Does anyone else Test your trading ideas with Small size?

KCalhoun · May 31, 2020

Testing trade setups and trade management strategies is useful.

I'm curious, how do you approach live tests in your trades?

With free stock and ETF commissions for USA traders now, its the perfect time to test using small size..

I typically test using just 20 or 30 shares at a time, then scale. Any thoughts?

tiddlywinks · May 31, 2020

IMO, liquidity is part of your selection criteria or it is not.
If not, you may have lucky, rather than repeatable/duplicable results.

KCalhoun · May 31, 2020

tiddlywinks said:
IMO, liquidity is part of your selection criteria or it is not.
If not, you may have lucky, rather than repeatable/duplicable results.

Completely correct, I require minimum volume 15k/minute for daytrading and 1m or better for swings. Also key is volatility, trading ranges

tiddlywinks · May 31, 2020

KCalhoun said:
Also key is volatility, trading ranges

These are more setup criteria rather than selection criteria imo. Setup criteria is ever changing... it exists, and then it's gone. Whereas liquidity can usually be looked upon as mostly stationary, barring known and/or exogenous catalysts. imo. Just sayin.

KCalhoun · May 31, 2020

Right, the main thing to test is trade management strategies, eg scaling, stop size, exit criteria

fan27 · May 31, 2020

I test on SIM and if everything executes as expected, I go full size with real money. This works for my setup as there is virtually no technical difference between my SIM and Live setup and my trade size is small enough as to not impact my ability to get filled.

Tradex · May 31, 2020

KCalhoun said:
Testing trade setups and trade management strategies is useful.

As you already know, testing begins with the almighty backtest.

If the backtest shows that the system is profitable with 20 or 30 years of historical data, the trader is good to go, assuming the drawdown is reasonable.

On the other hand, if the backtest is negative then "Houston we have a problem", regardless of any profit the trader can make during the "live" testing.

A - backtested - losing system cannot suddenly turn into a winning system, no matter how hard we try.

KCalhoun · May 31, 2020

fan27 said:
I test on SIM and if everything executes as expected, I go full size with real money. This works for my setup as there is virtually no technical difference between my SIM and Live setup and my trade size is small enough as to not impact my ability to get filled.

Good idea, if you have discipline to trade sim identically to how you trade live. But you miss the emotions etc with sim vs real, and personally I can't resist sim trading much bigger size eg in IB demo vs live trades.

Tradex · May 31, 2020

By the way Mr Calhoun , it is a real honor to talk with an experienced and professional trader like yourself.

KCalhoun · May 31, 2020

Tradex said:
As you already know, testing begins with the almighty backtest.

If the backtest shows that the system is profitable with 20 or 30 years of historical data, the trader is good to go, assuming the drawdown is reasonable.

On the other hand, if the backtest is negative then "Houston we have a problem", regardless of any profit the trader can make during the "live" testing.

A - backtested - losing system cannot suddenly turn into a winning system, no matter how hard we try.

Sounds valuable, that's one thing I never learned how to do. Especially useful I'd think for testing position sizing techniques, testing in trending vs choppy markets by sector