Paper Trading Vs. Live Systems

[jarelj 10]

What should one expect for differences in order execution times in a "Live" trading environment vs. the "Paper" trading environment? I've been practice trading the ES on the OEC Trader software for a couple of weeks now and working on my strategy. I'm curious what others have experienced on this platform or others on the execution of orders in the live system. I'm assuming that fills won't happen as fast, or rather some orders that are getting filled at a price on the paper system may not actually be filled at that price on the live system? I'd like to know what to expect before going live with real money, how big of a difference is there?

[Tams 20]

What should one expect for differences in order execution times in a "Live" trading environment vs. the "Paper" trading environment? I've been practice trading the ES on the OEC Trader software for a couple of weeks now and working on my strategy. I'm curious what others have experienced on this platform or others on the execution of orders in the live system. I'm assuming that fills won't happen as fast, or rather some orders that are getting filled at a price on the paper system may not actually be filled at that price on the live system? I'd like to know what to expect before going live with real money, how big of a difference is there?

 

ES is very liquid, the fill time is very fast. If you are entering market orders, expect some slippage (1 tick for sure, be prepared for 2 ticks.)

 

if you are in a distance locale (ie not in North America), you should test your internet for latency.

 

if yo uare new to trading, you should use limit order instead of market orders. You will have better control of your entry price.

 

Good luck.

[NowTheMoment 10]

What should one expect for differences in order execution times in a "Live" trading environment vs. the "Paper" trading environment? I'd like to know what to expect before going live with real money, how big of a difference is there?

 

Hey, Jareil

 

The only difference between paper and live trading are your emotions and account balance. Practice your methods on a chart replay and demo paper account. i find playing a day session back to have been very helpful.

[jarelj 10]

I did contact OEC and they said that their demo system does mimic "live" fill times as much as possible by staging the orders in a que to be filled, rather than just triggering on a price being hit like some other demo systems. But they said it still wasn't a completely true representation of what the actual live fills would be. I've been trading on paper for a couple of weeks now and doing well with it, so just trying to make sure I know what I'm in for when I go live with it.

[NowTheMoment 10]

I did contact OEC and they said that their demo system does mimic "live" fill times as much as possible by staging the orders in a que to be filled, rather than just triggering on a price being hit like some other demo systems. But they said it still wasn't a completely true representation of what the actual live fills would be. I've been trading on paper for a couple of weeks now and doing well with it, so just trying to make sure I know what I'm in for when I go live with it.

 

Try Infinity Futures you can trade on the demo with real time data and charts.

[Cruiser 10]

Paper trading is different on different systems.

 

The first question is whether the system you are using has data and actions that are as real time as their live system. Most are. The second, and bigger question, is whether the fills are realistic. Since you are not actually buying and selling this can never be 100% like live trading and most paper/sim systems show a better fill rate than live trading. What this means is that you will probably get better fills on a paper/sim system then in real life. The smaller your profit target the bigger the difference this makes. If you are swing/position trading and looking for 20 or 50 points and have stops that are 3 points or more then this will seldom make a difference. But if you are scalping and taking profits of a couple points or less then your sim/paper results will be very unrealistic. For example with many sim/paper systems you can go into a slow market where price isnt' moving much and put in a limit buy at current price, get filled, then enter a limit sell at a couple ticks profit and you'll get filled. Very small sim/paper profits but do this for an hour and you'll think you're the master of the trading universe and found 'the answer'. Do this live and you'll quickly find out that you never get filled at the price you want to buy or sell at and do nothing but lose money - unless this is part of some other successful strategy.

 

If you are trading a very liquid contract like the ES during higher volume (day market) hours then the difference will generally be only one tick on the fills. In other words your fills will probably not occur unless price goes one tick past them and/or your profits on a round trip trade will be 1/2 point (2 ticks) lower than the sim/paper trade.

 

On more thinly traded contracts, or even ES in some of the slower overnight hours, there could be a larger margin with several tick differences between sim/paper and live fills.

 

The above is the biggest technical difference. Beyond that is the wide world of psychological differences. Trading the sim/paper 'game' is a whole lot more different than trading real out of pocket dollars.

 

None the less I feel that sim/paper trading is an essential way to learning to trade with consistent profits. You should always set some sort of consistency goals with a strategy and never trade live until can do it consistently on sim/paper. If you can't make money on sim/paper you'll lose even more on live trading. Unfortunately making money on sim/paper trading does not mean you'll do well on live - but you have to do it first as a step on the way there.

