Quote from jho:
Hi,
I am curious how everyone's paper trading compared to live trading. I have traded my strategy on paper and would like to get a feel for what I should expect. Greed, fear, and slippage.
My average length of trade is around 5-90 mins. Using 5 minute charts. Nothing too volatile.
Here are my guesses:
Win% now: 70 [live: 50???]
Average profit vs loss now: 4:1 [live: 2:1???]
I could see making 1/5 of my paper trading results (if profitable at all). Do you think this is reasonable? How was your transition to going live?
*there was a thread about this before but it didn't go into much detail, and I can't find it with the search function anymore*
It all depends on your strategies and how serious each fatcor will affect you.
Eg: If you're a daytrader, then slippage is of more concern to you.
Let's talk about something about paper-trade. Paper-trade should not be the place to test your strategy only. You can do more. You need to simulate as much as possible.
1) Simulate money management & position sizing
You need to decide how much money you put on a trade. Some people just practice their strategy without any consideration of money management. You need to decide how much you place per trade when you are live. So why not practice this as well.
Be realistic and practice the same amount of capital you are ready to invest. It's no good to play with $100,000 while you will only invest $10,000. Different amounts of capital varies in trading strategies.
2) Simulate decision-making procedure
If you daytrade, you need to make lightningly fast decisions. You can't be hesitant or you will get a much worse entry/exit prices.
3) Simulate execution procedure & reaction
Don't write your order on paper, or you miss one important element which is execution procedure. You need to be familiar how you place your order. Even if your mind says "go", your slow reaction will make you lose a valuable opportunity.
4) Simulate order fill
Try to papertrade a market with real-time data. When you place an order, the software will check if the market can fill your order. You can practice several things in this way:
- feel (the problem of) slippage
- what you will do if the order is not filled?
- how you get your order filled when the price is suddnely uup/down
- how you react if your stop-loss order has not been filled
- and so on
5) Simulate every aspect of your trading routine
Everything looks fine in papertrade since external factors will not affect you. but if you trade real, there're some trivials which can cause you great harm. You opened a position and watch, but you feel like going toilet, what do you do? Telephone rings when trading, you answer the phone, but you find out you miss a very good opportunity when you come back, what do you do?
Something spoils your emotion when trade (eg your parents scold you badly), what do you do?
When you papertrade, never call a halt. You can't stop the market when you trade live. If you decide to leave in the middle ofa day, it implies you are going to forgo every big opportunity you may come across on that day. But when you trade real, are you willing to give them up? Think about it.
6) Simulate your psychology
Yes, it seems to be contradictory since what paper-trading misses is psychology. Many people said that.
Wrong, my opinion is opposite. It is possible to practice your psychology if you are determined to work on it.
There're several approaches to do so:
- papertrade seriously. Treat every virtual dollar as real. No leisure trading! No excuse! No "if's"/ "shound have"!
- set rewards & punishments
- feel your greed & fear. Imagine what you feel when you encountered many consecutive losses in one round. If you feel the pain and start worrying, you make it.
Try practice and practice until you can control your psychology. Remember deeply how you deal with your psychology when you get several (big) losses, or when you miss some biggest opportunities, or when something went wrong (eg your computer)?
When you trade live, what you need to do is opposite. Simulate your psychology (in papertrade) as much as possible. Never let extra/unexpected psychology come in and take you in control. They are only devils! They won't help you in any way.
When you can copy everything in papertrade to live trading, you are destined to fortune-making.
Good luck!
