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How To Learn Trading (Without Losing Lots of Money)

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Imagine your company has gifted you with a brand-new car.

A car of your dreams. Seeing the car makes you feel like your dream has come true. You wonder if you’re in dreamland or on earth. It’s been your dream to own a car since childhood. But the only problem is that you don’t know how to drive a car. You thought that once you had the car in your hands, you would quickly learn how to drive it on your own.

Your company chief hands you the car key.

It’s around evening time. After all the celebration is over, you’ve decided to leave your two-wheeler in your office and drive the car on your own. You’re pretty confident that you can drive on your own, as you’ve seen others doing it and have watched some of the tutorial videos on YouTube teaching you how to drive a car.

You insert the car key and start the car.

As you move the car forward, all of a sudden, another car comes in front of you. You panic and hit the brakes. But despite your attempt, your car slightly hit the other car, which caused some damage to your car as well. You feel worried and upset about this incident. This is what confidence can do when you’re not trained to drive a car in a simulated environment first.

Most traders make the same mistake as this person did with his car.

They want to trade the market after watching a couple of videos here and there, and then they talk about it with their friends and relatives. And suddenly, they get confidence, open a trading account, transfer money, and begin to take real trades in a real-time environment.

You know what will happen, right?

Most of them will end up losing money because they’ve not trained themselves to trade in a simulated environment. Once you learn how to trade well in a simulated environment, you can confidently trade on the live market.

And that’s what we’ll cover in this article. The three points we will see are

The Importance of Backtesting

Forextester Software

Understanding Statistics Report

The Importance of Backtesting

Backtesting means you’ve got a trading idea, and you want to test it on historical data and see how historically it has performed so that you can decide whether it’s worth trading this idea in real time in the market with real money.

We are not straight away jumping the gun and taking the trade based on random ideas. Rather we sit down and decide on the trading idea, then patiently backtest it. If the idea is not profitable, we want to drop the method altogether.

Do you see what we’re doing?

Yes, we’re checking whether the method is profitable or not using historical data. We’re not losing money at this point. Our trading capital is secure in our trading account. Our only goal is to test, test, and test some more.

Let’s say you have a simple trading idea.

To buy whenever the price closes above the 200-day moving average and sell whenever it closes below the 200-day moving average.

Now all you’re doing in Backtesting is taking this idea and testing it on the stock/currency/commodity/index, whichever instrument you’re looking to trade. You need access to historical data for 10 years (for backtesting the swing method, which requires daily data).

You go back in time and test how your idea would have performed. You need to test for a minimum of 20 trades before deciding whether your idea is profitable or not.

You might wonder why backtesting is so essential.

Let’s say you want to start a coffee shop in your area. Would you immediately start a coffee shop? Most of the time, the answer is ‘NO.’ What we do instead is a bit of research. How many coffee shops are there in this area already? How are they doing with their business? Are they profitable? How do they run their day-to-day operations?

After getting the answer to all those questions, and only if you’re convinced that starting a coffee shop will be profitable, you proceed.

You hire people, advertise, get customers, serve them, and get feedback from them. There will be many hiccups during the initial stages. Setting up all these things and achieving the desired result takes some time. After a few months, it might run independently. And it’s profitable.

This is how everyone starts a business.

But when it comes to trading, most people do not do any research before they get into the market. They don’t answer these questions.

What they are going to trade?

What’s going to be their trading style?

How much capital are they allocating?

Is the method they’re trading really profitable?

They have no clues about these questions.

But if you ask traders, real traders who make a living from trading, they’ll tell you how much time they spend backtesting their ideas. They sit in front of the screen for hours, days, weeks, and, yes, months to figure out whether their trading ideas will make a profit or not.

Only if they are convinced about a trading idea and after backtesting it, they’ll deploy their real money to trade. At this point, they’re pretty confident that their idea will work. If they see a few of their trades hitting stop losses, they are not worried because they know their method gives losing trades here and there.

And this keeps them calm to take trades that will give them gains.

The novice trader panics after losing 3-4 consecutive trades, whereas the professional trader looks forward to the fifth. Because they know their method in and out, they are not praying to God. They’re not at the mercy of the market. They don’t jump from method to method. All of these behaviors are eliminated right up front by backtesting their trading ideas.

So how do you actually backtest your trading ideas?

Traders backtest their trading ideas in two ways.

