Rohit Musale, CFA
The 5 Reasons to Trade in Samples
Mark Douglas in his book 'Trading in the Zone' talks about trading in sample sizes.
So, for example, instead of taking one trade and trying to figure out whether it will make a loss or a profit, you take 20 trades and then measure your results over those 20 trades.
That’s one sample size.
Here are 5 benefits of trading in samples:
1) I get to know the effectiveness of my strategy.
If I have a trading strategy, the best I can do is, take 20 trades using that strategy and then see whether at the end of the 20 trades, whether I really made money or not, after accounting for all the brokerages, taxes etc...
If I make money, then fine.
But if I don't make money, I can make some tweaks to my strategy.
So this way, by trading in a sample, I am forcing myself to control my risk, while I am looking at the effectiveness of my new strategy.
2) I predefine my risk.
For me, 20 trades is like one trade.
I know how much is the max amount I can lose on this trade.
And I am mentally prepared to lose all of that, just to figure out if my new trading strategy is worth it.
3) I can measure my results quickly and accurately.
At the end of the sample, I can look at the results of those 20 trades and see what went wrong or right.
I am not talking paper trading here.
This is live trading on a sample.
I encourage you, not to get into paper trading, because it does not factor in trading psychology.
Always build your skills on a live chart.
By keeping your position size low, you are risking much.
4) It tells me the changes required.
Once I analyze the results of a particular sample, I can go back and look at what mistakes I made.
I can make some tweaks to my strategy, so that when I trade the next sample with a modified strategy, I can compare the results.
5) It tells me whether the strategy suits my personality and temperament.
Let's say, I start trading a sample.
This means, I have to take 20 trades.
And let's say, I find one trade setup per day.
So, it is going to take me 20 trading sessions to take those 20 trades, right?
And if some of those trades don't give me an exit signal for the next 3 months, then I might find myself in the same sample for more than 3 months.
Now, that might not fit my personality and temperament.
Who wants to remain in a sample for 3 months or more just to figure out if a strategy is working or not?
Hence, sample size trading is very effective is narrowing down on a particular strategy that works best for a particular trader.
No two traders have the same temperament.
Hence no two traders should use the same strategy to trade.
Trading in samples, is a revolutionary concept and almost all professional traders trade in samples.
By the way, if you are new to my content, I encourage you to have a look at my detailed video training program on trading.
It’s called the Japanese Candlesticks Trading Mastery Program.
Thousands of men and women from more than 163 countries have already enrolled into the program.
They have lifetime access and are currently learning from it on a daily basis.
If you want to become a professional trader, this program will help you.
It has got multiple levels of video training.
As of this writing, it has got 10 different levels.
Each level is of multiple hours.
And you will learn from more than 1,000 chart examples, if you go through all of these levels.
By the way, I continue to add more levels to the program.
The program continues to evolve.
I encourage you to start from level one and then proceed to the future levels.
Have a look.
Here is the link:
The Japanese Candlesticks Trading Mastery Program
Rohit Musale, CFA
30 January 2023