Sunday, February 14, 2010

Simulation Trading With Market Delta: A Powerful Learning Tool

My recent post outlined the importance of simulation in learning a performance discipline such as trading. If you click on the chart above, you will see how I was replaying Friday's trading using the "playback" feature in Market Delta.

What makes this feature useful is that the chart is set up exactly as it is when I'm trading. In other words, on one screen I can see price, volume, how volume is distributed at the market offer vs. bid (bottom histogram), how volume is distributed by price through the day (side histogram), and the cumulative Delta (cumulative volume at offer minus volume at bid) for the day (bottom row in the columns underneath the bottom histogram). I can also see where the trade is occurring relative to the day's volume-weighted average price (VWAP; red line).

As I replay the market day, I look within each one-minute bar to see where size is entering the market--at the offer price or at the bid. I gain a feel for how the large traders are leaning.

That is a lot of information on one screen, and it replays exactly how the trade occurred each day.

That enables me to review market action. It also allows me to review my own performance and see where I could have executed trades better, where there was opportunity I missed, etc. If I'm trading poorly, I can use the replay mode to practice trading and get back into the groove before returning to live trade and putting money on the line.

Think of doing that day after day, seeing pattern after pattern replayed.

Simulation rocks.