dirty

little
secrets
by rudy leder
www.rudyleder.com
Dirty Little Secrets rudy leder
I have a dirty little secret. Its the secret of why Im
a successful currency trader. And guess what? Im going to let
you in on it! Its really simple.
One wordFailure!
I have this thing about failureI LOVE
IT! I thrive on it and I make it part of my
life, every single day. Absolutely anything
Ive ever mastered in my life was the
result of endless failures as Ive acquired
the knowledge and skills I need. From
learning to walk to learning how to nd
that perfect Shrimp Tom Yum (its Thai
soup, silly!). Trust me, I had to experience
a lot of failure and eat a lot of bad Thai
food before I found that perfect dish!
When I made the decision to become a
currency trader, I was fascinated to nd
out there was a way to accelerate my ex-
perience through failure with zero risk! Its called back testing
and trust meits the best thing since the Hula Hoop. You can
go back in time on Forex Tester and download years of data on
any pair, test all your ideas, and perfect them before ever enter-
ing a real live trade.
How awesome is that?
When I rst discovered this, I became a back testing machine!
In the beginning it was confusing and difcult. I wasnt sure if I
was on the right track. I was easily side-tracked with new ideas
and sometimes it just seemed like a huge waste of time. I was
working by myself a lot and didnt always
have anyone with which to compare
notes. I was part of a group of traders
online but I was under the impression
they were all ahead of me and I didnt
want them to think I had no idea what I
was doing!
So, I disappeared into my man cave and
tested like a mad scientist for weeks and
months. Some days I back tested for 15+
hours and a couple times, I just didnt
stop and did 72 hours straight! You are
probably like, WHOA72 HOURS!
What were you thinking?
Well, oddly enough, Im going to tell you! I had all sorts of
epiphanies! Eventually, I came up with a set of ideas that have
made all the diference in the QUALITY of my back testing. Of
course, its important to spend a lot of timeit takes time to do
Dirty Little Secrets rudy leder
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anything right. It is even more important that you follow a disci-
plined and correct approach to back testingone that will train
your brain properly and give you the experiences of failure that
you need to become a successful currency trader.
So, are you like me and you want to become a really good cur-
rency trader without risking your mortgage or your kids col-
lege tuition? Or do you have a dream of making a boatload of
jack and then nding yourself on a beach sipping Mai Tais? Or
maybe you just want to pay all of your bills on time!
Whatever your particular dream, I think the following advice
will help you get started.
Set Your Hours
First, commit to a set number of hours of back testing per week
or day. Treat this like a job. Learning Forex is a real commit-
mentits not just a hobby like ying a kite where all you need
is a couple tries and awesome wind. Being a currency trader is
more like being a neurologist who goes to work every day and
deals with intricate and complex brain surgery. The reason brain
surgeons are great at what they do, is because they train inten-
sively and do ONE thing over and over until they become experts.
The more corners you cut, the harder it is to achieve your goals.
You must understand thereare no shortcuts.
Get Ready To Work
Be prepared to work your ass of. I love to work. Its in my blood.
Its who I am. Im assuming each of you is working very hard to
support your families and be responsible. If, by some chance,
you are looking for an easy way outguess what? Forex is not
for you. It can drive you completely wacky sometimes! It can be
frustrating, boring and downright disgusting!
Trust me, if you want to
climb that Forex Mountain,
stop complaining and get
ready for hard work because
thats what its going to take.
I understand that in the be-
ginning, most of us are in a
rush to get through our back
testing so that we can get to
live trading and make some
easy money. Well, guess what? ONEits not that easy and,
TWOyou have a lot more work ahead then you think.
I recommend testing a trade idea for three hundred to ve hun-
dred hours before trading it live. So right now you are saying,
Seriously? Three hundred plus hours? I barely have 2 hours a
day, maybe 3 days a week. How am I going to manage to back
You must
understand
thereare
no
shortcuts.
Dirty Little Secrets rudy leder
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test that much in the next couple of months so that I can start
making extra money soon?
Theres only one way to do this. If you wanted to go back to
school to get your masters or to change careers,
you would make the necessary arrangements.
Learning Forex is the same. The answer is you
WILL make signicant changes in your current
lifestyle to increase your availability to back
test.
Keep It Simple
I love simplicity! I have been working on creat-
ing the simplest trading methodology possible.
Less stress, more money. If thats not the Ameri-
can dream, its certainly the Dream of Rudy.
