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Andrew Boada
2015-06-23 02:48:46
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The replay tool is currently good for practicing the basic skill of when to buy and sell, but it's currently too crude to be much more than that. The following modifications would make it much more useful.
Mod. 1) Limit orders should be changed so they work properly. Currently, they don't.
In its current form, limit orders and their execution in this simulator seem to work like this:
A. Was the limit buy/sell price within the trading range for this stock for this period?
1. No ==> No transaction executed
2. Yes ==> Record trade executed at close price
If my broker executed limit orders this way, I would look for a new one, ASAP.
Limit orders should be simulated this way:
A. Was the limit buy/sell price within the trading range for this stock for this period?
1. No ==> No transaction executed
2. Yes ==> Record trade executed at the limit price, or if desired, at a price * coefficient randomly selected from a distribution specified by the user.
Simulating these orders this way would yield results much closer, especially for a small sample size, to what could be expected in actual trading. More accurate simulations would help discretionary traders attain more accurate expected values with regard to whatever strategy/strategies they want to test.
Mod. 2) The replay tool should, at a minimum, simulate stop loss orders (market and limit). Some of the more sophisticated ones, like stop and reverse orders, would be a welcome bonus.
Mod. 3) The replay tool should have the option to be used in conjunction with a simulated trading account (I currently simulate this by using the replay tool side-by-side with a spread sheet, which is cumbersome). When placing orders, there should be an option to specify numbers of shares so that the return on a given trade can be expressed in units of currency, and not just as a percentage. It should also be possible to factor in transaction costs, like broker commissions and stamp duty.
When specifying numbers of shares to buy, further assumptions, in tick-box form, could be offered, like, for example:
1. Assume the number of shares specified in the order can be bought/sold at the specified price
2. Assume the order cannot be filled at a given price/at all if it represents X% of the total number of shares exchanged that day
These mods would enable a discretionary trader to form resonably accurate quantitative answers to questions like:
1) What proportion of my trades are winners/losers? (The replay tool already lets a discretionary trader answer this, but without mod. 1, it is inefficient.)
2) What is my expected (unit currency/precentage) return on a profitable trade?
3) What is my expected return on a losing trade?
These mods would also enable quantitative and qualitative answers to questions like: would adjusting some of my money management rules/system for setting stop losses increase my expected profitability?
Thanks,
Andrew
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