Weekend Update, Step 10

Contest Update

Almost 6 months into the contest, and I'm down 20%.  Not exactly how I had envisioned!  But then again, trading has never been a smooth upward ride for me (and, I suspect, is not that way for most people).

Flat/down periods, followed by quick jumps up, is generally how things go, at least historically.  Of course, this can be mentally draining, since the flat/down periods tend to make you think you are trading incorrectly/poorly.  The markets have a way of breeding indecision, lack of self confidence, impatience, frustration, worry, and a million other bad feelings.  It is quite amazing, actually, at how the market can ruin your psyche.

At this point, I'll continue to ignore those bad feelings -  I'll keep sticking to the Trading Plan, and see where it leads!


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The Trading Process - Incubate - Step 10

In this post, I'll give you a tip that is one of the best things I do.  It is also one of the hardest.  It is called "incubation."

The idea is that once you develop a strategy, following all the correct steps, you don't trade it right away.  You just put the strategy aside for 3-6 months.

Of course, since you just finished the development, you want to start trading it TODAY!  Just think of all those dollars headed out the window, as you let the strategy sit!  That is what makes this step so difficult - no one wants to spend months developing a strategy, only to let it sit for months on end.

BUT, how do you know for sure that you didn't "cheat" while developing the strategy?  How do you know that you used the correct process?

The simple fact is nothing (except for real money trading) beats results with future data, and that's what you get by incubating.

I personally put a strategy aside, and look at it once a month.  If, after 4-6 months, the performance is close to my historical testing, then I may allocate money to it.

Many times, especially when I first started using the incubation process, I weeded out many "bad" strategies.  In some cases, I went back and determined that my strategy development process had some flaws.  Thankfully, incubation hleped me make improvements, without costing me money!

Next: If there is a fire, you better know where the exit is!