Training with a Simulator

[RobinHood 10]

What are the best uses of a simulator when preparing to trade with real money?

 

Am I watching it to get a feel for T&S before I begin trading?

Am I trying different methods and ideas?

 

What about "working orders"?, this isn't really possible/realistic in a simulator.

 

 

Some of my ideas for using the simulator were:

Checkout different markets and different time-frames (1min, 2min, 5min, 15min).

Try scalping, try intra-day swing trading

Watching T&S, DOM and price.

See if you can consistently lose money on purpose (its seems easy to make money in a sim, but can I lose my money while still using proper risk management?)

 

 

When should I look to move on to trading real-money?

[swansjr 10]

I use tradestations simulator to test out new concepts in real-time. I'm very happy with it. It deducts the commissions per trade and summarizes my daily trades as if a real account. I trade exactly according to my trading plan as if I was using real money. In other words, once I hit my daily loss, I stop. If I reach a daily goal I stop. If the market is not to my liking, I don't trade. At times I almost forget I'm trading fake money.

 

The only complaint is the simulator is not accurate with slippage. So, you will be generating system results slightly better than reality. So, deduct a point or two on each trade for slippage. For a scalper this becomes a big deal while a swing traders this is less of an issue.

 

I'm testing a new concept as well. This is the second week of testing and I'm probably going to trade it for at least 4 weeks total before dedicating real money to it. Even then I may ease into it. During testing is the time to find the kinks and implement improvements. Maybe your stops are too tight or too lose? Maybe your trades work out better the last two hours of the day? Maybe it's best to skip Mondays. Look at all the possibilities.

 

If you can't consistently make money on a simulator there is no hope in the real market. Don't be in a hurry to trade with real money until you feel confident with your system and you can demonstrate an edge over the market.

 

Jeff

[AgeKay 10]

The most realistic simulator out there is X_Trader run in a demo account. You can even use working orders, because it calculates your (worst-case) position in the limit queue (called Estimated Position In Queue or EPIQ) to determine when to execute limit orders. If you know how FIFO limit order books work then you will appreciate that it doesn't get more realistic than that. Slippage is also no problem since you can see in the their DOM (shown in MD_Trader) the number of limit orders on each side. The only thing that it does not take into account is your commission, but you can easily calculate that yourself.

 

You should only trade with real money after you have tested your strategy until you feel confident that you can make money consistently with it.

[Guest forsearch]

Remember, most demos are merely sales tools for brokers, and thus tend to present their platform and feed in the fastest and best light. You may go "ooooh and aaaaah" at the laser lightning fast speed and execution of your limit orders in the demo queue, not realizing that the real thing is a far different beast.

 

For example, Open E Cry's sim, called OEC Trader Demo, will treat limit orders sitting in the queue as though they are MIT (market if touched) orders. In other words, with OEC's demo, your limit orders will always be filled if price touches your level, giving you a false sense of "robustness".

[AgeKay 10]

  forsearch said:

For example, Open E Cry's sim, called OEC Trader Demo, will treat limit orders sitting in the queue as though they are MIT (market if touched) orders. In other words, with OEC's demo, your limit orders will always be filled if price touches your level, giving you a false sense of "robustness".

 

Yeah, it's very important to understand how order matching works. That's why I said, the only realistic simulator I have seen is X_Trader because they do it correctly. NinjaTrader does not do it right either.

[RobinHood 10]

This is from Ninja-Traders website:

  Quote

"This is not a simple algorithm that fills your orders once the market trades through your order price. It's comprehensive in that it uses a number of variables such as ask/bid size, trade size, time (to simulated order queue position) and order delay to determine fill amount and probability"

.

 

Anyway, even if X_Trader is just a little more realistic, I need something I can afford. Also it would mean learning the platform when I'm finding figuring out NT hard enough..

[AgeKay 10]

  RobinHood said:

"This is not a simple algorithm that fills your orders once the market trades through your order price. It's comprehensive in that it uses a number of variables such as ask/bid size, trade size, time (to simulated order queue position) and order delay to determine fill amount and probability"

 

Yeah, you know, talk is cheap. Why don't they just post their algorithm, so we can see for our self if it's realistic or not.

I personally tried NinjaTrader's Sim and it was totally unrealistic (but not necessarily in a bad way). I'll give you an example of what I saw. The are 100 contracts offered. I join the offer (that means, I also put a limit order at the offered price). That means 100 contracts are in front of my contract since the markets I trade use the FIFO algorithm for order matching. So when 100 contracts trade at that price, my contract should execute next. There is no way around that, that are the rules of the exchange. But in NinjaTrader there might come 200 contracts after my contract, 100 contracts trade (so I should be next), but then another 100 trade and you are still not executed. No matter what they do, it's just not correct. You don't need some fancy algorithm (which obviously does not work correctly) to determine whether to fill a limit order or not, just use the exchange rules, but I guess the NinjaTrader developers don't exactly know how that works.

[Guest forsearch]

  AgeKay said:

Yeah, you know, talk is cheap. Why don't they just post their algorithm, so we can see for our self if it's realistic or not.

I personally tried NinjaTrader's Sim and it was totally unrealistic (but not necessarily in a bad way). I'll give you an example of what I saw. The are 100 contracts offered. I join the offer (that means, I also put a limit order at the offered price). That means 100 contracts are in front of my contract since the markets I trade use the FIFO algorithm for order matching. So when 100 contracts trade at that price, my contract should execute next. There is no way around that, that are the rules of the exchange. But in NinjaTrader there might come 200 contracts after my contract, 100 contracts trade (so I should be next), but then another 100 trade and you are still not executed. No matter what they do, it's just not correct. You don't need some fancy algorithm (which obviously does not work correctly) to determine whether to fill a limit order or not, just use the exchange rules, but I guess the NinjaTrader developers don't exactly know how that works.

 

Actually, that's NOT a such a bad thing, after all. Forcing price to trade thru your order level makes certain that you're not being too optimistic in your trading strategy.

[AgeKay 10]

I did not say that it's a bad thing and it has nothing to do with being too optimistic. It's just incorrect. For example, The Estimated Position In Queue (EPIQ) that X_Trader calculates is actually the worst-case scenario since they calculate the worst position that you could possibly have. Your position is most of the times better since contracts in front of you might have been canceled. There is no need to add some randomness for not executing your order like NinjaTrader does. I am just saying that it's unnecessary and probably hurts more than it helps since you can't get a realistic feel for getting executed (there are trading strategies that are based on this fact, so I think it's important).

[brownsfan019 17]

Here's a very easy way around the 'did my order get hit thing' when using a sim like OEC or Ninja where it's basically a MIT order - just place your order 1 tick above/below where you actually want to get in.

 

Example: you want to buy the ES at 1289.00. Well, put your buy order at 1288.75. If it touches 88.75, your 89.00 order would have filled in real-time.

 

In this thread I talk about it more.