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Trading with Ichimoku Clouds: The Essential Guide to Ichimoku Kinko Hyo Technical Analysis by Manesh Patel

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Chapter 3. Ichimoku Backtesting

When someone meets a successful trader, what type of questions does he or she normally receive? How much profit do you make? How long have you been trading? What is your winning percentage for your system? Is this your only revenue source?

These are just a few of many questions that people ask over and over to successful traders. When inquiring about a system, do you think these are the first questions you should ask? When the trader provides the answers, are the answers facts? Can you believe everything the trader tells you? What good are the statistics for the trader's system if you do not know how that person trades? If you knew how that person trades then you can calculate the statistics yourself through backtesting.

BACKTESTING

Today there are many trading systems that offer various statistics on "how successful they are." The way to examine trading systems is not by looking at the winning trades but instead by looking at the losing trades. During a "bull run," anyone can create a system and it performs well. The person only has to be bullish over a long period. How will their system perform if the market all of a sudden reversed completely? Will there be a system loss to a point where it wipes out two years of profit? If you do not believe this can happen, search the Web on what happened in 2008 to many traders. Some traders lost four years of profits in three months!

When I first met my mentor, I did not ask him how much profit he makes in a week ...

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