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Yumi🌸

@samuraipips358

May 28

To those who worry, "Things don't go according to the backtest" 🧵

It's natural that things don't go "according to the data" of a backtest.
What purpose you are using backtesting for is important.
🧵1/5

2/5
It is extremely important to practice thoroughly with backtesting beforehand.
This is not for data.
Because it is extremely important, I will say it again: "This is not for data."

No matter how much you know the data of your strategy or system, you cannot maintain consistency.
What you need is "the experience of actually using the Law of Large Numbers yourself" and "to cultivate an eye for discerning signals."

When it comes to backtesting, many people immediately associate it with "data," but backtesting is not something done only for data.
Of course, data is also important, but backtesting as "practice" is extremely important.

If you only think of backtesting in terms of data, you cannot achieve consistency.
This is because actual results do not turn out according to the backtest.
If you only think of backtesting as "something that will turn out according to the data," backtesting will indeed feel like a truly meaningless thing.

3/5
Many people may be surprised, but because it's important, I will say it again.
Actual results do not turn out according to the backtest.

Despite this, you expect results according to the backtest.
And when the results don't turn out that way, you start to think, "Something is wrong," and you lose consistency.

However, if you understand from the beginning that results will not turn out according to the backtest, this kind of problem will not occur.
So, I will explain why results do not turn out according to the backtest.

That is because the randomness of results creates many different patterns of probability convergence.
I think those who have run Monte Carlo simulations multiple times know this, but even with a strategy of the exact same performance, if you run it multiple times, each will take a different convergence path.
This is randomness.

For example, with a sample size of 1000 trials, the margin of error for the confidence interval of a 50% win rate probability is 3%.
This means the Law of Large Numbers is at work, but just a 3% difference in probability can significantly change the profits obtained.
This is because profit in trading is not made from the win rate alone, but from a balance with the risk-reward ratio.

When this small error in probability is combined with the balance of the risk-reward ratio, the difference is largely reflected in the profits obtained.
In other words, even if the probability converges with a large sample size, a large difference "in the amount of money you can earn" will appear each time. (Refer to the attached image at the beginning of the thread)

And a backtest is based on a single past, and it is merely one convergence path of probability.
Because the future chart is not the same as the past, it means it will not follow the same convergence process.
While the error decreases with 1000 trials, with the small number of trials over a short period of a few months that you see in the real world, an even larger error in probability is generated.
On top of that, because the profit obtained through the balance with the risk-reward ratio is generated, it results in an even greater difference.
This is the reason why you feel that things don't go according to the backtest.

But, if the strategy has a positive expected value, in other words, if a bias is generated in the direction of accumulating profits when the strategy is repeated, then even if the same chart as the past does not appear, your strategy will continue to generate profits in the future.
This is the reason why, even if multiple random convergence processes appear in a Monte Carlo simulation, if the strategy has a positive expected value, they all invariably become upward-sloping growth curves.

Therefore, despite the fact that things will not turn out exactly according to the data, you need to believe in the "positive expected value" shown by the data and continue to act, and this is not contradictory if you understand randomness.

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Yumi🌸

@samuraipips358

May 27

"It's better to end with a win than a loss" This way of thinking keeps you from success 🧵

If you're taking profits quickly because you don't want to miss out on unrealized gains, you cannot succeed unless you stop doing that.
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2/5
"It would be a waste to lose this profit."
"Since I can end this trade as a winning trade, it's better than losing, right?"

Thinking this way, many people break their rules and take profits too early, even though according to the rules they should still be holding positions with unrealized gains.

As long as you prioritize the outcome of the single trade in front of you over your rules, and continue to put your emotions and hopes first, you cannot succeed.
By following your emotions instead of your rules, you can no longer maintain the system's original risk-reward ratio or win rate, and your long-term performance will deteriorate.

