Essential reading for all prospective traders is Taleb's "Fooled by Randomness."
Markets are full of feedback loops, so you can't expect the same results with "paper" backtesting or "paper" forward testing as with real trades, especially in larger amounts.
With such paper testing you can discover and fool yourself with amazing high-probability, high-earning strategies that come with the hidden surprise of low probability catastrophic losses.
For example, many naive gamblers think that a strategy with a 45% chance to win, combined with betting to cover losses, will nearly always succeed because the odds of losing ten times in a row seem low. However, when the inevitable 11th loss occurs, it can be devastating.
I think the risk of a 35% drawdown is too big with this strategy. Even if 20%, it's still too big. Perhaps 15% would be about at the borderline of okay.
Essential reading for all prospective traders is Taleb's "Fooled by Randomness."
Markets are full of feedback loops, so you can't expect the same results with "paper" backtesting or "paper" forward testing as with real trades, especially in larger amounts.
With such paper testing you can discover and fool yourself with amazing high-probability, high-earning strategies that come with the hidden surprise of low probability catastrophic losses.
For example, many naive gamblers think that a strategy with a 45% chance to win, combined with betting to cover losses, will nearly always succeed because the odds of losing ten times in a row seem low. However, when the inevitable 11th loss occurs, it can be devastating.