To win at Forex, you need to be able to reproduce your trades” – if you are a serious Forex player, you have probably seen this saying before.
- What is the reproducibility of a trade?
- How can we improve reproducibility?
In this issue, we will answer these questions and look at how to verify the reproducibility of trades, which is an important point for becoming a stable and winning trader.
- What is the reproducibility of a trade?
- How to improve the reproducibility of trades
- Preparation for verifying the reproducibility of trading methods
- Plotting entries and exits on historical charts
- If the method should have an advantage, but your own understanding of the method is low
- I’ll try to give you some statistics on the plotted results
- Check your trade execution capabilities
- Compare the statistics of the trade method itself with the results of the simulated trades
- Reproducibility of Discretionary Trading – Summary
What is the reproducibility of a trade?
In the trading world, the term “reproducibility” has several meanings, and here we will explain the reproducibility of FX discretionary trading methods (rules).
In this case, the reproducibility of a trade is the degree to which a trading method can be faithfully practiced and repeated (reproduced).
If you have a trading method and you are able to repeat the same method in your daily FX trading, you can say that your trading reproducibility is high.
On the other hand, if you feel that you are not able to trade according to the rules, it means that your trading is not reproducible.
In other words, no matter how superior and excellent your trading method is, if your discretionary trading is not reproducible, your method will unfortunately not generate the expected profits.
Low reproducibility means that you are not trading according to the trading rules.
So, in the extreme, you are “always making bullshit entries and closings,” which is tantamount to gambling, where you don’t know whether you will win or lose.
Unless you are trading with a fully automated system, “your trade execution ability” is an important factor that determines the outcome in Forex.
The superiority of your trade execution ability will show up in the form of “trade repeatability”.
Trading methods themselves have high and low reproducibility
How well you can repeat the trading method in the same way – that is one meaning of reproducibility.
However, there is also a factor of high or low reproducibility in the “trading method itself.
For example, let’s say you have the following entry rule for a discretionary trade.
If you have studied forex to some extent, you can imagine what this rule means.
This is one of the simple and royal entry rules, which is to follow the trend that breaks out again from a “pause (range market)” during a big hourly trend and continues the trend.
For example, when the 1-hour time frame is in an uptrend, I should wait for a range to form on the 5-minute time frame, and then buy entry when it breaks above the range, right?
Yes, that is correct.
However, I find that there are many dim points in this entry rule.
- What is the “upper leg” and “execution time frame”? Weekly? Daily? 4-hourly? Hourly? The 15-minute? 5 minutes?
- How do you determine the trend? Highs and lows rounding up or down? Using technical indicators? For example, the slope of a moving average? (What period MAs do you use?)
- How do you determine the range? Is it by appearance? Define it strictly?
- How do you determine a range break? When to break out of highs and lows? Which high/low breakout to judge? Wait until the closing price?
There are others, but even a cursory consideration reveals that there are so many unclear factors.
Let’s say that in one trade you adopted the 4-hour trend, saw the two 15-minute highs as a range, and entered long the moment the highs were broken.
But if, in the next trade, you judged the trend based on the slope of the 1-hour and 20MA (20-period moving average) and entered the trade, can you really say that this is the same trade based on the same method?
In this way, a “vague and unclear trading rule” is a “low-reproducibility trading method” in terms of how faithfully it can be repeated (reproduced).
A trading method with low reproducibility makes it difficult to repeat the same trade, no matter how high your own trade execution ability is, and the results of that trade will not be stable.
However, in discretionary forex trading, which is not fully automated trading, there is a limit to how strict you can make your trading rules, and a certain amount of room for judgment is inevitable.
However, it is possible to minimize this room for judgment and reduce the blurring of trades.
It is important to verify and practice trading methods with a small margin for judgment and high reproducibility in order to practice winning trades with a sense of stability.
How to improve the reproducibility of trades
As we have seen, when we talk about “improving the reproducibility of trades,” one approach is to “improve the ability to execute trades and repeat them according to the rules,” including background analysis of charts, entry, and settlement.
