Historical Data - The Analogy

                        
Before I go into step 2 which is on trading strategies, I would like to expand on the analogy I used earlier which is comparing petrol in our car before go round the world to our trading capital. 

Just imagine now that instead of a nice and relax tour, it is a car race and the price money would only be given to the first 5% of racers around the world that finish the race and the amount increases (non-linear) if you finishes earlier.  To make the matter worst, the price money would come from the rest of the 95% with the last few pay more than others!  Those who didn't finish the race would have to pay everything they have!  Now would you join the race?  If you did join, won't you give your all to be among the top racers?  And to be among the top racers do you think it can happend overnight?  Or by just reading a few books, listen to "pros"'s advice, watch a few training videos, listen to audio tapes or attend a few seminars?  Do you think it would be that easy?  How many years did Michael Schumacher learn and practice before he became Formula One champion?  Furthermore, since the barriers to entry in Futures trading is much lower compared to the rest of the fields it would be even more competitive!

If you want to be among the top racers naturally you'll have to focus and learn everything you can grab your hands on regarding the race such as the route to final destination (types of different road conditions), what type of  car would you use, build your own or using other people's design, the sample terrain to test and then fine tune your design again and always be prepared for emergencies or even better to have preemptive measures, before deciding on a winning strategy (e.g. to go fastest on tar road but slow on others or moderately fast on all types of road conditions and weathers) and make sure that you have the discipline to follow it, but also allowing yourself some freedom to adapt and change if the actual race condition differs from your in-house simulation.

In this analogy, the process of collecting historical data would resemble collecting different terrain information before you design and test your car on.  Naturally you want to collect as many as possible within the constrains of time and financial capability.  It wouldn't be hard to see that if you have collected wrong data to build you simulator, the car you design is useless at all (for the race) even if you have used the state of the art technology to design, test and refine it correctly!