When you`ve set your initial stop loss, chosen your method for calculating your trailing stop loss, and implemented all your money management rules, there is one last thing you should do; you should begin back testing your system.

With no back testing, you will be headed in the right direction, but you won`t know what to expect from your system. Back testing will also give you the confidence to keep going when you begin to experience the doubt that every trader faces at some time.

Back testing your system is by applying the rules and conditions of the system to the stock`s historical market data. However, this is only possible if you`re trading a system that is entirely mechanical and does not require any human input to place the trades. How do you know whether or not your system is completely mechanical for back testing? Can you take down your trading plan, the set of rules and guidelines that you follow, and hand that over to someone else, who could then trade the same system and receive the same results as you would if they followed the system carefully?

If you can accomplish this, you have a mechanical system that is ready for back testing. If you can`t, you should look at implementing a completely mechanical system. Perhaps one of the hardest parts in trading any system is to have the confidence to stick with your system. In fact, a mechanical system almost forces you to make decisions that are in direct conflict with what your gut feeling might tell you to do.

Just remember, our gut feeling tells us we should hold on to losing stocks until they get to the break even point, and our gut feeling would tell us to sell shares as soon as we`re a little bit in profit. Obviously, a mechanical system goes against these human tendencies, and that is one of the reasons why it`s psychologically difficult to trade. However, back testing a mechanical system, will tell if you it your plan will work or not.

Although back testing will not tell you with 100% accuracy what the profitability of your system will be once you start trading it, it will give you a very good sense of what you can expect. All prices are driven by the same two factors, supply and demand, in the present and in the past. So, even though price movements are never going to be exactly the same, in your back testing you will see the patterns, and similar movements that show up over time. With back testing you can discover the how profitable you system is likely to be, and how often you are likely to have a loss rather than a profit.

And So, back testing your system over different market conditions, it can be reasonable to draw parallels as to the performance of your system historically to its performance trading it in real time. Knowing this, because of back testing, will make it much easier to stick with your system, and the profits you can realistically skyrocket.

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It’s about time to be Introduced to the Darvas Box Method. What made this system so exceptional was the amount of money that it brought in. After years of trial and error, Nicolas Darvas perfected one of the most successful trading methods of all time. But. Darvas himself was often shocked at the profits his system made. Even with these profits aside, the most important point about his system is how easy it is to apply it.

The essence of Nicolas Darvas’ method was to identify stocks that were on the rise, using only the price action and volume of a stock. Although Darvas didn’t consciously set his method up this way, he created a simple way to calculate a volatility range. Normally, finding volatility ranges is an extremely complicated calculation. Yet working with nothing but the price action and range of a stock, Darvas was able to calculate a reliable volatility range.

Darvas’ method is probably one of the most successful trading strategies ever created. Research has shown that his method is effective almost fifty percent of the time. This is an incredible success rate for stock market transactions. The market is unpredictable, so any method that is successful that often is outstanding. What makes Darvas’ method even more outstanding is the attention it takes towards preserving capital. Anyone can make money on a rising stock, but few methods are this reliable when it comes to preserving capital. Darvas’ stop-loss order is what makes his method the method of choice for many professional traders.

The box method identifies trends where already bullish stocks are getting stronger. The Darvas box method is referred to as a trend trading technique because traders look for stocks that are establishing strong upward trends. The main objective of trend trading is to identify a stock that already has a great deal of bullish strength. Buying into an already strong stock reduces the risk that the trend will collapse and the price will fall. Identifying an already strong trend also allows a trader to monitor the stock on a less frequent basis, especially with disciplined use of the stop-loss order.

Even though the Darvas box method has all the advantages trend trading has to offer, some traders believe there are disadvantages. For many traders, the valuation of a stock is the most important piece of information they use in choosing a stock. But when developing the box method, Darvas paid no attention to the valuation of a stock. According to traders, it will be hard to ignore valuation and other popular indicators. As a general rule, the valuation of a stock should not be a factor in trading.

A stock is worth whatever people in the market are willing to pay for it, and this price rarely reflects what the stock’s valuation says it’s worth. Valuation is simply an opinion of ‘experts’, and these ‘experts’ are often wrong. Stocks valued highly often fall, and stocks with low valuations will often rise. The groupthink of the market is what really sets the price of a stock. Trend trading takes advantage of people in the market who are willing to pay high prices for a stock.

Darvas’ Method is a perfect illustration of ignoring opinions and working with facts.Some traders believe that a disadvantage of trend trading is that the methods will not capture the entire trend. And it is true that no trend trading method will ever capture a trend in its entirety. Some profit will always be lost before buying into the trend and at the termination of the trend. However, there is no system that will capture an entire trend. There is no such thing as a perfect trend trading system. Many traders search for systems that are perfect, but they are continually disappointed.

