It will vary based on instrument, volatility, liquidity etc. There are tons of ways to estimate it. The easiest is just to make sure your average profit per trade is reasonably high.
Very active day trading methods will be more susceptible.
You also have to factor in order entry mistakes, system failure, missed trades, etc. There are a lot of things that can go wrong. But, overall your sim trading will in general prepare you provided you trade exactly the same and your method is sound.
Tricky part is very few methods that are traded exactly the same all time will work over the long haul.
Simulation trading can do a lot for you but you have to prepare, really prepare. If you trade with a lot of discretion then it is more difficult because you're always possibly changing your methods. If your trading a system then you don't have as much to worry about.
What you want to do is learn to recognize when you're trading well vs poorly and be attuned to those differences. One thing that I did was to place my trades always on my hypothetical account first. I could kinda evaluate in real-time how I was feeling with my money on the line versus the hypothetical account. If I had any question about my ability then I make the decision on the simulator first.
There are many factors. You have to know how you react. The amount of money/risk capital you have is important too. If I had 60k (and a job) then I have only a little doubt that I would trade just as well as I do on my c2 accounts. But, I wouldn't try to trade with my discretionary approach with only 10k because the performance pressure would be higher. I would trade my systems though.
So you have to know your method, your self, and go pretty deep. You'll start to think about 100x as many things with real money on the line. This can be a help or a hindrance but you'll start to pay attention to more details because you will have a risk of loss. The higher frequency of trading will also correlate strongly with possible negative psychological performance problems.
What I recommend is a graduated approach.. 3-6 months on the simulator developing a sound/consistent approach, 3-6 months of trading with small size.. I'm currently working my size up and down to get more comfortable with trading larger size (on my C2 account) while trying to keep my risk more or less constant.
Then there are other factors.. once you get it.. there are some things that will still come up. For example, taking a string of losses.. I pay attention to every loss but I can lose 4x or 5x without much problems on the simulator but with real money then I'll start to look at an abnormal run of losses more. So, it is not just about how you trade when you win but when you lose too.
As Barry Greenstien wrote about playing poker, the good poker players can play poker well when they win but the pros continue to play well when they are losing.
In general trading as a process/simulation can be broken down into skill categories:
1. Placing orders and platform specific knowledge
2. Trading expertise under normal conditions
3. Advanced Trading expertise under abnormal conditions (order entry mistake, abnormal markets, etc)
4. Psychological maturity over the longer time frames (drawdown, losses, mistakes)
You can gain 1,2,3 on the simulator. You can get an idea for #4 but on the simulator but don't really know how you will handle it until you do but if you have appropriate risk capital then you're more likely to do well.
It takes a long time on the simulator to gain real skills though. Don't underestimate it. I think 3-6 months absolute minimum. You have to have 100% confidence in your methods and abilities while knowing you can lose on any trade or over a run even.
I recommend cycling... you know taking some pain.. stepping down.. then stepping back up. This is hard to do in futures but maybe you could trade a proxy at NADEX.
Quote from Hendrik:
Hi Southbeach,
As for the difference in fills and slippage between sim and real life, could you please elaborate on this? My trading plan would not be hurt from a one tick slippage here and there, but this is something I am trying to find out just to know whether my trading tactics would survive the difference between sim and real life.
Thanks in advance for taking the time,
Hendrik
