Accounting for slippage in paper trading?

[TWD]

Long introduction, so bear with me...

I do technology at a large US bank, and eventually want to be a trader. I've been paper trading to gain experience until I either have enough money to go it on my own, or can get a job trading at a firm. To do this there's a few hurdles I have to jump. I can't trade a real account because employee accounts require positions to be held for a month or more. I also don't want to send trades to an external demo system because of internet communication policies.

So instead I've been using my demo platform (ThinkOrSwim) just for data, and track all of my trades in an elaborate spreadsheet. I've been trading every day since last August, and feel great about my results.

I take my paper trading very seriously, but my fear is that nobody else will. I'm afraid that people will pass off my results as unrealistic or just plain fake. I'm trying to do everything I can to make my spreadsheet as legit as possible. For instance, I try to track performance with numerous metrics including my monthly sharpe ratio.

Right now I think the biggest hole in my system is slippage. There's no way to guarantee that I would have gotten the prices I enter on my spreadsheet. I also feel that my current strategies would be particularly vulnerable to slippage. I try to catch big momentum swings based on my macro views. A perfect example would be the huge moves we've seen in silver, or more recently in EUR/USD. If it doesn't do anything or goes against me I just stop out at the same price I got in. I end up striking a lot of my trades that don't go anywhere, and I think that in the real world slippage would probably turn these into losses.

Is there a good way for me to account for such slippage in my simulations? I'd also be interested in any other suggestions that would strengthen the trade history I have in my spreadsheet.

 

[anley]

$100 per lot for the slippage.

And you're right, nobody will take any notice of a dummy account. Therefore it has to be real money at stake producing real statements.

 

[the mule]

Long introduction, so bear with me...

I do technology at a large US bank, and eventually want to be a trader. I've been paper trading to gain experience until I either have enough money to go it on my own, or can get a job trading at a firm. To do this there's a few hurdles I have to jump. I can't trade a real account because employee accounts require positions to be held for a month or more. I also don't want to send trades to an external demo system because of internet communication policies.

So instead I've been using my demo platform (ThinkOrSwim) just for data, and track all of my trades in an elaborate spreadsheet. I've been trading every day since last August, and feel great about my results.

I take my paper trading very seriously, but my fear is that nobody else will. I'm afraid that people will pass off my results as unrealistic or just plain fake. I'm trying to do everything I can to make my spreadsheet as legit as possible. For instance, I try to track performance with numerous metrics including my monthly sharpe ratio.

Right now I think the biggest hole in my system is slippage. There's no way to guarantee that I would have gotten the prices I enter on my spreadsheet. I also feel that my current strategies would be particularly vulnerable to slippage. I try to catch big momentum swings based on my macro views. A perfect example would be the huge moves we've seen in silver, or more recently in EUR/USD. If it doesn't do anything or goes against me I just stop out at the same price I got in. I end up striking a lot of my trades that don't go anywhere, and I think that in the real world slippage would probably turn these into losses.

Is there a good way for me to account for such slippage in my simulations? I'd also be interested in any other suggestions that would strengthen the trade history I have in my spreadsheet.

hello
I was in the same way a few month ago with very good result in paper money and I had the same troublewith slippage (because of my very short term strategy)
first I have resolved the slippage with interactive broker and buttontrader as a front end and the only slippage I have are on the big news and I have choosen to don' t take any trade for a few minutes in this time. but I don't have slippage all the day (One pip or two in one day) and I am trading only EUR/USD.
for the paper money it is really different with real account it is like the tennis for fun you put the ball where you want but when you play in a real game you don't put the ball where you want (stress your heart go fast and loose your spirit...) It have taken one month before really trade with good result so start with very small size and be patient.
just one last thing I trade 800 hours paper money before starting with real money, you have to learn a lot of experience before real trading for me (in full time trading) the first month was terrible (losses and losses and losses...) and at the end of the third month my account was positive and now I win my money but so much time I was tented to put more size trade to get back my money and a lot of bad Idea was in my head the first month and if Ihave done a bad thing like that I think now my account could be down so take care and be very prudent with yourself so good luck (and forget the luck for trade just work hard)

 

[TWD]

I guess the larger issue here is that I've really outgrown the paper trading, but can't trade a real account. I've been using my current strategy every since since August of last year. I've been watching the markets and trading in general since everything feel apart in October 2008. I feel confident enough to try trading 1 lot in my own account, but company restrictions prevent me from doing any trading. Positions have to be held for at least 30 days unless you incur a 15% loss, and you can't trade futures. I wanted to work for a big bank because I thought that was the best option for me given my computer science degree. However, I'm starting to wonder if it's hurting more than it helps.

So for now I can invest long term with stocks and options, but as far as trading goes I'm stuck with paper for the near foreseeable future. A little frustrating sometimes, but I can be patient as long as I'm still learning things.

 

[forker]

Nothing is stopping you opening an account in your wife\family members name. You could either use a 3G Internet dongle or manage your trades through your mobile to exclude your activity from the network. Some brokers even have their own phone apps.

 

[DashRiprock]

i agree with forker you gotta get inventive about doing real trades.

 

[TWD]

Wow, thanks for the advice guys. Certainly dishonesty and disregard for company policy is the way way to go. I'm sure that the trading desks will jump at the chance to hire me once I show them the accounts I've been trading on the side.

 

[DionysusToast]

For what it's worth, my opinion is that paper trading is detrimental to your success in learning to trade.

It does not even come close to real trading, regardless of how seriously you take it.

Paper trading is not even necessary. If you want to go long/short any commodity, there's ETFs for that and you can trade them with very small size so that you actually have some skin in the game.

So - the issue wont be that knowledgable people will think your paper trading is fake. The issue will be that knowledgable people will KNOW that your paper trading is largely irrelevant.

As for this "I can't trade a real account because employee accounts require positions to be held for a month or more. I also don't want to send trades to an external demo system because of internet communication policies."

Surely the answer is to not use an employee account. Surely your employer can't dictate what you do in your spare time with a different brokerage. Also - don't do your trading from work.

 

[TWD]

Surely your employer can't dictate what you do in your spare time with a different brokerage.

They absolutely can, and do. It's not uncommon for large institutions to impose such restrictions as a condition of employment. Think back to the recent controversy surrounding Warren Buffet. One of the main criticisms was that they didn't do this. If Berkshire carefully regulated how it's employees traded, they could have avoided the conflict of interest altogether.