Simulated vs Live Trading

J

Junky

Everything I read (including posts here on ET) seem to indicate how important sim trading is to a beginner. I can definitely see the value in it but I also see the shortcomings and is it possible those outweigh the benefits at times?

You can't blow up your account. You get those much needed "reps" and practice. You can formulate a trading plan and execute it over and over to see if it works.

However, if there is one thing I know about trading its that when you're not dealing with your real, hard earned $ then it's just not the same. The psychological aspect of trading and making hard decisions about risk management is just not there when you're not fully invested in the trade. That seems like a very big argument against sim trading that doesn't get highlighted much.

I also hear people say you can get a week of experience in a day on the sim. How is that? Doesn't that mean you are trading things you otherwise wouldn't or shouldn't be trading just for the sake of practice? Or is there another tool that I'm not aware of that helps you do this. Something like Ninja Trader's sim data where its "random" but you give it a bullish or bearish skew seems next to worthless to me since it's not real market factors moving the prices and you also know which way the market is trending because you told it which way to go. I don't really get how that is valuable.

Who's got thoughts on the subject? For the purpose of this discussion lets assume we're talking an equity daytrader since you have far more options to trade.
 
"..how important sim trading is to a beginner"

Actually it`s not.There are very few things that really work.Go figure it via sim now.

Take a shortcut.Go find someone who got it.
 
Junky said:
Everything I read (including posts here on ET) seem to indicate how important sim trading is to a beginner. I can definitely see the value in it but I also see the shortcomings and is it possible those outweigh the benefits at times?

You can't blow up your account. You get those much needed "reps" and practice. You can formulate a trading plan and execute it over and over to see if it works.

However, if there is one thing I know about trading its that when you're not dealing with your real, hard earned $ then it's just not the same. The psychological aspect of trading and making hard decisions about risk management is just not there when you're not fully invested in the trade. That seems like a very big argument against sim trading that doesn't get highlighted much.

I also hear people say you can get a week of experience in a day on the sim. How is that? Doesn't that mean you are trading things you otherwise wouldn't or shouldn't be trading just for the sake of practice? Or is there another tool that I'm not aware of that helps you do this. Something like Ninja Trader's sim data where its "random" but you give it a bullish or bearish skew seems next to worthless to me since it's not real market factors moving the prices and you also know which way the market is trending because you told it which way to go. I don't really get how that is valuable.

Who's got thoughts on the subject? For the purpose of this discussion lets assume we're talking an equity daytrader since you have far more options to trade.
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The arguments stem from people not agreeing on what simtrading is and is for. Simtrading is part of the process of developing a trading plan. This process begins with observation and study: how does the market work? Once one has ideas worth investigating, he begins the back-testing process, then forwardtesting. If the forward-testing doesn't work out, he backs up and begins the back-testing process again. If it does, he moves on to simtrading. If that doesn't work, he re-examines his testing procedures and results. If the simtrading is fine, he moves to real-time trading with small amounts of money. And so on.

As for "real" trading not being the same as simtrading, if that's the case then the trader isn't doing it right. Either he's simtrading with no trading plan, which is common, or he hasn't tested his plan thoroughly enough to trust it without exception (if he doesn't trust it, there's no point in having it). Being "fully invested" in the trade means being fully invested in your trading plan. If the trader doesn't have one, then the only thing he's fully invested in is his feelings, which is why nearly everyone fails.

If traders spent a fraction of the time developing sound trading plans that they spend fretting about their emotions, they'd be far more successful. But, rather, they focus their energies on "controlling" their emotions rather than examining just what it is they're controlling, which is always fear in one form or another: fear of missing out, fear of losing money, fear of being wrong, fear of the unknown, fear of looking foolish.

The problem isn't simtrading. The problem is how it's used and what's expected of it.

(Note re replay: the chief purpose of replay is to become acquainted with the instrument that you're auditioning, apart from developing a general appreciation of the market itself and how supply and demand move prices. During this process, one can and should come up with ideas to test: why did price stop falling there? Why did it reverse in that particular way? Why did it begin ranging rather than reversing? Why did what looked like a reversal become instead a continuation? What were the signs, if any? Can I see these signs in real time? And replay enables the beginner to visit other cycles, seasonal and otherwise, to see whether what he's observed is particular to a given instrument in a given market at a given time in a given period or that it's more universal, bridging seasons and cycles. It should not have escaped anyone's notice, for example, that the US indices have been largely news-driven over the past year, and anyone developing a trading plan under these conditions is likely to be in for unpleasant surprises when the market "changes" back to its accustomed concerns.)
 
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Bottom line; if a trader can’t make a methology of trading work on a live SIM then he certainly won’t make it work on a real money account. So, why throw money after something that won’t work with play money.

That said SIM trading does have limitations.

1) The orders execute quicker than they would if trading a real account with real money thus tricking one trading on a SIM to thinking that their trade would have been executed at their price, and it most likely would not have been executed. So it isn’t quite as realistic as a real account.

2) It is not a clear psychological gauge. Most of the emotional factor is removed on a SIM (although not all) so it is generally not a true indicator of how one will REALLY behave trading with real money. That is, it is not a clear measure of ones discipline or ones psychological hangups.

But it also has some things in its favor:

1) It is a good mechanism to test a new strategy or tactic in a live market to see if gas possibility of taking money out of the markets consistently.

2) It gives one the benefit of practice to hone execution in a “live” environment. That is, the actual executing of trades can become somewhat second nature by practicing them over and over.

3) It can help on focus on the “process” of trading as opposed to making money. In the long term “process” trumps “just making money.” Because if a trader discovers a viable strategy, with workable tactics, and a trader focuses on the process of “doing” the money should follow. But if a trader just focuses on money he can get a false sense of confidence or on the flip side despair and desperation. Something that doesn’t have to be and which can be very destructive to his account and foment destructive behaviour in terms of trading.

Here are some reasons SIM can be beneficial even with its limitations. I am sure there are other reasons.
 
Its very true that the game changes when you put money in.

Sim trading's good for checking all the component parts of your strategy are present - like a stop-loss, % of account capital at risk, where to place the stop-loss, what to do if there's an overnight gap, what to do if price goes up way beyond where you thought it would, what happens if price doesn't go up or down for a week.

Once you know what you're going to do in every situation in a real account with real money, its time to close down the sim.
 
Junky said:
I can definitely see the value in it but I also see the shortcomings and is it possible those outweigh the benefits at times?
More...

one does not see anything until one tries it

so try it, and then we'll talk
 
There are such good posts above that it's kind of cheeky to try to add anything much that's significant ... ;)


Junky said:
I also hear people say you can get a week of experience in a day on the sim. How is that?
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I think when people say that, they're thinking mostly of testing things visually on historical data by what you'd call "fast-forward" on a video(?). You look in detail only at what's relevant to you, and that saves time?


Junky said:
Who's got thoughts on the subject?
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Everyone.
laughing-smiley-016.gif


My perspective, as someone who - very atypically, of course - spent four years on demo before opening a live account (mostly because I was under-age): sim/demo trading can be very useful.

I know that not everyone agrees with this, but personally I believe that (in spite of all the doubtless widely very valid things people say about "psychology", none of which I'm capable of understanding at all, myself) the single commonest reason for ATFS ("aspiring trader failure syndrome", that well-known condition whose acronym I've just invented) is "not having an edge"; and sim/demo trading, wisely used, is clearly one valuable way of significantly reducing the risk of not having an edge. I'm not, of course, trying to suggest that "if something works on demo, you can necessarily make it work in live trading", but you can at least be sure of the counterpart: if something doesn't work even on demo/sim, it won't work with a funded account either.
 
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