Forward Performance Testing

Forward performance testing, commonly referred to as paper trading, is an important step in evaluating a trading system. Once we have determined that the performance metrics look reasonable in our backtesting with both in- and out-of-sample data, we are ready for forward performance testing.

 

Forward performance testing is the simulation of actual trading. Trades are taken on paper only, so any profit or loss is hypothetical. The trading plan should be followed exactly, including how the orders are placed. Many trading platforms, such as NinjaTrader and TradeStation, allow users to trade simulated accounts. Traders are able to watch live market data and place realistic trades, without risking any money.

 

One of the biggest challenges here is simulating a real trading atmosphere. Obviously it is much easier to play than to commit: trading for pretend and trading for real are two different animals. But we want to try to create the same types of pressure we feel when trading with real money. Here are some ways to keep your paper trading realistic:

 

· Document all trades

· Do not reset trades if you are using a trading simulator (such as in TradeStation)

· Do not rationalize a losing trade by saying "I would have never taken that trade in real life"

· Pay close attention to order entry (you can learn a lot here)

· Take good notes. If something happens (you went long instead of short) write it down and learn from the mistakes

· Follow your trading plan. How else are you going to tell if the system is profitable?

 

A note on order entry:

I cannot stress how important it is to practice order entry. It is easy to get confused and place the opposite order than you intended. And it is easy to get sidetracked by your winning trade and forget to place a protective stop order in the market. Check your open orders often and be certain that you still want those orders in the market (otherwise cancel the order). The more you practice placing orders, the easier it will be to place actual trades in a live market without making costly mistakes.

 

Once you are comfortable placing trades in the simulated market, and your trading plan is performing as expected, it may be time to consider going live. Start small (one contract, for example) and follow your plan exactly. Remember, if you deviate from your plan, you all but eliminate any expectancy that the system provided.

Comments

[True Religion Outlet]

Times and Roku is what thye ARE NOT doing by keeping old business models while inventing new ones. Sort of one hand not knowing what the other is doing. Roku rolls out new platforms but hasn't tackled the key question of selling more boxes. You need one for each TV. Why not discount multiple orders for people with more than one TV? Financial Times wants to make online access free or pay depending upon the frequency of use, but it continues to charge customers TWO fees if the customer subscribes to print AND wants an subscription online as well. Do the people in office A ever talk to the people in office B

[ugg boots]

It isn't what you have, or who you are, or where you are, or what you are doing that makes you happy or unhappy. It is what you think about.