[jarelj 10]

Just to follow up on this for any future sim-to-live convertees who might read this, now that I've "gone live", yes the fills on the Live system do not match those of the Sim system (at least on Open E Cry). As Cruiser indicated, if you practice a scalping strategy in Sim and it looks like it's too good to be true, guess what, it's too good to be true! Trying to scalp 2 ticks from the Live system is like tearing up dollar bills and throwing them out the window. Put in a limit order and watch the price bounce off your limit 10 times without filling, and once in a while it will actually hit, or if the price moves one tick past then your limit will hit. I had to try it a little bit anyway, but didn't take long to see that yes, it's too good to be true that orders would be filled as quick as the Sim system. So now I've spent a couple of weeks in the trenches learning the hard way what is a trend and what is "noise", analyzing charts, evaluating support and resistance and trading ranges, winning some, losing some, trying to make the winners outweight the losers. Another couple of years and I might actually know what I'm doing!

[TimRacette 11]

I also use Infinity. Paper trading is great for working out ideas and tuning your methodology, but the real value comes in the experience of pulling the trigger. If you aren't able to trade at least 3 contracts in the futures markets you can always trade the equivalent ETF in blocks of 500, or even 100. The point is that you are involved in the markets and able to scale out. Much more valuable I feel than paper trading when the market is good.

[MightyMouse 12]

I also use Infinity. Paper trading is great for working out ideas and tuning your methodology, but the real value comes in the experience of pulling the trigger. If you aren't able to trade at least 3 contracts in the futures markets you can always trade the equivalent ETF in blocks of 500, or even 100. The point is that you are involved in the markets and able to scale out. Much more valuable I feel than paper trading when the market is good.

 

To day trade etf's you need 25k or you need to go get fleeced at a prop shop.

 

You need capital to trade. Lots and lots.

[joshdance 10]

If you aren't able to trade at least 3 contracts in the futures markets you can always trade the equivalent ETF in blocks of 500, or even 100. The point is that you are involved in the markets and able to scale out.

 

Much more useful IMO to learn how to trade all-in-all-out (trading 1 contract or 100) and learn how to manage a trade (something I have a lot of work yet to do), than increase initial risk and diminish returns by scaling out.

[joshdance 10]

To day trade etf's you need 25k or you need to go get fleeced at a prop shop.

 

You need capital to trade. Lots and lots.

 

Well, you do need capital, but having lots of capital if the trading is going poorly will only mean you would be losing more capital. Capital will get you in the trade, but it will not help you lose less money. Capital will help a good trader be able to trade with greater size and make more money, and it will result in a poor trader losing more money if he increases his size, or else it will sit there doing nothing if he decreases his size and therefore is not using the money as margin.

[MightyMouse 12]

Well, you do need capital, but having lots of capital if the trading is going poorly will only mean you would be losing more capital. Capital will get you in the trade, but it will not help you lose less money. Capital will help a good trader be able to trade with greater size and make more money, and it will result in a poor trader losing more money if he increases his size, or else it will sit there doing nothing if he decreases his size and therefore is not using the money as margin.

 

I agree totally; know-how is far more important.

[TimRacette 11]

Much more useful IMO to learn how to trade all-in-all-out (trading 1 contract or 100) and learn how to manage a trade (something I have a lot of work yet to do), than increase initial risk and diminish returns by scaling out.

 

I can see the value in that. It also helps develop patience. The tricky part arises in 2 areas, using a smaller profit target vs. bigger profit target and using a tight stop versus a wide stop if you begin to trail (you in the general sense).

 

I started with 1 contract on the ES before moving to 2, 4, etc then I added in the 6E. If I did it over again I would start with the 6E 1 contract, much bigger swings and reward/risk ratio.

[TimRacette 11]

To day trade etf's you need 25k or you need to go get fleeced at a prop shop.

 

You need capital to trade. Lots and lots.

 

I would also argue that you need capital to trade futures, or any market. It can't be expected to make a 100k return per yr on 10k. While I understand risking 1-2% of your total trading capital is hard for small trading accounts, if you were to take a set of 20-30 trades and multiply your risk per trade by say 25 (a theoretical worse case scenario for this example a string of 25 losers) how much capital would you need to overcome that draw down. Then multiply that # by 3, what does it come out to? That could be used as a starting point for capital requirements.

 

I personally found the ETF method helpful for the reasons of being able to still make live trades and scale out, but at small risk. Once I built my confidence up then I just switched back over to the corresponding futures contract.

