Similar to a driving or flight simulator, you get to use the real life information to make decisions and execute them. So in a trading simulator, you'd get real time data, news and other inputs. Then you'd execute trades at actual market prices (that's where it gets tricky if you assume non-aggressive execution) and track your performance. That's a tricky one. I'd think there are some reasonable commercial simulators that take into account transaction costs and maybe even have some form of book simulation.
Thank you. I am trying to build two types of simulators: 1. Pure mathematical, statistical, for example stock price movement that follows lognormal + drift + perturbation, option prices that follows BSM + skew + term structure. This, since the perturbations and drifts are known I use to try see if I can filter out the random noise to retrieve the input. 2. Part historical data + mathematical model. This I use to backtest various market characteristics. How am I doing? so far, but I am not giving up.
Don't know what are ATR and STD? I know and agree about random noise and average win size. However, like small signal theory in communication, there could be ways to enhance the tradable information from a noisy price chart?
Instead of paper trade or small lot trade, maybe you should try it on a simulator like @sle and @Sig suggested. The advantage is trades on a simulator are controlled experiments.
The big difference as I see it, is gets into the psychology of the trade. Even if it is small amounts of money for your gains and loses, it is still real money. You can also develop a plan for ramping up position sizes. Say for instance you set up a plan to risk $1,000 per trade, and you doubled your risk every quarter, after 2 years you would be risking $256,000 per trade.
That's the issue...its hypothetical and a retail trader will not risk such an amount in their real money trading even after they ramped up their position size. The typical retail trader will keep their risk the same for a very long time (more than several quarters) even after ramping up their position size...they will still be abusing their leverage or position size management via not being able to psychologically manage those types of trades going from a $1,000 risk per trade to a $256,000 per trade. Nor will the spouse or family of the retail trader allow for such or give severe consequences when they find out about such. Real money has a strange power on the mind. For example, the last guy I knew that risk that amount as a retail trader...his wife got tired of the psychological stress from him about those types of trades and she divorced him. Yet, may be a different psychological story for a single trader with no family. As you stated...it gets into the psychology of the trade...deep psychology stuff...twilight zone stuff. wrbtrader
Who claimed they are required to risk $256,000? The point is, if you double your risk every quarter, in a matter of two years, you can get to the point where you are taking big positions. The rate and frequency of increasing position is up to the trader, the example was meant to be illustrative. I however, do not think starting off small and doubling your exposure every quarter is particularly aggressive. Of course the trader is going to have a risk tolerance and not increase position size after they have reached it. This is simply a method to start small, risk small money, then increase position size as confidence in trading ability is gained. The alternative is paper trading or extensive back-testing. Neither one puts any skin in the game nor provides as much learning experience as having real, money at risk. Everyone has a plan until they get punched in the face. Of course you never get punched in the face when you are shadow boxing, and paper trading is shadow boxing.
But in the divorce she surely did not miss to take a big part of that money that she "disliked" and was the cause of the divorce. Percentage wise the risk would be the same, assuming that the margins used stayed the same when growing size of the position. So what's the problem? As long as the capital management is sound...