Darvas guaranteed, in his method, that a stock’s new high would be supported by a volatility range that indicated the price was where it belonged. It is important to note that trend trading is not simply buying new highs. Buying new highs without any other reason for entering a position is an extremely risky strategy. New highs, especially highs for a 12 or 6 month period, are more often than not followed by a swift and deep decline. A new high will often reach its height for reasons other than solid support. Rumors, marketplace hype, insider trading, and inside tips that become public will often spur a rally. If not backed up, this rally will only collapse once the market realizes there is no reason for the new high price.

Volatility refers to how much the price of a security will fluctuate. A volatility range is the range in which a stock’s price will move. A stock with high volatility can change price drastically over a short period of time. There are a multitude of factors that affect a stock’s volatility. But Darvas’ ignored the factors and conditions that made a stock volatile. He simply tried to pin down an exact range based on price, and then based his actions on that range. This is the essence of the Darvas box method.

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Why does one Forex traders succeed and another fail? What sets the winners apart from the losers? Well, you won`t be surprised to know that there are certain characteristics that all successful Forex traders share. While many investors take actions that aren`t in their best self interest, such as making trading based on emotions, rather than on logic, or holding on to a losing position so they won`t have to admit they made a bad trade, successful Forex traders don`t do these things. But there are some actions that they take regularly, so regularly that they become habits. Learning about these characteristics and habits will help make you into a successful trader as well.

Successful Forex traders are goal oriented. Setting a clear goal helps you to perform your best. There are three qualities to a clear goal. It must be realistic. You may want to double your money every day but it is hardly realistic. When you set an unrealistic goal it can undermine your confidence because you just set yourself up to fail. Your goal must also be attainable. Not only must your goal be realistic, it must also be within your abilities to achieve. The best way to set goals is to start with short term goals. Start with small ones that are fairly easy to achieve and continue to grow your goals as you gain confidence and greater abilities.

The third trait is measurability. Goals that aren`t precise and can`t be quantified or measured, aren`t goals at all. If your goal is to be wealthy, you need to specify what wealthy means. My guess is that your definition of wealth will change as your net worth increases. If you can`t define your goal, and measure your progress towards it, then you have no way of assessing your progress. It becomes impossible to make any changes to your techniques and strategies that may help you reach your goal. Successful Forex traders set goals, and they also are confident they can reach their goals. Confidence is the key to staying rational, logical, and disciplined while you are trading. Starting with small, realistic goals will help build your confidence in yourself and your abilities.

Successful forex traders rely on logic and skill to guide them when making trading decisions. They study the market and learn all they can about trading so when the time comes to place a trade, they back it with knowledge and intelligent choices. They don’t fret over missing out on the next big thing to come along. Instead they focus on making one solid trade after the other. Many people who try Forex trading make the mistake of letting their emotions take over. They make trades because they can’t pass up a trade that they have a hunch on. When you make trades based upon hunches or hopes, you are gambling and not trading. Even so, most investors are familiar with that rush they get when they make a trade based solely on a hunch and feel lucky they got in on a sure thing. Such trades are rarely a sure thing and successful Forex traders do not get drawn in to such thinking. They stay logical and disciplined when it comes to trading.

While these Forex traders know their market, it`s simply not possible to understand and stay in touch with everything that occurs in all the types of investment vehicles and markets across the world. While some Forex traders have developed systems that allow them to trade in multiple venues, for instance, in different stock markets around the world, most Forex traders specialize in a particular type of investment, and in a particular market. If you enjoy trading in commodities futures, that enjoyment will help you to focus and stay in touch with events in the commodities futures market.

If you aren`t interested in currency trading, don`t trade in it. Your lack of knowledge and motivation will cause you to lose focus and make mistakes. Successful Forex traders tend to specialize; they pick an area to study and they follow it closely, learning from past trends and patterns, and from their own trades. If you`re a beginning trader, I recommend focusing on one investment vehicle and it`s market. Learn all you can, about the market and about yourself, before you move into other investment types.

Whether you`re a beginning trader, a trader with some experience, or someone who makes his or her living strictly from trading, you can be successful. Many people think they have to have significant capital, or years of experience, to trade successfully. That`s not true. It`s also true that if you don`t stay disciplined, focused, and rational, you`ll end up as a losing trader, regardless of your level of expertise. All successful Forex traders started as small investors; they didn`t trade more than they could safely risk, they learned from their mistakes, and they developed systems that worked for them and that fit their personal styles. There aren`t different strategies for different levels of Forex traders because the principles are the same for everyone in the markets: logical, focused, disciplined trading creates success.

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