The power of simulated trading
Get a year of trading experience in a few hours!
A very powerful tool available for us on a learning journey to become consistently profitable trades is a trading simulation software.
With a good trading simulator you can “trade” on historical charts. What is great about this is that, unlike in demo, you can fast forward the time 🙂 Of course, to get the value of learning, we should not “cheat”.
You can literally get a year of experience in a few hours. This is a fantastic way to learn and test your trading system, before you go live.
In my post on how to Qualify a trading setup, one of the steps is to backtest it. With a trading simulator this process can be much more effective.
How to use it? Very simply, choose a tool, and go ahead, treat this seriously, start trading your system, your trading setup, on historical charts. Of course you need to download high quality data.
Stating the obvious… if you are not profitable trading your setup on tester, you will not be profitable live. Unless by a short term coincidence, but not consistently.
To share my own experience, I am working to qualify and add to my arsenal a new system, called morning breakout. For a long position, it waits for a range to be formed during the Asian session, then it waits for the solid breakout around London open, then it waits for a correction, and places a buy stop above last high, stop loss around 20 pips, take profit at 1R, set & forget, 3 minutes to do it. And, I am intensively testing it on simulator!
OK, so what tool and where can I get it? There is a number of options, do a search for “trading simulator”.
The simplest and free is… no tool. Just open your trading platform, scroll back, and start scrolling it bar by bar. In MT4 use F12. In other platforms it may be right arrow. Place imaginary trades and stop losses and note the result.
If you search for “MT4 trading simulator”, you will get some free options available, some are free although not very user friendly. I used this one for a while.
I also know Ninja Trader tool has the capability.
There should also be an add in available for Amibroker for this.
Lastly, a very powerful tool is Forex tester 2. This one costs money. I am not affiliated with them in any way. This is not an affiliate link although they have an affiliate program. The demo version is great. It has a limit of max 1 month of history though. You can try to e-mail them and ask for a rebate coupon, I did.
Where to get the high quality forex data from? Ask your broker, some brokers offer a high quality data feed if you deposit certain amount of money. Also Dukascopy data feed is considered high quality by many people. There are also paid services as well, but I do not think you need them, unless you are testing very low timeframe and require volume data.
In short, I very much encourage you to become consistently profitable on simulator with any new setup you trade. Without risking any money, you can see if you are able to profitably trade a discretionary setup.
Note that Brett N. Steenbarger, author of a great book “Enhancing Trader Performance: Proven Strategies From the Cutting Edge of Trading Psychology” recommends simulated trading, too, as a part of the learning plan. Also Mike Bellafiore uses simulators to train his traders, if you want a reason to believe.
What’s your experience with simulated trading?