Safe testing of trading strategies

Most beginner traders make three key mistakes when testing new strategies. First, they invest too large a portion of their capital. For example, with 10,000 PLN, they immediately invest 5,000 PLN, which with a 10% loss results in a 500 PLN loss. Second, they do not account for transaction costs, such as slippage or spread. If, for example, the spread is 1%, then with a 5,000 PLN investment, you already lose 50 PLN right from the start. The third mistake is the lack of a plan for emergency situations, such as an unfilled stop loss, which can result in a much higher loss than anticipated.

These errors increase the risk of rapid capital loss. Investing large amounts without safeguards exposes you to losses that will be difficult to recover later. Slippage and spread can eat into some of the profits, which means that even a promising strategy may turn out to be unprofitable. A lack of flexibility in the strategy means that you are not prepared for unexpected market movements, which can lead to panic and poor decisions.

Assume you have 12,000 PLN in capital. Investing without thinking half of it, which is 6,000 PLN, and losing 10% due to slippage, spreads, and lack of stop loss, you could lose 600 PLN. That's just one transaction. Over the course of a month, with several such mistakes, you could lose multiple times that amount, which could ultimately lead to losing half of your capital.

To avoid these mistakes, follow the guidelines below:

• Start with small positions: Invest a maximum of 1-2% of your capital in one transaction. If you have 12,000 PLN, that will be 120-240 PLN.
• Use a demo account: Test your strategy without the risk of losing real money.
• Consider costs: Take slippage and spread into account when calculating potential profits.
• Regularly evaluate your strategy: Spend at least a month on testing to gather solid data.
• Plan for emergency exits: Have a plan for every market eventuality.

Always start with small positions, max 1-2% of capital.