In this video I wanted to ask you something. Is this a good or a bad result?
The system is trading, it’s trading automated, it’s the Forex Trading Framework from October 2017 and we made a profit, the balance is at almost 10% profit and the equity is also cashflow positive.
When you have a look at the history graph this would probably be a system that you would like to trade. This blue line is the balance curve and you will see the balance curve moving upwards all the time, but the little green line here is the equity and right at this point the equity would have been only 96,904 Dollars, and that’s most likely the time when a human trader would stop to trade this system, because this is the point where it hurts.
Well, the automated system, like the Forex Trading Framework doesn’t care, it continues to trade based on the rules that you have created.
You might have other rules for your life, for example: I have a strict rule not to eat any chips and I’m able to obey to this rule when I never buy chips, but from time to time my wife might buy a bag of chips and it appears in our kitchen…
Now it’s sitting there staring at me and it’s just a question of time when I’m going to open it. Once I have opened that full bag of chips it’s just a question of time when it’s an empty bag without any chips. That happens all the time and now the question is: if a simple bag of chips is able to make me break my own rules, what do you think would happen when I see my account go down for several thousand Dollars, like here?
This is a drawdown that is bigger than 15,000 Dollars and it seems to get worse here, and now you start to shiver. Oh my God! I’m going to lose all my money! And now you quit. But your trading system won’t do that, it will go on to act as if nothing had happened, and it might see several other drawdowns here. This one is even worse! This would be over 40,000 Dollars drawdown. I couldn’t stand that but my system can! Well, all of this is absolutely no problem when you just see a few lines going up and down on a demo account, but once it is real money the meaning of these lines here will completely change your behavior, but it won’t change the code of your trading system. So, if you can get your trading system to trade exactly according to your rules on a demo account the only thing you need to do, is to get yourself out of the way on your real account. In the next video we are going to talk about an easy way how to do this.
If I stop the strategy test right here, my results will be very good. I made 41,120 Dollars net profit, but most likely you would kill the system when the equity says you only have left 81,957 Dollars. This is why brokers make so much money and it’s also the reason why an automated system is a better trader. If there is one thing that is very predictable, it’s the fact that human emotions will cause the biggest losses and most likely you will create these losses yourself just because you kill your own system right here in the middle of the game and it will never see profits because you stopped it to get rid of your own emotional pain.