a very defined time expectancy. You are in and out in one day. So these styles of trading are what my personality has gravitated to due to the fact that I know how long I will be in the trade. I still swing trade but only use a small portion of my account to do so. 

You might find it silly to do all the work I did backtesting just to find out that swing trading isn’t my favorite but that’s part of the journey, isn’t it? It takes time to figure out who you are as a trader. If you are new, I would tell you to expect to spend at least a year to figure out what strategies and time frames you like to trade on. Some people, like me, love iron condors but stray away from swing trades while others couldn’t care less about cashflow and go for the home runs. Once you determine what you like, master it. Focus your attention on that aspect of trading and become a wizard. Don’t try to master everything you’ve learned at the same time. If you’re like me, you’ll find that very overwhelming. 

I want to challenge you to backtest different systems and determine your trading personality if you haven’t already. Share what you like to do in the Clubhouse and reach out to other like-minded individuals to share thoughts, backtest, strategies, and systems. After all, Tackle Trading is meant to be a community. Let’s all help each other out. Until next time traders. 

After all, Tackle Trading is meant to be a community. Let's all help each other out.

Justin Driskell

Justin Driskell | Tackle Trading

Justin started his trading journey during a 3-day workshop with Tim Justice in April of 2018. He has always been interested in the financial markets and the opportunity it potentially provides. He likes trading stocks and options. Outside the markets, he’s a husband, father of two boys, and full-time automotive technician.


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.


Tackle Trading Resources on Journaling

Trading Journals are essential for any successful trader. Click on the image to purchase our Trading Journals Bundle at a special price.

Trading Journals

Good traders keep excellent records. Quality trading journals are essential to your progress and growth as a trader and keeping good records will help you learn more from both your income and expense trades.

Learn more about HOW the Tackle Trading Journals can help you become a professional trader.

Trade Journaling for Beginners [Free Articles]

Continue learning about this powerful trading tool: the Trade Journals. Tackle Trading has all the resources you need to MASTER them like a PRO. From the Trade Journals themselves to free articles and tutorial videos on how to make the most out of them, we got you covered!


Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

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.


Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.

One Reply to “Friday Feature: The Scouting Reports Backtest Series Part III: How backtesting shaped my trading”

  1. Markknafl says:

    Thanks Justin!

Comments are closed.

Share this

X
Facebook
LinkedIn
Reddit
Pinterest
Telegram
WhatsApp

More Insights

Join the #1 Rated Trading Education Platform

Learn to generate monthly cash flow from the financial markets and how to grow long-term lasting wealth. Tackle Trading is an amazing online community for active traders that is led by seasoned market professionals. Tap into the power of Tackle Trading’s proven trading system and learn how easy it is to make money with the proper coaching and education.

8,800+

Members

100+

Reviews

Ready to take your trading to the next level?

Get in touch today and receive a FREE complimentary consultation.

Let us help you start trading!

Our Pro Membership gives you the tools to tackle all your trading obstacles.

Register for the Master Trader Live Workshop and get the First 15 Days on Us

Book a FREE Consultation

Sign up for a free consultation to build your Educational Plan.