{"id":155866,"date":"2022-09-07T10:37:00","date_gmt":"2022-09-07T14:37:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=155866"},"modified":"2022-11-21T09:57:59","modified_gmt":"2022-11-21T14:57:59","slug":"from-back-test-to-paper-trading","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/ibkr-quant-news\/from-back-test-to-paper-trading\/","title":{"rendered":"From Back Test to Paper Trading"},"content":{"rendered":"\n

See Part I<\/a> for instructions to setup the development and trading environment, Part II<\/a> for using IBKR historical data within Backtrader and Part III<\/a> for using various types of real-time data to run trading strategies.<\/strong><\/p>\n\n\n\n

In this section we look at the steps in developing a simple strategy and back testing it with historical data from IBKR. We then modify it to Paper Trader in the TWS frontend.<\/p>\n\n\n\n

When running a strategy within the live market, many things can happen that may not have been encountered whilst back testing using historical data. For example, orders may not have filled, prices may have spiked, there may have been network instability resulting in disconnects and reconnects etc.<\/p>\n\n\n\n

Hence it is important during the strategy development process to test for and mitigate as many problems as possible in advance of live deployment.<\/p>\n\n\n\n

An Example of a Simple Buy\/Sell Strategy<\/h2>\n\n\n\n

Note that in this strategy we generate Buy and Sell market orders related to a simple moving average calculation. This strategy has been adapted from (https:\/\/www.backtrader.com\/docu\/quickstart\/quickstart<\/a>) with minor updates.<\/p>\n\n\n\n

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Back Test Strategy Using IBKR Historical Data<\/h3>\n\n\n\n
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Output<\/h3>\n\n\n\n
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Paper Trading on IBKR<\/h2>\n\n\n\n

Once a strategy has been back tested for basic operation, it should be paper traded i.e. where simulated trades are generated and marked using live data to gain confidence in your overall trading strategy and goal.<\/p>\n\n\n\n

Note that in this instance paper trading in TWS works the same way as live trading end to end – except the order is not routed a live exchange. Instead, the IBKR simulates the order filling based on the real-time quotes.<\/p>\n\n\n\n

Although paper trading is not a substitute for live trading, it provides a good approximation for what one might expect in real trading. Performance may differ a little or a lot depending on the assumptions made in the strategy. Specifically, paper trading does not account for factors such as:<\/p>\n\n\n\n