When I test a new idea, I create the simplest
version possiblewith the least amount of indi-
cators. If my screen looks like a jumbled mess
and reminds me of my old Rubiks Cube, then I
know Im on the wrong track!
Create Hard Rules
Write down a set of hard rules for the trade method that you
are planning to test and then stick with them! Do NOT deviate,
until you have completed one full year of testing. This is harder
than you think! Its like trying to go the speed limit when every-
one else is ying past you! Almost impossible and something
I never do! But when it comes to back testing, its a completely
diferent scenario. I do NOT break my rulesI
stick with them like my life depends on it. This
way, my results are valid and will actually give
me what Im looking forthe answer to the
question, Does this particular idea Im testing
work? If so, what are the rules? This is the only
way I can conrm that my back testing is accu-
rate.
Test Only One Currency Pair
I have a problem with being faithful. I admit it!
With so many good looking currency pairs out
thereits almost impossible to focus on one!
It reminds me of that time at that nudist beach
in Greeceoh wait, thats not part of this book.
If you want a long and happy relationship with
ONLY one pair and would like your back testing
to produce true bliss you better make a commit-
ment to ONLY one currency pair. Trust me.
I had to learn the hard way! I found out that the more girlserr,
I mean currency pairs I dated at the same time, the more likely I
Dirty Little Secrets rudy leder
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was to get BURNED. Now, my commitment is ONLY to the GBPCHF.
No matter what other pair comes along blowing pips my way
and sporting attractive trade possibilities, I have learned to stay
focused with only one pair. Avoiding the temptation to stray has
made all the diference. The moral of the story is that you just
need one hot currency pair, not 10.
Take it from me, its enough!
Stack By Hand!
Dont get me wrong, pending order makers that are basically a
script for placing multiple orders automatically are pretty cool.
They are super convenient and a good way to back test really
quickly when you dont have a lot of time and you want to try
something new immediately. The pending order makers seem
to be getting more impressive by the dayquicker and more
responsive and with tons of bells and whistles. I understand
that for most traders, stacking with an automated tool will allow
them to nish their testing quicker. This is one of those cases
where faster is not necessarily better. There is no RUSH! Test-
ing is not a race. There is no checker ag, spraying champagne
or hot girls! Trust me, if there were, I would be the fastest back
tester around!
As a novice trader, you will not experience the true value of back
testing unless you place every order by hand. The value of back
testing is to take your time, recognize new patterns and build
up your condence level with consistent results. When placing
orders by hand, you realize that back testing can become pretty
tedious. Most beginners think that by creating a quicker way to
complete boring, repetitive work, they will learn that much faster.
WRONG!!!
That is just not the case
since you are, in efect,
automating your career in
the earliest stages of your
training. This will pretty
much shut down your
mental ability to recognize
new patterns. It would be
as if Babe Ruth had auto-
mated his pitching while
he was still developing
his skills! What good would that have done? If you become a
speed tester, you are missing the ner aspects of testing. I like
to spend 34 hours pondering and working on just one week of
data in Forex Testerand sometimes even longer. This allows
me to really soak up as much information as possible about that
one week.
Testing is
not a race.
There is no checker
ag, spraying
champagne or
hotgirls!
Dirty Little Secrets rudy leder
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I want to know why price moved the way it did. When patterns
do not match up consistently, I check the news for the week that
I am back testing. Maybe there was a news release that made
price jump up and close out all my positions for a loss! I like to
know exactly what happened.
It is important that you become completely aware of what you are
doing when you are trading. You must think carefully about every
trade and why you are placing it. When you were born you had
to go through all the developmental stages to reach adulthood.
Back testing is exactly the same. You must experience all the right
steps along the way to become a mature currency trader.
Focus
Can you stick with your hard rules for 52 weeks of testing?
Thats a challengebelieve me! I used to create new trades every
day. I would start back testing one system and then in 3 hours I
would become so bored out of my mind, I would start tinkering
and try something new. This is a Big NO-NO. I didnt realize
how bad my testing was until I had completed over 700+ hours.
It hit me that in reality all my testing meant nothing, since I had
lost my focus. I was burning through Forex Tester like I was a
speed reader who never learned how to comprehend what I was
reading. I believe there is no point in testing this way.
Instead, its important to relax and focus. One thing I pay close
attention to is the maximum draw down that occurs during my
testing. I keep an eye on margin percentage and of course the
time of day that I have winning or losing positions. I am aware
of the lot size and money management at all times. I slow down,
take my time and produce great results.
