Sorry Guys, ( I didn't think when I wrote .05%.. I mean half a percent or .5% :/ I always do percentages using decimals some reason.. I would paper test but it really doesnt take slippage into account. So I am going to just trade very very very small to start with.
#2 is better There are trade simulators available that run off live data and give realistic fills. You might try looking through the freelance tools on the Interactive Brokers forum for ideas. If you do go live, first research max loss, max drawdown and max # of consecutive losing trades and have the #s available for if/when the system falls apart. Compare your actual #s to the backtest. If live trading immediately produces worse #s than the paper test, shut it off quick and reevaluate if your original system assumptions are still valid. Good Luck!