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Paper to Real Acct Adjustment

Discussion in 'General Discussion' started by N N, Dec 29, 2015.

  1. N N

    N N Well-Known Member

    Just wanted to ask the folks who paper traded before going to a real $$ account, how much should I discount my paper trading results when switching from Paper to Live? I'm up about 100% for 2015 in a paper ToS account, can I really expect to make 1/2 that or 50%? Sounds too good to be true even with 1/2 reduction (been around markets for awhile and seen a lot, 50% YTD returns are usually unattainable or there is some big hidden risk I just haven't experienced it yet!) Appreciate it!
     
  2. Challenger

    Challenger Member

    Hello,
    I believe the results one can achieve in real life (or in paper money) are more closely tied to the strategy and market environment. Take the bearish butterfly as an example. It is a great strategy that worked extremely well in 2015 due to market conditions that were favorable. Directional trend trades were more challenging. Compare this with the market conditions we had in 2013. Directional trend trades worked extremely well, the bearish butterfly did not.
    That being said, congratulations for your results in paper money. I don't believe your results would have been much different in a live account. However, I would encourage you to back trade your strategy over a longer period of time so you can see your results in various market environments; uptrending, downtrending, sideways, high volatility, low volatility, big moves (think August 2015, October 2014, August 2011, May 2010 flash crash, fall of 2008 at the peak of the bear market, the sharp reversal in March of 2009 etc.

    Best success!
     
  3. William Smith

    William Smith Member

    Hi NN,

    There are a few things that will make your actual trades different:
    - Not following your strategy EXACTLY. This is the biggest culprit in my experience. It takes a tremendous amount of discipline, but can be done. This is the one area that CAN cause variations by 50% or more, but don't necessarily have to.
    - Mistakes. You can't just go back and "undo". So mistakes cost something usually.
    - Slippage. Depending on how fast the market is moving, this can be a little or a lot, but its usually something. Liquidity plays a role here too.

    That said, I don't think real results need to be discounted by 50%. I do a ton of backtesting with my live trading, and the above are all a factor, but I suspect its more like 10-20% (assuming you manage the first bullet well). It's not something I've specifically measured, but probably in the zip code.

    Bill
     
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  4. status1

    status1 Well-Known Member

    It's hard to say exactly how much different it would be without knowing what kind of trades you are making
    100% on how much risk ? How much do you risk per trade ?
    It easy to risk a lot more when you don't have real money on the line
    That being said there are some differences that are not readily apparent
    It's much easier to get fills on paper trade and believe it or not you can get filled for a credit that is wider than the spread
    I know because it happened to me
    The rut fills seem to be too good to be true because of the wide bid ask spreads
    If you are trading etf's the fills are better but the commissions are much higher if you are even counting the commissions in your paper trades and on the etf's it can add up pretty quick if you do a lot of adjustments
    I would say start small and see how your live trades get filled entering and exiting a trade compared to your paper trade than as you scale up to your risk level ask yourself if you would feel comfortable loosing whatever you have at risk
     
    N N likes this.
  5. N N

    N N Well-Known Member

    Sure as rain, soon as I post this - major DD occurs. I trade a few strategies, which were initially slightly negative delta but due to the speed of this recent move, the deltas got away from me. Only took 1 day and the market was well below the 'tent' in most trades. Now my negative trades ALL became positive delta trades and HIGHLY correlated. The duration of the trades 40-50 days was okay I think. It was in readjusting my deltas too late that the P&L really got away from me. One of my main goals is to minimize the need for DAILY adjustments and hence close intraday monitoring as much as possible, as often prices would rebound so was hoping (in best case scenario) make adjustments once a week.
    Sharing this because I learn more from losers than winners and people tend to by shy about sharing losers in general. My take away is adjustments need to be done on DELTA level not on a Calendar level (i.e. once a week on Mondays). But question to the group as I write this - what if I make my duration even longer?
     
  6. status1

    status1 Well-Known Member

    You did not mention what type of trade you made
    If it was the put butterfly type trade that are mostly discussed here than if it was at 40-50 DTE and was set up properly you should not be down so much in one day since the T+0 line is fairly flat
    If it was a condor type or narrow butterfly than that would make more sense since the T+0 line has a steeper curve down
     
  7. Nagaraj R

    Nagaraj R Guest

    You are not taking into account the biggest factor when it comes to trading: Emotions. That is the difference between paper trading and live trading and hence the disconnect between the two. The main reason to paper trade is to learn the strategy, your trading platform and how to react during market hours. Implementing what you learnt will determine your results more than the strategy itself.
     
  8. Meteor528

    Meteor528 Member

    I totally agree with everything Nagaraj stated above. Your emotions are the biggest factor and if not properly managed, they will get the best of you. When paper trading or back trading and facing big market fluctuations, it's no big deal. You follow your plan, you make the right moves, the trade fills are good and everything goes well. However, when live trading and large moves occur (like the past 2 weeks), you will be quickly taken out of your comfort zone and your emotions will kick in and you begin making errors buying/selling the wrong strikes, the wrong month, Calls instead of Puts, in the wrong account etc. So, if you can keep your emotions under control, you'll be just fine.
     

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