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Chem

Just Started Paper Trading and Thinking of Doing the Real Thing

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I started reading stuff about trading about two months ago. Specifically algorithm trading. I've been working on building a profitable algorithm and have yet to find one that does well in back tests.

 

So in the meantime I opened up a paper trading account and decided to play around with that. I have pretty much no experience trading with real money. I have been trading with the paper account for two weeks. The first week I didn't do so well. Made a lot of errors while I figured out how the program works. I still managed to break even at the end of the week.

 

This week my plan was to only make realistic trades (ones that I have the capital to make with real money). I did very well this week. Way better than I expected and I ended up at the end of the week up about 25%.

 

Some things I noticed:

 

1. I did much better when I set limits and then just walked away. Meaning I waited to see a trend going, jumped on it, set limits and left. Often when I came back I would see that my limit had been met and that there may have been a point where the price was going against me (enough to tempt me to close out) but because I was not actively watching it I never closed out.

 

2. The paper trading account doesn't seem to consider the number of available shares to buy/sell? I was trading some pretty low vol futures. And I noticed that if I put in a huge order it went through right away and at one price. I'm not sure what that is called but I know that big trades end up getting spread over a range of prices. I wouldn't be trading big amounts so I don't think this would be a big problem.

 

3. My wins were small (with a few exceptions) but I had a lot of them and when I lost they were big losses.

 

One question I specifically have:

 

One trade specifically bothers me. The price had just made a big jump up. I waited to see some down resistance after the jump. When I saw that I went short. Literally a second later the price gaped up 1% then another 1.5%. I didn't have a stop set so I'm stuck at a huge loss for the day.

 

What do you do at that point? I just tried to ride it out and it did come back down but no where near enough. In the meantime I'm stuck holding these shares and can't make any new trades. I'm thinking I would have been better just closing out when it gaped up 2.5% and trying to make money shorting it on the way down from there.

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Trading live before you have a meusrable, backtested and forward walk methodology will not give you the results you want. It would be less painful to just give the money to a good charity.

 

You need proven measured performance providing consistent profitability in SIM before you risk real money. Your methodology as described has no structure, no repeateable measurable methodology and you have no idea of the math of your traders profile. IMO, witout these things you cannot make money. Two months of hit and miss and no learning cannot alow you to compete against all the smart hard working people who have spent years learning.

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So in the meantime I opened up a paper trading account and decided to play around with that. I have pretty much no experience trading with real money.

One trade specifically bothers me. The price had just made a big jump up. I waited to see some down resistance after the jump. When I saw that I went short. Literally a second later the price gaped up 1% then another 1.5%. I didn't have a stop set so I'm stuck at a huge loss for the day.

 

Hi Chem -- just a couple of comments. First, never trade without a stop...never. Secondly, at MAX Trading System we highly recommend that you stay away from any live trading until you have traded demo for at least 3 consecutive weeks--without a losing week! To skip this exercise is to invite account disaster!!!

 

There is no hurry--the markets are not leaving--they will be there when you are ready. While trading demo, it is very important to begin to get the feeling of "live" by creating a "money simulation" to help you regret losing--and stick to it. This will help to prepare you for the psychological battlefield of live trading.

 

For example, for every tick you lose trading the demo account, donate $1 (or whatever size amount works for you to make it feel "live") to a favorite charity--but it must be a large enough amount to hurt a bit!

 

For every tick gained, place the same amount in savings toward a treat for yourself or your family. At the end of each day, disburse the funds so that you feel the pain or gain of the day's results. After a minimum of 3 consecutive winning weeks, go live, but go small----discipline yourself to stick with very small trades (risking perhaps 1/2 percent of your account) until once again you have 3 consecutive winning weeks. Then begin small advances toward larger trades.

 

You will never regret taking the time and effort to trade safely!

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Hi

 

Just want to inform you for the backtesting of the any computer strategy and optimization. The is the problem of curvefitting. You optimize the strategy for the given time period that you backtested. This is why many times the strategies work in bactesting but fail to work in real time. Most brokers think that "the markets have changed" but this is a mistake. This is mostly the problem for long term strategies.

 

Short term strategies can give god yet unreal results in backtest or in real time demo for different reasons. Generally the less ticks you taking the more will the backtesting or demo trading differ from real money trading. I have seen scalping algoritms that performed excellent in demo, but with real money you will simply not get the fills as in the demo.

 

So yes you need to backtest and try in demo, but if it goes well, you still don't have a profitable strategy yet. The markets are hard.

