13/1: Pros and Cons of Testing prior to Live Trading

I probably mentioned previously that I was spending the entirety of this week in France, in a small town a couple of hours south of Paris.  Am staying with some friends who speak very little English – hence it should be a great way to improve my French speaking abilities.  The idea was to still work on trading the whole day as if I was in the office.  It’s not ‘exactly’ turning out like that, but I figure you gotta make the best of all the opportunities that come your way.  Thus the focus this week is on French.

That said, James, a good friend of mine (who has traded in the past – incidentally we met via the trade2win online community and he was the person who introduced me to the FX markets), commented earlier today on the  Dec22 blog entry .  As James made out some really excellent points that could be helpful to a lot of people, I thought I should just turn it into a new blog post!  His discussion is about the pros and cons of demo trading and testing compared to live trading.  Here is his comment:

I have been thinking about why i was not able to translate testing success to consistant real success.

one other thing about forex tester is it doesn’t incorporate a spread or slippage, which probably has an impact, i guess somewhere between 2-5% perhaps?? [Added by George: Forex Tester allows incorporation of spread in increments of 1 pip.  Most brokers have spread to the 1/10th of a pip.  Forex Tester does not provide for slippage.]

the other thing (and probably my issue) – is that markets are not realtime so you cannot account for the environment of making a live decision, putting on the trade, watching it live, and also having money at stake.

firstly, the way to counter live trades is to:
1. on the platform, stop prices flashing so that you are not distracted by movements so much
2. check in less regular intervals; im less keen on this as anything could happen….. perhaps a better way would be to ask…. is there some financial news that hit the wires that is adversely impacting my position, therefore i am wrong and i need to get out???? if not then i stay in. perhaps also putting in more decision trees (so if you think your setup should be proved valid within 20 minutes, you check every 5 mins, setup within 5 minutes, check every minute, 5 hours, check every hour – i think you get the point)…. so the setup becomes a decision tree as to whether you stay in or not.

i don’t think staying in and gettting in/out of trades is a major problem for you…. it was for me – i’d get out too soon.

the other thing i was thinking about regarding testing, my view is that yes it is useful to get a lot of trades done to explore if a system is even worth looking at. my thinking for you George is that you take a system you think might work, do a sample of 100-250 trades, which should not really take more than a couple of days…. then you live trade, trade really small. My point is to be live trading in the market as much as possible, even in small size, and perhaps fool yourself that losing £1 is as significant as losing £10,000

the point is to trade and you cannot replicate or substitute live trading, it is the only way to get better, to sync with the markets and push yourself, your strategies and ideas – to improve.

Many thanks again to James for taking time the write these comments!

PS Did 3 hrs of futures trading on the TY today.  Did around 66 contracts.  Lost 16 ticks all up.  Still trying to piece together a strategy for this scalping type trading scenario.

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One Response to 13/1: Pros and Cons of Testing prior to Live Trading

  1. Pingback: 13/2 – Testing & Live Trading Update | George's FX trading blog

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