I have found that most beginning and even many experienced traders are NOT conducting any type of analysis, which leaves them completely vulnerable to the types of disasters you just read about. This is primarily for five reasons:
Step#1: Don't Trust Any Trading Ideas
I never stop wondering what makes people blindly trust the so-called gurus. I have lots of facts proving that most gurus are nothing more than frauds. However, my main point is that you shouldn't trust anybody, not even yourself. You are the only person responsible for your trading failures and successes. If you fail, the only person you should blame is yourself. If you have a trading idea you must test it. All assumptions and untested ideas cost too much. You simply can't afford it!
Step #2: Learn From Those Who Really Know How to Make Money While Trading
Study the practices of those traders who take money out of the markets year after year. Unfortunately, finding such people is a major challenge. Most gurus you'll meet will tell you that they are extremely successful and that they teach trading just for the fun of it or out of pure generosity. I'm afraid that in 99% of these cases all their success stories will be lies.
Step #3: Run Multiple Tests of Your System under Various Conditions
I am not going to deny the benefits of paper-trading, but I prefer backtesting. Backtesting is the fastest, the most reliable, and most objective way to test a trading method in different situations without letting emotions interfere with your judgment. When testing your trading idea in real-time on a simulated account, it's impossible to ensure that your tests are error-free and extensive enough to be statistically reliable. I've met few people who would be prepared to paper-trade a strategy for at least 3 months before switching to real-world trading. As a result, their conclusions about the strategy's workability and performance are highly subjective and rash.
Step #4: Don't Miss the Benefits of Optimization for Fear of Curve Fitting
Most people regard optimization with apprehension because in most cases it is applied incorrectly and therefore leads to devastating results. Most people optimize their trading systems to find the best parameters. However, optimization must be approached in a completely different fashion.
Step #5: Automate Your Trading Method to Avoid Errors and Routine
It is a well-known fact that a good signal is not enough to enter the market. The latest trading methods call for the best possible entry price. This is especially true for high frequency trading. Human reaction isn't quick enough to respond to price changes within milliseconds. At the same time, the price can change several points which will result in a smaller profit or even in a loss.
Don't Stop it........keeping going.
Thank you
Your Well Wisher