This table needs some explanation, these are the columns:
There are only 9 entries because it is difficult to get access to binary prices going back further. You could use the underlying market with pre-set parameters or apply a binary formula but I prefer to extend the paper trading period to compensate for the shorter back-testing period.
The possible entry is either given a value of 10 or more or is stated as <10 meaning “less than 10.”
This sets out the best possible exit point of the bet. If a value of 0 is stated it means the bet simply moved down to 0 with no profit opportunity. A price above 0 identifies the best possible exit giving maximum profit although this does not imply the system captured all of that potential.
My Entry/My Exit
There are no entries for “my entry” or “my exit” as we are not taking trades at this point but these columns will become useful as we move onto later stages of the process.
I categorised the results as follows:
0 – a loss of the amount risked
A – a profit of less than 20
B – a profit of 20-40
C – a profit of 40-60
D – a profit of 60-80
E – a profit in excess of 80
I use an Excel spreadsheet to track the results but this is not essential.
Nine trades is not a large sample and is not even statistically relevant (meaning we cannot rely on the results). Nevertheless, it is useful for illustrative purposes and we can be encouraged by the results which can be summarised as:
Four profits out of nine trades – 44.4%.
Average loss was 10 points as all the losses were 10 points.
There were 4 profits. Two went all the way and the bets closed at 100. The other two gave maximum potential at 77 and 82. This raises the question do we take profits early, say at 80 (giving a profit of 70 after the entry at 10) or do we let these run all the way? If we run all the way we end up with only two profits as the other two will close at zero. If we close at 80 we will get all four profits but those which had given us around 90 points of profit will only give us 70 points.
This sort of decision goes to the heart of system design.
If we decide to close at 80 we end up with 4 profits of around 70, average profit 70 and metric #2 becomes 7 (70 divided by 10).
Multiplying the two metrics together gives us 311% which is great but, don’t forget, it is also unreliable with so few trades.
Here are the results set out in the form of a table.