“I don’t know how to verify FX!” is a very common and serious problem.
If you can’t verify it, you can’t create a trading method, so winning in Forex will be a dream again.
This time, I will give you specific advice and explain in detail how to verify Forex.
By reading this, you will be able to understand how to do verification, and you should be able to actually proceed with verification and create a trading method.
- What is Forex Verification? Where do you tend to stumble in verification?
- Advice if you can’t hypothesize a trading method
- Advice if you don’t know how to do FX verification.
- Make the hypothesis of the trading method tradable
- Set entry and exit (settlement) rules
- Check the actual verification results
- What if I am unsure of my entry decision during FX verification?
- During forex verification, do not seek good results in a single trade.
- What if I come up with a new idea during FX validation?
- Verify with charts from various time periods.
- Perfectionism is the enemy of FX verification
- Recommended for you now that you have an image of the verification method, “Superiority and trading methods” article
- How to verify FX ~ Summary
What is Forex Verification? Where do you tend to stumble in verification?
Forex verification is the work of finding “recurring price movement trends (superiority)” by analyzing past charts and creating a trading method using that advantage.
The result of such verification work is the “superior Forex method”.
The method of Forex verification can be broadly divided into the following steps.
How to verify Forex (how to make a trading method)
- Collect and analyze a large number of past charts and observe the price movements (patterns) common to them.
- Based on that, we make a hypothesis of the trading rules (method).
- Verify whether the rules (methods) are superior and clarify them concretely.
- If there is an advantage above a certain level, try it in demo trading and then use it in actual battle.
By the way, if you use a trading method created by someone else, you will start from number 3.
By the way, among the Forex verification methods, the points that many people tend to stumble on are as follows.
- I feel that “making a hypothesis of the trading method” itself is difficult, and I can’t do anything about it at all.
- Even if a hypothesis is made of a method that “this may be the case,” we do not know how to verify whether it has superiority, so we stop.
In this article, I will give advice on these two points.
Advice if you can’t hypothesize a trading method
If you can’t make a hypothesis about the trading method in the first place, you may have a strong belief that “the superior trading method is difficult and complicated”, and you may not be able to look at the chart obediently (simply).
For example, they have the belief that they have to do some complex and mathematical technical analysis, or that they have to make surprising discoveries or find “hidden truths” that no one has known about.
Therefore, no matter how much you look at the chart, you cannot make your own “trading method hypothesis” — it is thought that you are in such a state.
You need to realize, “Oh, yes!”
No matter how much I tell people who are convinced that “it is impossible to find an advantage easily by looking at charts,” they are not likely to listen to me or believe me even if I tell them that they can easily find it by honest technical analysis.
Certainly, only about 10% of traders actually win in FX, and the number of traders who continue to win for a long time is extremely small, so it is natural for them to feel that there is no way that it is possible.
So, if he or she says, “Oh, really! or “Oh, it’s true! I can’t do anything about it unless the trader realizes that it is true.
Some people may suspect that I am lying because I do not want to tell them the truth (information on secret methods, etc.), so it is a very difficult thing to do.
It is necessary for the person to get rid of his or her “psychological blind spot” so that he or she can see the “facts as they really are.
Specific examples of “trade method hypotheses”
That being said, let’s take a look at one specific example of a “trading method hypothesis” that is worth verifying.
Don’t look at this specific example and think, “Huh!?”
The essence of the market is really simple, and by building on this simplicity, a robust and flexible trading method can be created.
For example:
Example of a simple “trade method hypothesis”
- The tip of the 25-period MA (moving average) is rising.
- The rate is above the MA.
- If (1) and (2) are satisfied, then there is an advantage to the buy trade.
Underlying this hypothesis is the fact that the rate continues to rise, i.e., - there are more buyers than sellers.
In writing, you might say, “What’s so obvious?” or “You can’t win with that,” but hear me out a little more.
The chart below is an hourly chart of the Eurodollar, and the area circled in red is where I hypothesized that there is an advantage to the buy trade.
*Click on the chart to enlarge.
First of all, if we look at it simply and honestly, don’t you think it would be easier to win if we make a “buy trade” within this red circle?
