Tested investment strategy in paper version. Expect same results in live?

Hi, I have used the paper version to test an investment strategy. I short stocks based on a price event occur (conditional order) + bracket (profit taker and stop loss).

I have fine tuned and tested the strategy for about a month. Should I expect the same performance when I switch to live version? Does the paper version return the same results as if it had been run in live version (I know the market data is delayed)?

 

Depends on a couple of factors. Are you using limit or market orders to enter? If limits then your fill rates could be quite different in actual trading.

Also are your stocks large cap or something illiquid/HTB? That will obviously have an effect.

 

Thank you for reply. I use limit orders but only liquid stocks (NASDAQ, NYSE etc). Why would limits make it different?

 

You cannot know the answer until you start testing your strategy live. Paper testing is good as the 1st step, then the next step is to test it live. Only you will be able to answer questions about your own strategy by testing it and trading it. And you will spend months or years adjusting it, so the answer to your question will be different after each adjustment. Creating a strategy simply means dealing with problems and solving them.

 

test with 1 share on live.

 

Most likely not. Spread and slippage on executed orders is most likely different. As is commissions. As is borrow rate for going short.

 

Thank you for all answers

 

it all depends mainly on one thing. The profit target vs. (commissions+slippage) ratio.
If they are large, then you don't have to worry.

Let's say your target profit is 100 points and your commissions+slippage is 2 points, then you are safe. The lower the ratio, the riskier.

 

Slippage is real. You are better off going on live trading risking only 1% of your monies each trade. That way, you see how real your entry and exit prices are compared to simulated trades. It is way off by a mile and will mean the difference of making a profit or loss in trades with only a small profit on it. Market makers are part of the trading process. We just need to be able to move around a bit to reduce the times they take advantage of us. Sometimes, you have to bite the bullet and just take it, if you want to exit your position real bad.

 

Paper version is a good starting point, but things surely can be different when live. If a particular strategy has worked for you, there are more chances of it still doing the same.