Yesterday we looked at some examples of how a trader could use a handful of recent examples to make trading decisions. The hypothetical scenario played out quite terribly. Although fictional, it’s a thought process that I see happen each day by traders around the world.

Here is an alternative way to consider strategy and statistical trading when trading something like AGQ. I built a very basic automated strategy that uses an exponential average and a price trigger for confirmation. I ran a series of back tests to see if the strategy worked on multiple time frames, of which most had good results.

The simulated profit and loss chart below shows a three year history with more than 120 trades. The performance of this basic strategy isn’t going to make any headlines, but it’s something we can work with and possibly include in a portfolio.

Three years and 120 trades is more statistically relevant than the two months and ten trades that happen to fit on the price chart. The only way to quickly see the results of 100+ trades over three years in one snapshot image is to use an automated back testing system.

Being able to gather this information is very valuable. Knowing that you pulled the information correctly so that it represents something that can be used in the future is even more valuable. This is the kind of information that allows professional systems traders to assemble a portfolio of strategies and instruments that can be scaled up in any market environment.

Learning how to use automated systems is not rocket science but it does take some training. Rick Martin and Andrew Falde are now in the process of developing training materials on the topic of systems trading that will include information on automated back testing, algorithmic strategies, portfolio development, automated trading, and much more.  

There will be several free videos and articles made available over the coming months as well as premium training programs. If you would like to receive notification when these materials become available, please send an email to [email protected].