This “honest judgment as you see it” is very important, and being able to look at the market objectively and honestly in this way is a very useful skill when trying to visualize the collective psychology of market participants.
In fact, if you compare the rates at the left and right ends of the red circle, you will see that they are clearly rising, which leads to a simple conclusion: “It is easy to make a profit if you buy somewhere within this circle.
The hypothesis of the trade method is a simple one, and it’s okay.
Thus, the “hypothesis of the trading method,” which is based on reading the chart, is basically as good as it looks, and if you are told, “Well, that’s right,” will suffice at first.
The rate is rising because there is more money to buy than to sell.
Then, as long as that situation continues, you can consider following the buyers like a band-aid.
So, if you are unable to formulate a hypothesis for your trading technique, try a straightforward technical analysis of the chart and identify situations where you think, “Wouldn’t it be easier to make a profit if I buy (or sell) under these chart conditions?” If you can’t make a hypothesis about your trading method, try to identify a situation where you think it would be easy to make a profit if you buy (or sell) under such chart conditions.
In doing so, use your knowledge of the technical indicators and chart patterns you are familiar with, and while keeping the impression simple, formulate a hypothesis for your method.
For example, you can use support and resistance lines, chart patterns such as double tops, Dow Theory, price action, and so on.
If possible, try to imagine a situation or timing in which either the buyer or seller is likely to suffer psychologically, so that you can come up with an effective and advantageous hypothesis.
If you think “Is there any meaning to this hypothesis?” at first, it’s okay.
What is important is the “verification process” from here on.
Advice if you don’t know how to do FX verification.
Next, let’s give specific advice on cases where a hypothesis of a trading method that “may be like this” is made, but the verification method is not known and stops.
We will continue to consider the example of the moving average hypothesis mentioned earlier.
Make the hypothesis of the trading method tradable
At this point, we still do not know if this trade method hypothesis is really superior – that is, if it is profitable after repeated trades.
Besides, the hypothesis at this stage is too vague to proceed with verification, so let’s try to set conditions that are a little more like a trading method.
There are many ways to do this, but one effective way is to apply the hypothesis of superiority to multiple hourly charts.
As you can easily imagine given the fractal nature of forex charts, a hypothetical situation on an hourly chart will appear on a 5-minute chart in the same way.
In this way, by applying the same hypothesis to multiple time charts, a specific trading method can be found.
The chart below shows the inside of the red circle on the 1-hour chart on a 5-minute chart.
Similarly, the places where the hypothesis applies are circled in red.
In a situation where you hypothesize that there is an “advantage to buy” on the 1-hour time frame, wouldn’t it be easier to make a profit if you trade where the same situation occurs on the 5-minute time frame?
At this time, using a “chart synchronization indicator” makes it very easy to examine such “price movement relationships among multiple time charts. The article below introduces and explains the synchronization indicator available for MT4, so please try to install it in your MT4 as well.
explanation 『Sync3』～チャート同期インジケーター。オールインワンの万能選手
From here, you can use any technical indicator, price action, or whatever you prefer, and set tentative entry and exit (settlement) rules to prepare your method.
This is an important point, but in my view, what is important in a trading method is “what situation (scene) to trade in,” and “how to make entry and exit” comes after that.
Incidentally, the rule that defines the situation in which to trade is called the “setup” and the rule that defines the entry is called the “trigger,” but the setup is the most important first.
If the situation in which you trade has an advantage, as long as you make entries that take advantage of or do not interfere with that advantage, profits will naturally accumulate.
Of course, in order to produce verification results, entry and settlement rules are always necessary.
Otherwise, profits and losses will be hazy to begin with, making verification reproducibility impossible and making comparisons with other verification results impossible.
An important piece of advice is not to be overly particular when setting up your trading method here. It is the setup that is important.
For a detailed explanation of setups and triggers, please see the article below.
Set entry and exit (settlement) rules
So, since we are hypothesizing a trading method using MAs this time, let’s roughly determine entry and exit (settlement) rules using MAs as well.
For example, as a simple example, we have prepared the following entry and exit rules.
Entry and exit (settlement) rules
- When the positive line is confirmed close to the MA, buy entry is made at the close (opening price of the next leg).
