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From paper money to real money?

  #13 (permalink)

charlotte nc
Trading Experience: Master
Platform: ninjatrader
Broker/Data: NinjaTrader
Favorite Futures: Emini (ES, YM, NQ, ect.)
Posts: 388 since Jan 2015
Thanks: 71 given, 965 received

Lots of great points on here...

I'll just add that you can often get some great insights about the accuracy of your simulator / back-testing tools compared to the live market after trading live with a small sample size. You don't necessarily need to trade with a live money account wide open for weeks or months to validate that your testing tools are in the ball park. You can figure this out with a handful of live trades (5,10, 20, etc.).

The key items to be aware of are:

Execution speed Most retail trading tools assume a 0 latency (100% perfect execution speed) for backtesting and market replay.

Live SIM tools have built in latency times (You should be aware of what these are). This may be too high or too low compared to your live trading setup. So you should figure out what this is and be able to determine how your live trading time compares to this. 50 to 500 milliseconds of lag over hundreds of trades can make all the difference in results, so you need to know what these assumptions are and how they compare to your Live trading setup.

Live trading will have execution speeds based on a number of factors: (Location, broker, data feed, platform, etc.). You can tune these, and optimize your speed a number of ways.

If you have a decent set of testing tools but they assume 0 latency, you will be sorely disappointing when you trade live and hit 100 to 500 milliseconds on every trade for example. So rather than losing money live and wondering why it didn't match your testing results, try to solve for the lag differential so you can make your testing environment similar to your live trading environment.

In short I view trading live as just an additional step in the process of proving out your backtesting / SIM trading. Because you will need to validate the live trading latency against your testing latency at some point in the process.

Just another perspective to think about...


In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.
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