BarroMetrics Reviews: Reasonable Expectations
Gary asked:
“Since I have gone about 10 sessions with positive expectancy I believe I have the bones of a working strategy and am naturally eager to get off the simulator……
On the simulator I was making 500.00 a week. Some think that because of the ‘emotion’ of live trading that I should have really small goals, yet I get the feeling that my system could provide 500.00 a week income. Can you shed any light on this? It would be very frustrating to trade so small and set my goals so tiny. I guess I am focusing more on how much I want to make rather than how much I am willing to risk. Is this common?”
Gary, your questions raise a number of issues:
Firstly what is the purpose of a simulator? In my view, it is not to determine if the strategy has positive edge. If this is a mechanical system, positive expectancy is first defined by back and forward testing. Second it is defined by trading micro accounts - * FX 1000 minimum size and (if you are not resident in the USA), * CFDs on futures contracts.
The proper purpose of a simulator is to provide experience with the strategy. In this regard:
- We need to ‘execute’ simulator trades in the same way we’d execute live trades - keeping to the habits and routines that lead to trading success. For example, keep an equity and psyche journal; daily checking our open position etc.
- We also need at least 20 trades and preferably 30 trades on the simulator. The reason I say this is because experience takes time to accumulate; 10 trades, in my view, is not enough to provide minimum experience.
After the simulator, I believe you should trade micro accounts. This experience is similar to pilots training on a flight simulator. In trading simulators, traders do not experience the emotions associated with dollar profit and loss. Trading micro accounts will provide this IF your attitude is one of “if I don’t make money here, it will mean I have to go back to the drawing board”.
Many traders adopt the attitude of ‘the dollar risk is so small, I don’t need to apply myself’. Adopting this attitude defeats the purpose of simulator trading. Remember your outcome for simulator trading is to identify if the trading strategy has a positive edge for you.
MORE tomorrow…..
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