Another approach is to reduce the ambiguity of the trading method itself to make it easier to repeat.
How to improve the reproducibility of trades in Forex?
- Increase the ability to execute trades.
(Increase the ability to correctly analyze charts and repeat the act of buying and selling) - Make the content of your trading methods easy to repeat without hesitation.
However, since the two are closely related, it will not work if you proceed with either one in the dark.
From here, we will explain how to improve reproducibility (i.e., how to verify reproducibility), assuming that you will use discretionary trading methods based on technical analysis.
Preparation for verifying the reproducibility of trading methods
Whether it is your own trading method, a method you obtained for free on the Internet, or a method you purchased from a commercial product, we recommend that you first start by verifying (validating) the reproducibility of your trading method.
What you need to prepare is price movement data (charts) over a certain period of time.
For day trading methods, you will want at least one year’s worth of 5-minute to daily data.
If possible, 5 to 10 years of price movement data is preferable, as it allows us to verify the reproducibility based on a variety of situations.
MT4 is the simplest and easiest way to verify the reproducibility of trading rules, so if you do not have MT4, this is a good time to get it and start using it.
If you do not have MT4, this is a good time to get it and use it.
Plotting entries and exits on historical charts
Once you have prepared a chart of the past in MT4 or other charting software, plot (mark) the entry and settlement (profit and loss) points on the chart.
The tools in the chart have functions for entering various symbols (circles, arrows, etc.), so use them to mark the entry and settlement points according to your trading rules.
In fact, this process itself serves to reveal whether your trading method is reproducible or not.
If you are unsure of your decision when you look at a past chart, it means that the reproducibility of your trading method may be low.
If you are unsure of your judgment, identify the market conditions and clarify or subdivide the conditions of your trading rules so that you can make your execution decisions as clearly as possible.
For example, we can…
- Buy entry on the break of the previous high (if the preconditions are met).
The rule of “Buy Entry” may be clarified and subdivided as follows.
- (When preconditions are met), buy entry is made as soon as the confirmed 15-minute close confirms a break above the previous high, even if it is only 0.1 pips.
By clarifying the rules in this way, you will find that there will be much less hesitation in your decision making at the time of entry.
If the method should have an advantage, but your own understanding of the method is low
In some cases, the real cause is your poor understanding of the trade method at hand.
In this case, there may be no problem with the reproducibility of the trading method itself.
However, the fact remains that “difficulty in repeating trading rules = low reproducibility” at this point in time.
In any case, if you are at a loss to make a decision even on a past chart where time stands still and all future price movements are clear, it would be a wrong choice to risk your money using the trading method in its current state. If you are not sure about the trading rules, it would be a wrong choice to risk your money with the current trading method.
If the reason is that your trading rules are unclear, you should clarify the rules as concretely as possible.
If it is due to a lack of understanding of your methodology, consider studying and practicing to compensate for your lack of understanding, or consider switching to a different trading method.
I’ll try to give you some statistics on the plotted results
Now that we have plotted the entry and exit points on the historical chart according to the trading rules at hand, we can now use the trade results to generate statistics.
We will try to tally up the profit/loss pips for each trade, as well as the win rate, profit factor, and so on.
We want to have at least 30 trades. Repeat this several times over different periods of time to get reliable statistical results (e.g., 30 times x 5 periods, etc.).
If the total profit/loss result is not positive after repeated trades or the profit factor is only “barely positive” (1.1 or 1.2), it may be necessary to give up using that trading method and replace it with another method.
You may think, “Well, it’s okay if it’s positive,” but in real forex trading, various mistakes can occur due to psychological pressure.
Real-life profit-and-loss results should fall below the results of demo trades and trade practice, not to mention below the profit-and-loss results of prior chart validation.
It is just as well to assume that it is impossible to always achieve excellent results in real forex trading.
