Fine Tuning Your System: Taking a Scientific Approach

Filed under: Learn Forex Trading |

Yesterday, I talked a little bit about changing the parameters of my system/methodology, and today I would like to talk about the concept of fine-tuning your system a little bit more.


Now, with any system, whether it is a stock trading system, a horse racing system, or a forex trading system/methodology, it is important to follow a certain procedure. To begin with, come up with a hypothesis based upon a logical and well thought through idea. Next, test your hypothesis on a significant amount of back data. If your hypothesis stands up, then you can start doing a live test (but preferably not with real funds if possible). This is the basic procedure.


What you should not do is back test data and keep changing the parameters randomly until the results are optimized and produce the most profitable results. Much of the results will be down to chance and will have no logic behind them. Any set of results can be optimized in this way, but there is very little significance to them and they will be unlikely to happen that way again in the future. This is why it is better to have a logical, working hypothesis to test. This is a scientific approach.


As I mentioned yesterday, I have fine-tuned my system/methodology to produce better results for fewer trades. However, I did not merely optimize the past results. It was based on logic and a hypothesis, which proved to be correct.


In summary, it is best not to keep tinkering with your system every time you experience a bad run of forex trading results, because you will experience a bad run from time to time no matter how good and robust your system is. This is the way that probability works. However, from time to time, after a significant amount of data, you can revise your system/methodology and perhaps make one or two minor changes to improve your chances of success.

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