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For example, for every tick you lose trading the demo account, donate $1 (or whatever size amount works for you to make it feel "live") to a favorite charity--but it must be a large enough amount to hurt a bit!

 

For every tick gained, place the same amount in savings toward a treat for yourself or your family. At the end of each day, disburse the funds so that you feel the pain or gain of the day's results.

 

one of the best recommendations regarding SIM trading I've seen on any site!

 

I will add one recommendation: At the moment you take each trade, "WRITE DOWN" exactly what you are "feeling"

 

i.e. are you excited... this market is going to the moon!

worried... this trade might work out.... but I've got a bad feeling about it

incredulous... WTF this CAN'T be right... this particular trade will fail !

etc. etc. you get the idea

 

If you monitor the trade... and have any strong feelings as it plays out "WRITE" them down as well.

 

Now... here is the critical part. Review each trade at the end of the day... and if you passed on the trade, exited early, did not exit when you system said you should etc... then you must donate 3x the $/tic to your charity... EVEN if that feeling resulted in you making or saving more money on that particular trade.

 

At the end of the three weeks... summarize your results (You will be amazed), make a plan as to how you will address what you have discovered, and incorporate that plan into your system.

 

Do not go live until your 3 week "treats" jar exceeds the "charity" jar. Your "charity" of choice will be very grateful 8-)

 

snowbird

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Hi

So yes you need to backtest and try in demo, but if it goes well, you still don't have a profitable strategy yet. The markets are hard.

 

Yes and no. For example, we have trained over 800 traders using the MAX Trading System. We know it is a highly profitable approach to trading the markets. However, it takes much more than great trading methods to make a great trader. The psychological elements of self-discipline, greed, fear, hope, confidence, etc are at least as important as your trading methods. So, you may indeed have a profitable strategy, and yet be a losing trader.

 

This is a big part of why we ask our students to achieve the 3 consecutive weeks of profitable demo trading using the money simulation approach. You absolutely must have some way of feeling the stresses that are generated when you trade "real money." As KalixMOR said, the markets are hard. It is a very unfriendly environment, and without a good money simulation to experience the pain of losing, demo trading is of limited value. The issue of the difference in demo and live fills does not affect our MAX traders, but the psychological issues cannot be avoided. If you walk into the live markets unprepared, you will exit the markets wishing you had invested more time and money in preparing yourself for the battle...only now you may not have any money!

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I have not posted before but thought I would quick jump in with a couple of comments. I use Tradestation and have for about 15 years so some things may be different in other platforms. When trading SIM in most platforms (especially Tradestation) if you have a limit order sitting as soon as the price touches it Tradestation executes it as filled. Most times in real trading this will not happen unless the price is racing through your limit. I have had orders in real life sitting in the ES and the price gets hit 10-15 times or more and no fill. Depend on where you are in the stack of orders sitting there. Stops, on the other hand will always get filled but often with slippage. Same for MIT orders.

 

I have been programming in Tradestation for the last 15 years and have had a really great mentor helping me as well. There are many, many "gotchas" in the way you write a trading system. It is very easy to write a system that will back test beautifully but fail miserably in real trading. The gotchas are too many to list here but I have found that for the most part people write code improperly and great ideas fail while lousy ones seem to work only because of the way the code is written.

 

Successful trading methods are very complex and hard to find. Most winning traders do not even fully realize all the factors involved in their decision making process. I know, because we have programmed what traders thought they did to trade and the results and entries were very different from what they actually did. The human brain is incredible and many traders process huge amounts of information for any simple trade.

 

If you have the psychological of a winning trader then discretionary trading is the way to go. You MUST have a winning strategy!!! If you do not have the psychological makeup required then you will fail with even the best method. In that case you would need an automated system written correctly based on a proven winning strategy- aka The Holy Grail.

 

In my opinion winning consistently in trading takes years if not decades of study and experience, definitely not months.

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Your algorithm probably isn't working because you have no trading experience. Good luck trying to compete on your own with no knowledge. If you observe successful traders, they all have a strong intuition with the markets they trade. Most of the ideas around here don't work for most, and many struggle to use the same concepts and fail miserably. The reason is consistent, they simply don't have the same intuition when it comes to trading. That just takes time. Find the successful traders around here and read their posts, think critically about what they are saying and question everything.

 

Find a market, devote your life to it, and study math and programming if you want to build a few decent algorithms. If you're not willing to do that, then save your money.

 

Just my 2 cents.

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In my opinion winning consistently in trading takes years if not decades of study and experience, definitely not months.

 

We can speed that up for you ;)

 

I totally agree about the human brain -- far better than any black box priced under $20k !

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