One clever method that traders can practice their methods and systems as they learn is to do what is known as ‘back testing’. Back testing is simply using historical data to test out your methods by making trades.
A form of software is often required do such testing.
Real-time trading is of course the best way to learn but this could lead to losses without having trialled a new method before taking it to the show.
Learn Quickly
Back testing can accelerate a trader’s learning for the simple reason because traders are able to go through a whole year’s worth of charts in a couple of hours.
The more experience you get, the more chart time and trades you make, the better.
Practice Makes Perfect
Back testing is a great way for traders to start practicing their trading and building their confidence before they go into the real markets. From here they can work out what works for them and when it goes wrong – everything is a learning curve.
Any small mistakes can be ironed out this way and building confidence is important when it comes to trading. As the markets are always moving, the experience and confidence to know when to trade is important.
If the live market is quiet, traders may take this opportunity to practice.
Live Testing Cannot Be Replaced
Whilst back testing may be a great tool to fast-track your learning curve, the real thing cannot be replaced. Traders still need to learn from trading in the live market and in real time because nothing can replace this. We’ve certainly used the likes of ETX Capital to go through the real thing as a demonstration (there are alternatives out there!).
There are some things that just cannot be replaced by using back testing over the live market. Back testing is to help you believe that your method is going to work with the real thing.
The psychological affects cannot be replicated in back testing, nor can those long drawn, mentally draining trades.