- Stop-loss is taken when the low of the positive line is below the low of the positive line that was entered.
- The profit stop is made at the previous high (the high of the candle’s substance).
This is a common and typical entry method, the so-called “push-buy on MAs”.
It is important to keep settlement rules simple.
As explained earlier, the rules to be set here should be basically simple, without being overly particular, but there is a recommended approach to this.
However, there is a recommended approach in doing so. That is to mechanically determine the stop-loss and profit-take lines.
This way, unnecessary hesitation during verification can be eliminated and the verification process can proceed smoothly.
If the settlement rules require numerous discretionary decisions, it is impossible for a beginner forex trader to continue the verification process.
In the beginning, it is recommended to use a settlement rule that can be judged mechanically, such as the above candlestick high-low rule.
For example, “It’s a trend, so it’s going to grow, but it’s a waste to take a profit right away!” or “I could have avoided a loss if I had stuck with it a little longer,” you don’t have to think about it now.
Such thoughts during validation are a major negative factor that hinders validation.
The key to continuing the verification process is to be conscious of not unnecessarily putting a mental load not only during trading but also during the verification process.
Check the actual verification results
The chart below shows the verification results of trading with this trading method.
The blue arrows indicate trades that were able to gain and the red arrows indicate trades that lost money (the last trade did not reach the gain line just in time and lost money).
The blue horizontal line is the previous high (the high of the candlestick substance).
Entry is made at the “close” of the positive line confirmed near the MA, and stop-loss is made when the low of the positive line is below the low of the entry.
The profit stop is taken when the price rises to the previous high (the high of the candlestick).
In this way, the chart above shows the results of four trades in a single situation.
The profit is from the close of the positive blue arrow to the blue line, and the loss is the range of the positive red arrow. The total result of these four trades shows a positive result.
This is an example of the verification process in action.
What if I am unsure of my entry decision during FX verification?
Perhaps you’re asking, “Even if I enter when a positive line is established near the MA, how close to the MA do I enter?” The answer is “when you think you are close to the MA.
The answer to that question is “when you think you are close to the MA. And this is also the point to proceed smoothly with the verification process.
For many novice traders, the important thing in verification is not to produce accurate numbers with no margin of error.
What is important is to clarify in one’s own way the “predominant price movement trend” that enables one to make a total profit, and to be able to accept this fact with deep conviction.
For example, in this example, it is important to confirm with one’s own eyes that “buying on a rising MA tends to be profitable,” and furthermore, to accept this fact with deep conviction.
Only by building such a deep understanding can one be able to repeat one’s own trades in actual trading without hesitation, in accordance with probability thinking.
When you lose three or five trades in a row, you can rely on the “confidence in your superiority” that you have built up in yourself.
The reason why I set the settlement method for verification as a mechanical rule earlier is to create a psychological environment in which you can concentrate on the trend of price movements on the chart.
Therefore, there is no need to be particular about detailed entry decisions at the beginning, and you will naturally develop your own criteria as you continue to do so.
As you continue to perform FX verifications, you will be able to make a judgment that “this is not close to the MA, so I will pass on it,” and this kind of judgment is one of the important skills that you will acquire through verification work.
In this example, you can ignore a positive line at a position where you think “it is unreasonable to enter here,” and just verify many charts of similar situations.
You have probably seen one of the market adages, “If in doubt, don’t enter.
This is an important point to keep winning in the long run, but it is important to be aware of it even from the verification stage.
During forex verification, do not seek good results in a single trade.
As you can see if you verify it with this trading method, you can only make a profit by the price range up to the previous real high, so I think that a very wasteful trade will be repeated.
However, what I want you to think about is the fact that even if you repeatedly make such wasteful and useless (seemingly) trades, you will not lose in total.
The reason why you are concerned about “wasteful profits” is that you are looking for results in one trade in the short term. That’s not the mindset of a winning trader.
Instead, we need to focus on “how is it in total?”
First of all, it is necessary to verify it with mechanical trading and collect the verification results firmly. From the verification results, it is necessary to check with your own eyes whether there is an advantage that can make a total profit.
