1. Know what you want to do before you start.
Base your trading on a sound premise. It could be an observation of how prices move in response to Government policy, a theory about how prices react to economic reports, or simply a pattern that shows up at the same time each day or each month. This is the underlying premise of your method. It cannot be discovered by testing everything on a computer. You need to know it in advance.
2. State your idea or question in its simplest form.
The more complex it is, the more difficult it will be to evaluate the answer. More complex methods do not usually work as well as simple ones.
3. Do not assume anything.
Many projects fail on basic assumptions that were incorrect. It takes practice to avoid making assumptions and to be critical of certain elements that you believe to be true.
Prove everything to your own satisfaction.
4. Try the simplest and most important parts first.
Some of the rules in your trading program will be more important than others. Try those first. It’s best to understand how each rule or technique contributes to the final system.
Then build slowly and carefully to prove the value of each element of the system.
5. Build one step at a time.
Go on to the next step only after the previous ones have been tested successfully. If you start with too many complex steps and fail, you will have to simplify to find out what went wrong. The ability to readily understand the
operation of each part of your system is called a transparent solution, rather than a fully integrated or complex one. Transparent solutions are very desirable.
6. Watch for errors of omission.
It may seem odd to look for items that are not there, but you must continually review your work, asking yourself if you have included all the necessary costs and accounted for all the risk. Simply because all the questions were answered correctly does not mean that all the right questions were asked. Important questions may be missing.
7. Question the good results.
There is a tendency to look for errors when results are extremely bad, but to accept the results that are very good. Exceptionally good results are just as likely to be caused by errors in rules, formulas, or data. They need to be checked as carefully as extremely bad results.
8. Do not take shortcuts.
It is sometimes convenient to use the work of others to speed up the research. Check their work carefully; do not use it if it cannot be verified. Check your spreadsheet calculations manually. One error can ruin all of your hard work.
9. Start at the end.
Define your goal and work backwards to find the required input. In this way, you only work with information relevant to the results; otherwise, you may expend a lot of unnecessary effort.