Manual backtesting

Automatic backtesting

Manual backtesting means you look through the historical data, and whenever there is a signal for a buy trade, you enter that price on an Excel sheet. And when the trade is over, you enter the exit price on an Excel sheet. You get the idea. You’re looking through the historical chart and spotting your entries and exits, and then noting them down on an Excel sheet to figure out whether it’s profitable or not.

The only problem with manual backtesting is that it’s time-consuming, especially if you want to backtest it for more than 5 years. Also, you need to buy historical data from data vendors because you cannot trust free data available on the internet.

Automatic Backtesting means you can perform backtesting with the help of software. The software comes pre-loaded with historical data, and you can go back in history to check how your idea performed.

The most significant thing is, as you backtest, you can place your order and see your trading result, whether it’s a profit or loss in the software itself. There is no need to track your entries and exits manually. This is a huge time saver, and it helps you test your trading ideas in a relatively short time.

Is there any software that helps me backtest my trading idea with historical data of more than 15 years, as well as give me the trading results of my idea without punching it in Excel?

We’ll find out in the next section.

Forextester Software

What is Forextester software?

Forextester software is a trading simulator for backtesting your trading ideas. Its sole purpose is to help traders gain practical trading skills and become confident traders in a short amount of time.

If you have a trading idea with a clear-cut entry, stop-loss, and exit, then your first step is to backtest using this software to check the profitability of your trading idea. In the meantime, let your trading capital sit safely in your bank account as you hone your trading skills.

What are the main benefits of Forextester software?

The software has a lot of benefits. But the core benefits which every trader can enjoy are:

Historical data: It has over 22 years of historical data in-built into the software for the majority of the currency pairs. You don’t have to worry about the credibility of the date. Forextester data is original and authentic. You can confidently use that for testing your trading ideas.

1) Historical data: It has over 22 years of historical data in-built into the software for the majority of the currency pairs. You don’t have to worry about the credibility of the date. Forextester data is original and authentic. You can confidently use that for testing your trading ideas.

2) Realistic testing results: The purpose of using the software is to know whether your trading idea has the potential to make profits. The software itself provides testing results. You don’t have to maintain a separate Excel sheet for that. You’ll know whether your strategy is worthwhile to deploy or not right within the software itself.

3) Save time and money: One of the things that many traders don’t understand is the concept of time and money when they begin to trade. You see, both time and money must be spent wisely.

Traders spend years chasing the system from the system and losing money by taking random trades. However, they never sit down and create their trading idea and backtest it. If you’re serious about trading, invest time backtesting your trading idea before trading it live. I can assure you that this smart move alone will save you lots of time and money.

4) Take screenshots with single clicks: As a trader, you want to keep track of your trades in the form of screenshots so that you can look them up anytime you want to refer to or modify your trading idea. And this feature solves that problem. You can take a screenshot within the software itself and save it for later review.

But you might be wondering why to use Forextester to backtest your trading strategy.

Think about your childhood and how you learned to ride a bicycle. You tried to ride, you fell down, you made mistakes, and you eliminated them until, at some point, you got very skilled at driving a bicycle.

We are humans, and we are capable of learning from our mistakes.

However, we don’t want to make the mistake of using real money and feel emotionally upset about it. Rather we can simply choose to backtest our trading idea using the original historical data at a pace suitable for us.

When you begin your backtesting journey, don’t expect to hit your profitable method immediately. Each and every trade you take will help you to understand your method, your emotions, your understanding of yourself (yes, trading helps with that), and your thought patterns as well.

You’ll find it difficult to backtest itself because the uncertainty can be quite high. And during your backtesting, if you face a few losses in a row, you might consider switching to another method. There are several psychological issues like this happening within you as you go about backtesting.

As you continue to do it, at some point, you’ll understand your method inside-out but also the various ups and downs in your emotions that you can expect while trading it live. You’ll get a pretty solid picture of what you’re headed for, and this really helps you keep yourself cool when times are uncertain.

How do I get Forextester software?

Here’s the link for the Forextester software, and I want you to download it. Go through the trial version first. It has only a few limitations, but you’ll really get the hang of the software. Once you are happy with it and are serious about investing in the program, you can consider buying the latest version.

How to get access to the Intraday course (yes, a bonus course) from diveshtechanalysis.com?

Once you’ve purchased the software via this Link, then let me know. You will be getting access to a special day trading technique (a free course) from diveshtechanalysis.com as a bonus.

