It's a tool that will help you validate your trading ideas on real market conditions without risking capital.
Trading simulator for Traders is the same as flight simulator for Pilots. While studying the art of flying, you do not want to risk your life, by going straight in to the air. The same goes for trading. If you want to learn to trade you do not risk your hard earned money, without any validation of your skills. In the perfect case you want to backtest on trading simulator first, then forward test on demo account.
Q: Why not just demo trading?
A: Trading simulator can replay the market in high speed or step thru bar-by-bar.
Let's say you are a pilot. You want to try what is like to fly in haevy storms. Well, you definitely must do that in simulated enviroment first, right?
Now let's say you want to test new trading strategy. What would you do? You already know that you must test it first. But would you spend 6 months demo testing it compared to few hours backtesting it thru a year of data.
It's the fastest way to say for sure that your trading is not going to be profitable, or not for sure that, you might have an edge. If your backtests shows bad results, it is 95% probability that the same will happen in real trading environment. On the other side, if you manage to get profitable backtesting results, expect at least 10% worse strategy performance in your live trading.
When real money are on the table psychological tolerance will play the main role on your trading results
A backtest is applying a trading strategy to historical data to see how well the strategy would have worked.
Backtesting is a main component of effective trading-system development. But a poorly constructed backtest can produce misleading and overly optimistic results.
Your backtesting, should strive to mirror the trading reality. As much equal they get as accurate the results that backtest produce.
Backtests help us decide whether it is worth going live with our strategy. It provides us with an idea of how our trading rules might have performed in the past. Essentially it allows us to filter out bad position entries, bad risk management or position sizing ideas, before we allocate any real capital.
The two are not comparable.
Backtesting is used as a faster and reliable method to find weak points of your trading strategy, money management or technical analysis. Demo trading "forward testing" is the step after.
Standart account -> You can have only one position, at the same time for the same symbol. Opposite positions will selloff each other according to the trading volume.
Hedging account -> Margin will be calculated based upon the largest side of a hedged position (also known as the “longest leg”). You can have multiple positions, at the same time for the same symbol. FORBIDEN IN USA
If the Use of Leverage reaches or exceeds your cut-off level. Brokers will fully or partially reduce the client's exposure by closing existing positions and/or by opening new positions in the opposite direction. It is a way to prevent further account losses into the negative territory - below 0 USD.
In our simulator all open positons will be closed.
If your equity is less or equal to your cut level, all open positions will be closed.
It is the measure of the decline from a historical peak. With other words drawdown is a period of bad luck resulting in bad trading, where you face consecutive losing trades.
It might be result of bad trading strategy, so more testing to find what causes it.
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