Therefore, if the results on the stopped past chart are not so good, the probability of a total negative profit/loss result is high in reality.
Check your trade execution capabilities
Once it has been confirmed that there are no problems with the reproducibility of the trading method itself, it is time to check whether the trader is able to practice the method correctly and whether he/she has the ability to repeat it correctly (reproducibility of trade execution).
To check your trade execution ability, you can either demo trade or use FX practice software such as “ForexTester” or “MT4 Discretionary Trade Trainer”.
First, the easiest and time-saving method is to use the F12 key on MT4 to perform a simple simulated trade while “feeding the candlestick frame by frame”.
We recommend that you use the simple method on MT4 first, but in the future introduce a full-fledged forex practice software.
For more information on forex practice software, please refer to this article.
When you are ready, try a mock trade as soon as you are ready to follow the trading rules.
In the beginning, look back at the trade once you have entered and closed it.
Carefully check to see if you really followed the method to enter and close the trade.
All that is required of you now is to execute the trade according to the trade rules.
What you were able to do without difficulty when you were plotting according to the rules on the past chart will not be the same when you are asked to make decisions on the spot as a simulated trade.
It was clear that profits were accumulating on the past chart, but when you tried to trade on your own, you found that the losses were accumulating.
Even if it is a simulated trade on a frame-by-frame chart, many people are immediately under pressure to make a decision when they cannot see the right side of the chart (the future) and cannot make a calm decision.
In order to overcome the psychological pressure of Forex and improve the reproducibility of trades (the ability to repeat trades correctly), it is necessary to practice trading so much that the trading rules become one’s own flesh and blood.
The key to this step is to do it carefully.
If you try to make a large number of trades without carefully simulating them, you will only end up making a lot of incorrect entries and closings, and your trades will never be reproducible.
It is important that you execute your trades carefully and in accordance with the trading method.
Compare the statistics of the trade method itself with the results of the simulated trades
Once you are able to follow the trade rules to some extent in the simulated trades, check the reproducibility (ability to repeat correctly) of your trades by comparing the results of the simulated trades with the statistical data plotted on the past charts.
If the results are not far off and the total is positive, there is no problem.
Continue to practice and gain experience in demo and real trades to continue the positive cycle of improvement.
If you see a large discrepancy in your trade results, there may be a problem with your trade execution.
You need to rethink, “What conditions or rules would make it easier for me to trade?” You need to rethink this question.
Repeated simulated trades will reveal factors that may cause you to hesitate when actually making entry and exit decisions, as well as the technical information you need.
Please be sensitive to such “information you seek on the charts” and look for areas for improvement.
As you refine your trading rules to better fit your needs based on the improvements you make, you will find that the trading methods that govern your trading will feel like your own hands and feet, something you can handle at will.
As long as you are trading discretionary forex, you will never completely disappear from the situation of being lost or shaky in your decision making.
Even so, through repeated practice of simulated and real trades on stopped charts, you will gradually develop a sense of psychological stability (trust in your own ability to execute and in the superiority of your trading methods).
This is because what used to be unclear and subtle hesitation is transformed into “relaxed and resourceful fine-tuning of judgment” backed by experience.
If you are driving a car, you can think of “relaxed and fine-tuned judgment” as a kind of play with the steering wheel.
With this vision in mind, I hope you too will face the challenges before you and improve the reproducibility of your trades.
Reproducibility of Discretionary Trading – Summary
The reproducibility of a trade in discretionary trading refers to how well a trade can be executed and repeated (reproduced) according to the rules for a certain trading method.
There are two approaches to improving the reproducibility of trades: one is to improve the ability to execute trades so that they can be repeated according to the rules, and the other is to reduce the ambiguity of the trading method itself so that it can be easily repeated.
These two approaches are closely interrelated.
First, confirm the reproducibility of the trading method itself on past charts, and then practice trading while confirming whether the trading rules can be repeated correctly.
This is my report on the reproducibility of discretionary trading, so as not to turn Forex into a gambling game.
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