Certainly, looking at just that single trade, you might think, "I'm glad I secured a small profit."
However, that mistaken experience of success becomes a powerful reason for you to "close the trade before profits grow" in your next trade as well.
You'll increasingly focus on short-term results, fear losing even small profits, and create a structure where your profits never grow.

No matter how excellent your strategy is, if you yourself end trades as soon as you have a little profit, that excellent strategy will not function at all, and it's the same as using a strategy with a very poor risk-reward ratio.

3/5
Lose according to the rules.
Win according to the rules.

Don't worry about not wanting to lose unrealized gains along the way.
Even if it results in a loss, a system with an edge means profits remain through all wins and losses that occur by following the rules, and results like "a trade with unrealized gains ending in a loss" are all included in the statistics.
Trying to avoid that is the same as denying the system.

Don't fixate on single trades—understand more deeply what it means to "continue following the rules long-term."

Don't look at just the immediate result in front of you and think, "It was better than losing."
Your thinking and that mistaken experience of success will have a huge impact on your future.

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Yumi🌸

@samuraipips358

May 25

What is a trader's true "skill"?🧵

Just because you increased your funds tenfold in a month doesn't mean you have trading skill.
Large amounts of money can also be made by gambling with high risks, so a trader's skill cannot be measured by the "amount earned".
🧵1/5

2/5
Posts like "I increased my funds tenfold in a month!" are all over social media, and people might see them and praise it as "amazing talent", but rapidly increasing your funds tenfold or so in the short term is dangerous gambling.

These actions are merely increasing risk, are not sustainably repeatable, and cannot be called skill.

A trader's true skill is "consistency".
This is a clear skill.

Beginners or those who don't trade might think, "Just following rules is easy", but it's not that simple, and if you are an immature trader, you are "absolutely" unable to do it.
This is because you yourself are the one who prevents consistency.

"Consistency" is a skill that involves a perfect understanding of probability and a transformation of beliefs.

As long as you perceive value in the wins and losses right in front of you, maintaining consistency is extremely difficult.
This is because that mistaken belief will appeal to you through intense emotions, "making you reflect every time you lose" and telling you "you should change something".

You can easily be made to abandon consistency, but because you mistakenly feel, "I have improved" or "I have taken a step forward", you can never achieve consistency.

3/5
Even if you try to achieve consistency, as long as you consider losing a bad thing and something to learn from, you yourself will think, "This isn't good enough" or "I have to do better", and try to do something, making it absolutely impossible to be consistent.

To be truly consistent, no matter what results occur, you must completely believe in the long-term outcome and never change anything, no matter what.

Short-term results are strongly influenced by randomness; even the best strategies will have losses and experience losing streaks, and the edge of that strategy will manifest further in the future than you might think.
If you don't truly understand the edge of your strategy, how probability works, and that what is required of you is consistent action, you will easily abandon your strategy or change your rules.

In other words, consistency can only be maintained by those who have completed the necessary preparations.

Since losses and losing streaks are unavoidable even with an excellent strategy, if you harbor doubts or lack conviction, you will lose consistency during losing streaks or drawdowns and abandon the strategy before probabilities converge.

In other words, you can't endure it and give up "always" at the stage when your funds are decreasing, and precisely because you keep repeating this, you continue to change strategies while your funds always dwindle.

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Yumi🌸

@samuraipips358

May 23

Why Your “Improvements” Lead to Capital Decline🧵

This thread explains how losing consistency causes your capital to decrease.
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2/5
An edge is drawn out through the law of large numbers, and what’s needed for that is consistency.

No strategy can escape the randomness of short-term results, and even great strategies cannot avoid losing streaks.
If a strategy has an edge, you must continue following the rules consistently even during losing streaks, build a large sample size, and eventually the profits will exceed the losses.

However, when people experience a series of losses or a period of poor performance, they start thinking “Maybe this strategy is no good,” “The market has changed,” or “I need to change something,” and they lose consistency.
Anyone can follow the rules easily while winning.
The time when people fail to follow the rules is always during losing streaks or drawdowns.