[gosu 10]

I would also argue that you need capital to trade futures, or any market. It can't be expected to make a 100k return per yr on 10k. While I understand risking 1-2% of your total trading capital is hard for small trading accounts, if you were to take a set of 20-30 trades and multiply your risk per trade by say 25 (a theoretical worse case scenario for this example a string of 25 losers) how much capital would you need to overcome that draw down. Then multiply that # by 3, what does it come out to? That could be used as a starting point for capital requirements.

 

I personally found the ETF method helpful for the reasons of being able to still make live trades and scale out, but at small risk. Once I built my confidence up then I just switched back over to the corresponding futures contract.

 

This is very poor advice to a novice.

 

I think you missed entirely the point that ETF's are subject to the PDT rule whereas the futures counterpart is not. Therefore, to daytrade an ETF, $25,000 would be the MINIMUM required in an account at all times. I would not recommend to any novice futures trader to trade more than 1 contract, and $10,000 is plenty to do this and even $5,000 is enough with brokers that have $500 intraday margin.

 

Moreover, your argument that one needs capital to trade index futures because it cannot be expected to make $100K on $10K is specious. A novice should not be thinking about how much money he can make. He should be thinking about how to keep the cost of learning to a minimum and survive the initial stages. The best way to do that is to trade the minimum and to participate only during low/no risk periods. The first part of that is simple - just set the trading software for 1 contract. The second part is problematic: To a novice everything is high risk because he is unable to discern the various market operating points.

 

In a nutshell, that is the problem to be solved by a novice. To some extent it is a choice as to how much to pay to figure it out. I suggest that paying anything more than the minimum is irrational thinking and ought to be avoided. This puts into perspective your recommendation of starting capital that can withstand a worst case scenario of 25 losers in a row. A rational person ought to figure out that he does not know what he is doing way before he hits the 25th loser. A person who cannot figure that out is better served with an account that blows out before then because it will mercifully force him to stop trading and save him money.

[TimRacette 11]

Ya gosu I'm just saying I found ETFs a nice alternative to trading 1 or 2 lots because I was able to scale out. Obviously everyone is different. You could certainly trade 10 lots with a 10k account if you're controlling your risk right? Just my opinion.

[gosu 10]

Ya gosu I'm just saying I found ETFs a nice alternative to trading 1 or 2 lots because I was able to scale out. Obviously everyone is different. You could certainly trade 10 lots with a 10k account if you're controlling your risk right? Just my opinion.

 

Sure Tim, you could do 10 with 10K if your broker allows that and if you knew what you were doing. However, I was under the impression we were talking about someone going from sim to live for the first time.

 

It's just my opinion that I think trading a 1 lot with a small account is better than trading an ETF which requires 25K. The nature of being a novice is such that any amount he puts into an account has to be considered at risk.

 

You emphasize scaling out as some advantage. You have your reasons I'm sure, but there's nothing in my experience to recommend scaling out when trading index futures. Do you also recommend scaling in?

[TimRacette 11]

That makes sense, a 1 lot with a small account. I prefer to scale out because a lot of the time intermediate profit targets will be hit much more often than the larger profit target. This way I can exit 3/4 of the position and trail the rest to the larger (in my case 15-min) profit target.

 

As for scaling in, that's certainly a viable strategy...For Example... On the euro if you trade really small time frames (I use a 233 tick chart) you could enter 2 contracts at a larger level like a 15-min and then if the trade goes in your favor enter 2 more at the 233 tick chart entry. This way you are only risking half the position if it blows through your entry and if the trade begins to work in your favor for the first 2 contracts then your risk is reduced when adding the second 2.

 

For a breakout strategy I'd prefer to go all in all out as the best price would be the onset of the trade, but I see the value in both scaling in and scaling out.

[ajaxfinancial 10]

hello

I think that the difference between papers trading and live trading is that it allow me to gain real experience. Real life experience is the critical component of success as learned from the Rich Dad's series. I can learn all the theories about investment. I may even 'paper trade' investment. But if I do take actions to do the real things, I will never master the investment skills.

Thanks

Regard

[T2CTrading 10]

I think the key issue with paper vs. real trading is the psychological aspect. We are all human and when we have real money in a trade our emotions and reactions will be different than when we have "fake" money in a trade. We know the difference and for most traders just starting out, this difference will mean that they handle the trades very differently even if they do not intend to.

 

We need to learn under the real conditions of trading with real money on the line. That is why as traders we need to start off small, know how to control our risk, and only trade with money we can afford to lose.

 

I believe that paper trading "sim" accounts have a lot of value in learning the platform, watching the price action of the contract being traded and fine tuning our reaction times when entering orders etc., but have limited value in teaching the new trader how to psychologically handle a trade when "real" money is on the line.

 

Tristan Jeanneault

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T2C Trading