How similar is a sim to live trading?

Q

quickbread

Hi all,

My first post here (go easy on me). I'm wrapping up my first month of daytrading stocks on a simulator. I've been basing trades on 3-4 discretionary strategies, long and short, on stocks that have gapped up or down in the premarket. I'm trading basically the first two hours and the last two hours of each day. So far, I'm overtrading, I know. But in spite of that and more than a few stupid losses, my results have been extremely positive. And frankly, I'm skeptical of them.

My background: I've spent the past 18 months swing trading (multi-day, not intraday swing), with varying degrees of success. In spite of dozens of weekly hours studying the markets, charts and swingtrading—both paper and live—I've still found it hard to profit consistently using daily charts.

I am finding it so much easier to trade in live motion while watching the candles form that it's a bit shocking to be honest. I'm trading non-penny stocks with an average volume >1M for moves of about .20-1.00, depending on the stock, whatever the clear space is between support and resistance across multiple timeframes.

At the moment, I'm still not using L2 because I want to get a better sense of the price action before adding another tool/variable to factor into my trading decisions.

Thing is, I'm up more than 20% in the sim account for one month's worth of trades. I haven't been using bracket or limit orders (intentionally, to make it harder for myself and hopefully emulate real volatility). I'm risking .5% of my account on all trades and have a clear SL and target (usually 1:2) before entry. I'm *mostly* diligent about hitting the exit at my stop loss.

So that leads me to some questions:
1. How similar are the results from a simulator compared to live trading? I know there will be more slippage in real life, but how much? Is that the biggest difference, and is the difference a major profit killer?

2. What about position sizing vs. daily volume? If I'm trading 1,000-share blocks of a 1M/day volume stock, am I going to have trouble getting filled at my targets?

3. Is there a good model to follow for journaling a high number of trades/day? I seem to be going round-trip about 30 times/day, and it's a lot to document/remember every single factor I weighed every time I enter or exit.

Thanks in advance for any advice!
 
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Hi -

You are right to be skeptical. The platform mechanics are probably identical (depending on how you route orders) bu you wont see market impact or psychological impact in sim. You could try live trading with a fraction of the simulated amount and scale up as long as the model works and the fills remain satisfactory. That way you will really understand the results and learn about the real liquidity .

1. How similar are the results from a simulator compared to live trading? I know there will be more slippage in real life, but how much? Is that the biggest difference, and is the difference a major profit killer?​

Vastly different in my experience. Typically the implementation and slippage deviate from the sim.

2. What about position sizing vs. daily volume? If I'm trading 1,000-share blocks of a 1M/day volume stock, am I going to have trouble getting filled at my targets?
​
Not likely.

3. Is there a good model to follow for journaling a high number of trades/day? I seem to be going round-trip about 30 times/day, and it's a lot to document/remember every single factor I weighed every time I enter or exit.​
Automate the logging and journaling with Traderview. I'm not affiliated in any way but I found it very helpful fo understanding the profile of various approaches I traded.

Watch out for tolls here too. 90% of what you see on ET will be junk. I rarely comment but I though maybe my response to #3 could be of use to you.

Good luck!

Alex
 
I think I can speak to this because I recently went live trading short term:

1. The IB simulator was pretty accurate for trading options, stocks and currencies. In fact, I would say it erred on the conservative side occasionally.

2. You won't have trouble getting filled if you're OK crossing the spread. I often get better fills live than I would in sim, if trading at bid or midpoint. But I'm not trading a large portion of the daily volume.

3. 30 times/day is significant but to each their own. I've automated the journal in the sense that when I manually take a trade, some code takes a screenshot and I annotate the screenshot immediately. This then gets appended to my daily diary. Absolutely invaluable. I would suggest you do something similar. It's very easy, for example, to have the code record and transcribe your voice or have you write in notes immediately. Solve this problem before anything else. I review successful days over and over to remind myself of the decision making process. I don't review bad days since inevitably, I would have overrode the system because I'm retarded and haven't fully automated the last bit yet.

Crucially, I do the exact same things trading live as I did trading sim. The entire interface is the same. There's no "red banner" (hi IB) to tell me I'm paper trading. The journal is the same, etc, etc.

And some tips:

- You need to trade longer in the sim precisely because you spent 18 months dicking around, not getting anywhere. Your body needs to forget how you traded before. I would suggest another 6 months at minimum, maybe 8 months if you really want to give your body a chance to forget.

- She will end up like her mom, so you better like her mom.
 
nooby_mcnoob said:
- You need to trade longer in the sim precisely because you spent 18 months dicking around, not getting anywhere. Your body needs to forget how you traded before. I would suggest another 6 months at minimum, maybe 8 months if you really want to give your body a chance to forget.
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By the way, the way you know that you have reached the right point is when you feel nothing, and you are numb.
 
The biggest thing is having a real edge. If you know that you can make the money back that is lost, it gives you a huge ability to just take a loss or bounce right back from a loss.

I will become successful because I can make a bunch of easy low risk profit fast, and then take the profits and make a massive trade. The kind of trade that can make you thousands of dollars in minutes. Roll it up. Taking big risk with profits is the best thing you can do when you are trading short term.

Also, you have to know how much a trade could make. That might be the hardest thing to learn. I trade very short term though.
 
Real Money said:
Read my name. That's what I'll have when I'm successful.
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I'm confused, I thought you were a trader for many years. Is this some philosophical thing like I won't know if I'm successful until the day I die? (which is sort of the meaning of my name.)
 
General thoughts/opinions...

You've day traded sim the last month and feel your results are extremely positive. That is not a bad thing. Perhaps you're on to something. But how about going back and seeing how you would have done applying your same methods to the months of February and December in 2018 (extremely high volatility), then also how you would have fared in much of 2017 (extremely low volatility), then August 2015 (volatility spike).

Intraday dynamics change. You need to know if your methods are robust enough to make you a profit through various conditions. You need to be able to recognize when conditions are changing, and what you need to do, to adapt.

You state that you're overtrading. I define that as taking impulsive trades (trades that aren't actually valid per your plan). That's an extremely hard habit to break and can lead to ruin. If you don't have a firm grip on your behavior, then a time will probably come that you have a meltdown and unnecessarily lose a significant amount of your capital.

I guess one good thing is, you are trading stocks. Lately commissions have been reduced to $0 for all the major brokerages, so begin with extremely small risk (an amount that's completely insignificant to you). No sense in losing money while you learn live trading.

For the specific Qs

quickbread said:
1. How similar are the results from a simulator compared to live trading? I know there will be more slippage in real life, but how much? Is that the biggest difference, and is the difference a major profit killer?

2. What about position sizing vs. daily volume? If I'm trading 1,000-share blocks of a 1M/day volume stock, am I going to have trouble getting filled at my targets?

3. Is there a good model to follow for journaling a high number of trades/day? I seem to be going round-trip about 30 times/day, and it's a lot to document/remember every single factor I weighed every time I enter or exit.
More...

I trade ES and the vast majority of the time slippage is not a concern. I've day traded stocks before (but only very liquid ones - AAPL, FB, etc.) and never had any issues with slippage. If you're trading an illiquid instrument perhaps you'll get tagged here and there, but no worries at all with the liquid ones.

As for journaling a high number of trades... if your method is so extreme that you can't be bothered to type up a journal.. then just voice record yourself (or use talk to text) in real time while you are trading. Talk out your mental thought process as you're executing it, then at the end of the session, go back and listen to yourself, and organize your notes.
 
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