In other words, the moment you abandon or tweak your rules or strategy is “always when your capital is decreasing.”
And because of that, strategies are always abandoned before the edge can play out, which is why your capital keeps going down.

3/5
Let’s take a simple example: a strategy with a 60% win rate and a 1:1 risk-reward ratio.

Imagine a trader using this strategy who hits a losing streak and starts doubting it, eventually stopping its use.
Over 10 trades, the win rate was just 20%.

Meanwhile, another trader trusts the same strategy, stays disciplined, and keeps trading.
This trader also saw a 20% win rate in the first 10 trades.
But he kept going—70% in the next 10 trades, 40% in the 10 after that...
Short-term win rates varied, but as the number of trades increased, the overall win rate began to converge toward the strategy’s original 60%, and he was able to earn long-term profits.

The first trader gave up before the edge could emerge, ending with losses.
For that trader, it’s the same as using a 20% win rate strategy.

But the second trader saw probability begin to work and gained long-term profits.
This shows that while probability is influenced by randomness in the short term, the more trades you make, the more it converges to the true performance.
This is called the law of large numbers.
This is why traders who rely on probability must value large sample sizes and consistency.

Of course, in reality, profitability isn’t determined by win rate alone—risk-reward ratio also matters.
But here, we’re focusing on probability for simplicity.

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Yumi🌸

@samuraipips358

May 17

【To Beginners】Trading is not a world where beginners can easily succeed🧵

The trading industry: "Trading is easy to make money in"😄
The truth: You can make money easily, but you cannot succeed easily.
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2/5
Anyone can easily start trading, and you can easily make money.
This is because the outcome of a single trade is random, and there is a possibility of making a profit no matter how haphazard the trade is.
You will experience the illusion of having made money through your own skill.

This misleads many beginner traders.

You can make money easily, but you cannot succeed easily.
As long as you are an inexperienced trader, the money you easily made will be easily reclaimed by the market, and then some.

Even if you luckily make money today, even if you luckily make money for a month, it is difficult to luckily keep making money for several years.

3/5
Beginner traders perceive trading as a "win-lose game", thinking that winning is good and losing is bad.
Based on these value judgments, they try to avoid losses and are desperate to recoup the money they lost.

Because beginners consider "losing = bad", they are prone to actions such as:
- Delaying stop-losses.
- Lowering their average entry price by adding to losing positions.
- Rewriting their rules based on short-term results.

This is not a "game of probability", but a "win-lose game = a game of emotions".

In this game, because they seek to avoid losses and pursue profits, it tends to create a structure where the damage taken is inevitably large and the profits gained are small; this is the same as repeatedly using a strategy with a low risk-reward ratio.

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Yumi🌸

@samuraipips358

May 16

You don't need to display monetary amounts🧵

In trading, nothing wastes more time and emotional energy than focusing on P&L.
🧵1/5

2/5
Many traders are interested in "how much profit am I making now?" or "how much loss am I carrying?", and are emotionally swayed by this information, but in trading, nothing wastes more time and emotional energy than focusing on P&L.

Worst of all, it drastically increases the risk of damaging your consistency.
I don't display them at all, and they aren't necessary for my trading.

The moment you start checking your P&L, you place tremendous value on immediate wins and losses, making it extremely difficult to maintain consistency.

The more you look at your P&L, the greater the risk you will act based on "what should I do about this amount right now?" rather than actions based on your rules.

3/5
Think in terms of % or R, not monetary amounts.

You don't need to look at monetary amounts, and you can trade without that information.
All you need to do is manage your risk per trade as a percentage, calculate your position size based on that, enter the trade, and set a stop-loss.

You are always trading with a consistent, calculated risk (%), so there is no need to nervously keep monitoring constantly fluctuating monetary amounts.

Above all, the information you should base your decisions on is the chart itself, not "how much am I winning or losing?"

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