What if I come up with a new idea during FX validation?
Now, when I was doing this kind of verification work, I thought, “Isn’t it easy for the rate to reach this level in this kind of market situation?” or “Maybe it would be better to wait and see in this situation to reduce wasteful losses?” You will be able to make your own discoveries and realizations.
These discoveries and realizations may be treasure ideas, so let’s use those new ideas and repeat the same verification again.
This repetition and repetition is the secret of Forex verification work, and it will be the driving force for your trading skills to improve.
For example, in this example, if the momentum of the 5-minute trend is weak or close to the support of a large time frame, you will notice a series of stop-losses.
So, you can think of the following ideas to avoid this situation.
- Do not enter with a push that reacts to the resistance line on the upper time frame.
- To see the momentum of the trend, filter using the perfect order of the MA on the upper time frame and the rate position of the Bollinger bands.
- At the time of entry, look at a smaller time frame and enter after rounding up the low.
- etc…
Don’t mix new ideas during the verification process
However, we must be careful not to mix new ideas into our current trading methods until we have gathered a coherent number of verified results.
As an advice, in this example, I would try to collect at least 50 to 100 trade results on a 5-minute chart, and then add what I noticed there to the rules.
Then, try to collect verification results again on the same 5-minute chart.
Comparing those verification results, I will check whether the total profit has increased, how much the number of trades has decreased, and how much the drawdown is.
Verify with charts from various time periods.
After several attempts to add new ideas to the trading method and verify it, we will look for the same situation using the 1-hour chart at a completely different time, and collect the trading results (verification results) on the 5-minute chart again.
In this way, it becomes clear to what extent the new idea added as a rule has an advantage (or is profitable).
This process is repeated over and over again.
In this way, when the trading method improves to some extent, the next step is to use the tool to do a mock trade (Forex practice trade), but that will be explained in another article.
Perfectionism is the enemy of FX verification
What you have to be careful about in Forex verification work is that you can get caught up in perfectionism.
In the process of working with these verification methods, once you become a perfectionist, the verification work is perfect! It stops.
“Aren’t you missing the points that you should enter?” or “Aren’t you making a unified entry decision?” It is one of the “Forex verifications” that makes you feel anxious and the verification does not progress one step.
However, even if the verification results vary in judgment, by collecting a lot of them, the variation will fall within a certain average.
Therefore, even if there is a slight error in judgment or misunderstanding, the value of the overall verification result will not be greatly reduced.
Even if the verification result is “about this much”, if the number becomes huge, trust will be born that “it is about this from the bottom of my heart”.
Especially at the beginning of verification, you should prioritize collecting a large number of verification results rather than trying to do each verification accurately, so that you can get enough statistically meaningful data.
Recommended for you now that you have an image of the verification method, “Superiority and trading methods” article
Once you have understood the content so far and have an idea of the verification method, the article on “Superiority and Trading Methods” below should be even more useful.
In the article below, we delve into each superiority and explain in more detail how to create a trading method that takes advantage of the superiority .
We have posted how to strengthen your superiority by accumulating multiple advantages and explanations of specific trading methods, so please use them to create your method.
How to verify FX ~ Summary
The “hypothesis of the trading method”, which is conceived by obedient technical analysis of the chart, is basically good as it looks, and if you say it, it is enough to say, “That’s right, isn’t it?”
You don’t have to expect “perfect” validation results.
In the same way that Forex is a world of probability, verification can also be considered in terms of probability, and if you can measure about 80 ~ 90% correctly, it will be usable as data.
Even with that level of data, the more you have, the more reliable you are as a whole.
Even if the verification result is “about this much”, if the population becomes huge, trust will be born that “it is about this from the bottom of my heart”.
The important thing in Forex verification is to clarify the “trend of price movement with superiority” that can make a total profit in your own way, and summarize it as a trading method.
And it is to be able to accept the trading method with conviction from the bottom of your heart.
Rather than worrying about just doing a little verification and putting out a little data, it should be faster to get closer to your goal by focusing on collecting a large number of simple and simple verification data.
Above, I will teach you how to verify Forex. If you don’t know how to do it, I told you about “how to make a method” that is a must-see.
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