This course is meant purely for intraday traders. It is designed for finding time-based turning points in the intraday. The user of the course will be able to calculate the timing for the intraday reversals.

For example, while using this method, one can know that at 16:15 PM, a trend change could occur. I want you to go through the course notes and try backtesting it on the Forextester software on any instrument of your choice. It’ll give you a taste of proprietary methods that you won’t find anywhere else.

How much does Forextester cost?

The Forextester basic version is priced at around 4200 Inr (49$) for a single license.

They’ve different subscription fees for data. I would advise you to go through this page and find one that suits you.

If you’re considering becoming a full-time trader, don’t treat it as an expense. It’s like an investment. It’ll save you from losing lots of time and money.

In the next section, we will learn what statistics reports are and how Forextester helps generate them quickly.

Understanding Statistics Report

Remember, trading is just a numbers game. We buy and sell, resulting in profits or losses. Whether to deploy a trading strategy live or not depends on the end result after taking a minimum of 20 trades. Using the statistics report, we could decide.

So, what to look for in a statistics report?

The most critical thing about any trading idea is its results. How the strategy performed over the years, and how much profit it made. We rely on trade statistics that the software automatically compiles and displays for us.

At any point during backtesting, we can know how the method is performing.

Seeing these statistics about your trading method will reveal a lot about you and your trading method. Though there are so many items in the screenshot, the three main points are as follows.

Net profit: First and foremost, after 20 trades, does this method make a net profit? If yes, you’re on the right path. If not, something is wrong with the method, and you can discard it or fine-tune it further.

Average Profit/Average Loss: Your average profit should always be greater than the average loss; otherwise, you’ll lose money in the long run. It’s important to make sure your method wins big when it moves in the direction you expect and loses little when it doesn’t.

Consecutive losing trades: This figure tells you why people don’t trust their trading method. Let’s say you have 6 consecutive losing trades. Without backtesting your method, you would have panicked and switched systems. But that’s not how trading works. Your 7th trade could be a winning trade, and that will get you back into the game. A back-tested plan with statistics like this gives you the confidence to pull the trigger on the 7th trade.

But I don’t want to backtest. It won’t give a real-time experience.

Yes, I agree. Nothing beats real-time experience. But you need to understand we’re not replacing real-time experience with backtesting. The simulation software is not meant to escape real-time trading. What we are really trying to do is, get really comfortable with trading your trading strategy in a safe environment. This is so that you can gain confidence to trade in a real-time environment.

We know the big picture of trading in real-time and generating profits from the market. But doing that requires practice, and we’re doing it intelligently without losing our precious trading capital with Forextester software.

Why can’t I use free backtesting software?

Free software and its data are rarely reliable. When you backtest with unreliable data, you won’t have the confidence to trade your method in real time because your trade statistics will come from trades taken from unreliable data.

Treat trading as your business, and invest in paid products and services. That’ll give you a professional mindset. This move alone will separate you from the majority of traders who are not so serious and rely on freebies in their trading careers.

Here are some Forextester Software screenshots

1) Frontpage with a chart

Ribbon Interface: The newly updated version comes with a ribbon interface and looks clean and easy to navigate.

Multiple Timeframes: You can view the chart from a 1-minute timeframe to a monthly timeframe chart.

Place Orders: While backtesting your idea, you can place orders just like in real-time. You can place a limit order or a market order to execute your trades.

2) Orders

You have the option to place a stop-loss and take the profits within a single order window.

3) Data Center

You can download the historical data of available instruments from the data center to begin backtesting.


So, what did we learn from this article?

We started off by learning why backtesting is important and why it’s necessary for traders. Having understood its importance, we moved on to explore Forextester, a trading simulator that really helps us backtest our trading ideas with original historical data.

And at last, we’ve seen the statistics report that the software generates for us without maintaining it manually. These statistics are our trading weapon. We rely on these data to make real-time trades day in and day out, not based on rumors.

What’s one thing you can do today?

It’s simple. You just have to Decide on your trading strategy with an entry, stop-loss, and exit plan.

Download Forextester Version 5 (Desktop Version) – try their free demo

If you’re happy, upgrade to the paid version.

The decision to invest in backtesting is the most valuable decision in your trading career. It makes you a pro.

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About the Author

Divesh Jotwani is a Full-time trader in the Indian stock market. He has spent over 20+ years researching and discovering WD Gann's methods and applying them day in and out markets.