The graph showed above is simulation of the amount of fund inside a trading account using market trading sessions. Market trading system that using for simulation construct from EMA – 3(O), EMA – 9(C) and EMA – 27(C) on FKLI daily chart starts from year 1996 until year 2008 just by trading 1 contract at any period during the back test period.

With the starting capital of RM5, 000 from year 1996, as per the simulation above, the user was expected to build his fund up to RM110, 000 on the year of 2008. Based on the graph above, there are few things that we need to take seriously consideration before decide to use the system above.

The initial starting capital for trading need serious consideration. Let’s the example of the graph above, based on the simulation above, trader A indeed possible manage to build his fund up to RM110, 000 on year 2008. However, the real problem on the simulation is we never start trading from 1996. We would start using the system anywhere in the middle of the system after we are emotionally convinced that this system would work on the long run. In this case, the worse case scenario would be Trader B that starts using the system start from year 2002 after 8 years of PROVEN statistic that the system is profit over the years. What happened to Trader B is this trader didn’t manage build his fund much within the 5 years period from year 2002 to year 2007. Contradicting with the previous expectation, Trader B actually would say this system is actually a fraud system, which system never works, system is fail. In the worse case scenario, the trader was actually have to potential to loss up to RM11, 000 per contract before able to regain losses plus profit after year 2007. So, the question here is not about if the system is profitable or not, it’s about asking question how much is the required capital for us as the user of the system need to inject into trading account in order we manage to survive over the long run.

Anticipate feeling for winning using trading system shall mislead emotion guardian system towards depression when encounter UNEXPECTED losing trades. Take Trader B as an example, Trader B’s emotion would almost certainly did not expect any losing trade as previous record shows the system was always winner throughout the previous 8 years. Trader B will fall into greater depression when system fails to perform for the next coming 5 years. The key focus in this matter is not the previous victory using the system but it give us the preparation for we anticipate ourselves with losing trade before the real trading begin. The question here is not about how much we would profit from the system, it’s about how much we prepare to loss using that system by previous statistic data.

Unexpected system failure would only be realize after long participation of trades. By the to realize system fail would lead to great disaster as this incident would sure cause major drawdown on the trading fund if traders were to follow the system strictly. Instead of just focus on great return that generate from the trading session, it’s equally important to focus when it’s good to abandoned the trading system or to switch towards minimum trading risk using the same system when system fails. The key is not only to ask would the system be profitable, but also to ask when would you consider the trading system fail or in another words, trading at minimum risk when system is under suspicion for fail to perform as expected.