Hi. My name is Jackie Ann Patterson and I’m a stock trader, computer geek, author of three books, editor of BackTesting Blog and BackTesting Report, and a registered investment advisor representative.
This is my story of how backtesting helped me overcome loss and profit in the stock market
My interest in computers goes back to the 5th grade. That fascination propelled me through engineering school, where I programmed in literally a dozen languages before graduation. From school into professional software development, then management then marketing, winding up organizing technical seminars for a big software company in Silicon Valley.
Thinking that life is too precious to confine to an office, even a nice private director’s office overlooking the park, I left to find my own way. After a year knocking around, I founded Own Mountain Trading Company to help others thrive in the markets.
I’d developed quite a passion for investing and stock trading, starting with my first stock purchase in 1995. Over the years, and especially in the months leading up to my bid for freedom, I’d done quite well in markets. Of course, the moment I left my corporate job and became a full-time trader my growing equity curve promptly went south. What a harrowing experience!
I devoted almost all my time to learning my trade, reading all I could about the markets, taking various classes, experimenting with different styles, and picking up the necessary tools, such as backtesting. Fortunately, I have risk control to keep me alive long enough to learn what I needed to improve.
In hindsight, I see that I had two hard lessons to learn. One is that drawing living expenses from a trading account creates undue pressure to take unnecessary risks. I can’t be successful by saying “C’mon, baby needs a new pair of skis!” But with multiple streams of income, I find it much easier to exercise the patience needed to deal with the markets. That is one reason for productizing my research reports. Another is that I find I do a much better job when I know other people will be reading over my shoulder. I like holding myself to a world class standard. More importantly, I’m risking my own money based on the data in these reports so they better be good!
That brings me to my second lesson which was the need for objective decision-making. I don’t want to be entirely in fortune’s hand. And I don’t want to tear myself apart second-guessing every loss. I want to know, based on scientific evidence, that I have a good chance of succeeding and that losses are just temporary set-backs. Who else wants to go into the market knowing you have the odds in your favor?
Key skills to move toward that goal are identifying and sticking with objective trading plans. Enter backtesting to find out how well all the technical indicators really work and to help build a plan for success. Even a fully discretionary trader can benefit by knowing the historical track record of the elements of their own and others’ trading strategies. I certainly gain by knowing how my favorite indicators have performed in the past. In fact, it has been very eye-opening because through a back test I’ve uncovered several instances where highly-touted indicators have done worse than chance. I’ve also learned that guiding the decision-making process with a carefully back tested strategy that’s proven itself adds consistency and objectivity.
After backtesting, I meld the best performing tactics together into a daily plan I can follow in a business-like manner. My plan worked reasonably well in that my first back tested trading system won these two silver medals in the Spike Trading competition. I’m proud of these awards because the other Spike Traders are very skilled and it wasn’t easy to medal. One of my stock picks was also featured in the book Sell and Sell Short by best-selling author Dr. Alexander Elder.
Backtesting Blog chronicles my trading strategy development process. I created the BackTesting Blog to discuss issues that arise during backtesting and discovery of trading strategies. It’s drawn readers from all over the world. To join them and read behind-the-scenes technical articles about backtesting and objective stock market strategies, click this button to automatically direct the BackTesting Blog RSS feed to your Inbox for free
When I wrote the original BackTesting Reports, I wanted to be especially thorough in four aspects:
- spanning 14 years and 7147 stocks of impeccable price data
- uncovering the truth about objective technical indicators and strategies
- evaluating entries separate from exits to see what really works
- testing multiple time horizons from active investing to swing trading
Of course the whole purpose is to be better prepared for the stock market! The actual BackTesting Reports were sold separately, and a few are still available. See the sales page for more info.
More recent backtesting results and methodologies have been published by my company on Amazon. Truth About MACD: What Worked, What Didn’t Work, And How to Avoid Mistakes Even Experts Make (Beat The Crash) (Volume 2) is an update of the original Truth About MACD series of BackTesting Reports.
Along the way, Fidelity Investments contracted with me to research and write articles for clients. Among them was a sector rotation piece. That idea seemed a good match for my mind set and time commitments so I continued research well after the contract was over. The results were published in Truth About ETF Rotation – Fund Your Retirement by Investing in Top Exchange Traded Funds in One Hour Per Week (Beat The Crash Book 1).
To offer clients a professionally managed portfolio, including an advanced rotation strategy, I took the series 65 Investment Advisor Representative licensing exam and became a solicitor for Delta Investment Management. Delta IM was founded by finance professionals with high integrity and decades of experience. They have access to robust, well-tested, risk-mitigated strategies which they manage directly in client accounts at TD Ameritrade and Schwab.
Reach me directly by filling in the blanks and clicking the “Submit” button.
(My username is snowhawkp on the TradeStation and Worden discussion forums)