Record
Keeping track of your back
testing results is one of the
most important steps to
back testing. After com-
pleting hours of back test-
ing you should have pages
and pages of data. Your
back testing results are
very important. The only
way to create the ultimate
trading method is to compare multiple test results with diferent
rules on the same pair. You must be able to analyze the results of
your hard rules or else you will not know if your testing is valid.
Organized record keeping will help you focus and pay attention
to many key points without becoming distracted or bored.
There are several ways you can do this.
Create an Excel spreadsheet with the year you would like to test,
Keeping track of your
back testing results is
one of the most
important
steps.
Dirty Little Secrets rudy leder
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the currency pair, the amount of equity you are starting with
based on your nancial situation, maximum drawdown, notes/
observations and the hard rules you are interested in research-
ing. You must record your data precisely. At a glance you should
be able to see what happened, when and why.
Next you will need to create a jing clip of the
trade as it sets up and executes (download
www.jingproject.com). You will add this to your
notes on your excel spreadsheet. As you are re-
cording your short jing clip of each trade playing
out you can state your observations on what you
see. Try not to make them too long. Your obser-
vations should be quick and easy notes of what
is taking place when price is moving through
your orders. I nd that I am able to comprehend
more information about my test results by keep-
ing a set of accurate excel notes and re-watching
a jing clip as many times as I need.
Heres an example of the excel spreadsheet:
http://rudyleder.com/assets/backtest1.xlsx
Crazy Ideas
When you initially start back testing, you will experience many
ideas ying through your head at once. This happens because ei-
ther you have no idea what you are doing or you are in the process
of learning the basics. This is not a bad thing! Get used to it and
deal with it! This simply means you are on your way to becoming a
great back tester. When I have new ideas pop up
in my headheres what I do. Stop! Go to my idea
folderwhich is gigantic, like the Titanicand
make detailed notes. This is where jing clips are
really useful. I like to create a jing clip for every
new idea. I state the facts, the pair, the time frame
and what has caught my eye. Then I write a few
brief notes in a word document and include a link
from the jing clip. Later, when Im ready to explore
my new ideas I can open my humongous idea
folder and chose a new idea to explore. By creat-
ing these detailed notes as soon as they pop up in
my mind, I save myself from becoming distracted
and annoyed with the new idea.
Check out this link to see a bunch of crazy ideas handled well:
http://www.youtube.com/watch?v=qybUFnY7Y8w
Next, I save my current back testing data. I go outside and yell
really LOUD. Sometimes you just need to let it all out.
Dirty Little Secrets rudy leder
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I completely stop back testing until I can focus again.
DO NOT EVER STOP WHAT YOU ARE DOING AND TEST
SOMETHING NEW. Your brain will become so side-tracked that
you will never nish what you started. You should complete the rst
round of testing according to your initial hard rules, even if you have
recognized other patterns or trade ideas. When you are nished, if
you have identied three new conceptsguess what? Now you have
a lot of back testing to do! That means you have to create three new
sets of hard rules for your recent observations. So go do it!
Relax
As you might have gured out by now, I can really get deep into
back testing and lose myself in it. For someone like me, learning to
relax my brain is as important as remembering to eat! Ive discov-
ered that I am not a ROBOT. It turns out that I am actually human
after all! I need breaks, water, food, exercise and TONS OF REST.
Sometimes, I just need to turn of my computer and go for a run or
yell at my neighbor and his garage band for making too much noise
when I am trying to back test. Without taking this timeout, my body
slowly breaks down and comes to a smashing halt. So take care of
your body, relax your mind and back test as much as possible.
So, thats my secretI love to fail and Ive set out to experience
all the failure I can get. Now you know what I learned from thou-
sands of hours of back testing!
Heres the Final Dirty Little Secret
NONE of what I talked about in this book will make any
diference to your ultimate success! Well, at least not until
you EXPERIENCE failure and success for yourself. It turns
out that its not really knowledge that you are looking for
itsEXPERIENCE.
Of course, knowing what and how to back test are great but it is
actually DOING IT thats important to your ultimate success as
a currency trader. This is the beauty of back testing. As you take
action, you will develop into a condent, experienced currency
trader and where there is condence, there is income.
If you would like to nd out more information about back test-
ing or need any help along the way, Im interested in your suc-
cess. You can always nd out more about me and my trading
ideas at www.rudyleder.com or feel free to email me at:
info@rudyleder.com.
Dirty Little Secrets Rudy Leder. This work is licensed under a Creative
Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.
Permissions beyond the scope of this license may be available at
www.rudyleder.com.