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Market Replay | How to Practice Your Futures Trading Strategy Risk-Free

Originally published at: https://optimusfutures.com/tradeblog/archives/market-replay/%20

This article on Market Replay is the opinion of Optimus Futures.

Key Points

  • Very few testing methods, save Market Replay software, can simulate the stress and time crunch of live market futures trading.
  • A Market Replay platform can decrease a trader’s learning curve by allowing him or her to select, manipulate, and repeat the time experience of historical trading situations.
  • The ability to stop market time without seeing what comes next may be a valuable tool for traders eager to analyze not only the markets but also their own thoughts, reactions, and forecasts concerning market action that has not yet unfolded.

We all know that futures trading is a risky endeavor. So, before you risk your money on your next great trading idea–be it a set-up, method, or strategy–you had better be sure that the odds are in your favor.

But how might you determine beforehand whether your idea might have a strong chance of working or not? That is what testing is for, something that you’re probably well aware of.

Lots of traders like to back-test their trading ideas, and there is certainly no harm in that. It does not mean that a successful back-test will translate into real-world success, but it might help you weed out the really bad ideas that, at first, may seem great.

But as we test our ideas to help reduce trading risk, there is another risk that back-testing can introduce into the process: a kind of “testing bias” that has no resemblance to live trading.

The Risk of ‘Out-of-Time’ Simulations

Imagine a futures trading method that yielded a 75% return over a 12-month period. Sounds like a great method, doesn’t it? Who wouldn’t want that kind of return?

  • Now imagine that it had been losing over the first 8 months out of the year.
  • Next, imagine that it was profitable for the first 4 months, only to lose in the following 8 months.
  • Last, imagine that it’s 4-month wins, and 8-month losses were spread throughout the entire year, almost appearing random.

Now, would you have been able to stomach the drawdowns and volatility across 12 months in order to have made that 75% return?

Many traders would’ve dropped like flies. Why? Because a system backtest can’t simulate the stress you may encounter when facing volatility, drawdowns, and losing streaks.

A backtest is devoid of human emotion. To get a real feel for a particular trading idea, you have to experience it in real time. But testing in a demo environment takes a lot of time–possibly more time than you can afford to take.

The best compromise may be to test in real-time, but with the capacity to rewind and fast forward. In short, a Market Replay. Fortunately, the Optimus Flow platform offers a Market Replay feature.

It’s your “market history in a box,” that you can use to study how you might have reacted to a particular market situation, how you might have avoided a mistake (in live trading), and how you might have taken advantage of a market opportunity that you previously didn’t see.

What is Market Replay?

Optimus Flow’s Market Replay is a “history player” that allows you to test nearly any trading instrument of choice. Want to “re-trade” yesterday’s ES market, or this morning’s CL prices, or any other market that may provide insight toward your trading thesis? That is what the Market Replay was designed to help you accomplish.

Practice Day Trading Using Market Replay

If you are a day trader, you can probably see the advantage that Market Replay provides–namely, your ability to study your trading errors and seek out adjustments that might have made your ideas more profitable or robust.

Imagine this hypothetical scenario:

You traded the ES on a five-minute time frame. You entered a long position upon a breakout at [A], riding it to [B] and then closing out your position on the RSI signal that is showing a major divergence between price and momentum. As a result, you missed out on the entire run up to [C].

What other indicators might have informed your trade (what turned out to be a major lost opportunity)? Well, use Market Replay to try it again in simulation, this time, adding the very basic “volume” indicator to the mix. Now, you get a very different picture of price movement, as shown below:

As you replay the situation candle by candle or in (simulated) “real time,” the final result may emerge more clearly. You went long at [1], saw the divergence at [2], but completely missed the volume spike at [3] and the diamond shaped consolidation at [4].

If you had been aware of the surge in volume, opening a second position (or simply maintaining your position) at a breakout of [5] would have kept you on the right side of the market, exploiting the continuation of this short-term rally.

Takeaway: Situations like this one–trading errors, missed opportunities, areas where trading tactics can be refined, etc.–is what the Market Replay function is designed to help you navigate.

Develop New Methods and Refining Older Ones | Fast forward through data to analyze your strategies over different time periods

Many new traders spend lots of time (perhaps too much time) on a live demo. That might help if you’re testing one trading method or system. But what if you want to test 20, 50, 100, 300, or more trading ideas using live simulation? You won’t have enough time in a decade to test all of it in a real-time demo environment.

This is where the Market Replay can really come in handy. You can pick and choose the history you want to trade, fast forward or slow down the exact moment you want to trade, and you can repeat this process across multiple time frames and multiple markets.

You’re in command of time rather than time having say over what you can and cannot test.

See How Markets React to News

Although not every trader is a “news trader,” every sensible trader should respect the potential impact that breaking news can have on the markets. That said, every trader (particularly day traders) should scan an economic calendar before trading.

On May 13, at 9:00 am ET, Federal Reserve’s Jerome Powell made a downbeat announcement on the economy’s recovery prospects post COVID-19. That announcement became something of a bombshell when traders and investors began selling frantically in response to the grim outlook.

If you were to replay this moment, considering the downtrend already in place, might you have been able to capitalize on the “short” opportunity in light of the news and the bearish candle formation, using previous support lines as a profit target?

Again, not every trader likes to trade the news, but if you can come up with an actionable thesis for taking advantage of news opportunities, Market Replay is probably the best tool you have to test out your trading thesis before risking your money in the live market.

Practice Your Trading During the Weekends and Holidays

Imagine wrapping up your trading week on a Friday, or the day before a major holiday. Maybe your week was successful, or maybe your pockets ended up a little bit lighter. Looking to “up your game” in a no-risk environment, you’re craving market action. But there is none. It’s the weekend, or it’s a holiday, and markets are closed.

Fortunately, as a “history player,” Market Replay can provide you with the data you need to drive forward your market research and practice, honing your analytical and trading skills when the markets are at rest.

Market experience is time in the markets. And Market Replay is virtually your “time in a bottle.”

Study Your Own Reactions to Slow and Fast Markets

Some traders may think that short-term trading is like investing sped up and that investing is like trading slowed down. Well, aside from the fact that you’re not actually “investing” in anything when you’re trading, this idea is way off when it comes to the element of time and stress.

Not everyone is cut out to trade fast markets. Likewise, not every trader has the patience for longer-term position trading. Slow market trading can easily be tested using live simulations. Fast markets are trickier, because their setups tend to be a bit more specific and not as frequent, making them harder to find on a real-time basis.

Plucking tradable moments from various slices of the trading day is one advantage you may have when using a Market Replay. And with this tool at your disposal, you can practice trading fast and slow markets to get a feel for what may seem more natural to you.

Are your reactions well suited for intra-day trading, might you make a better swing trader, or would you rather hold positions for weeks and months? Market Replay is one way to find out.

Market Replay is Easy to Set Up

If you’re not already using Optimus Flow, we suggest you request a free demo as the first step.

Next, simply follow the technical instructions here to begin testing this feature. You’ll learn how to select the instruments/markets you want to trade, date range for testing, relaying speed, or step by step (candle by candle).

The step by step feature is quite valuable as it allows you time to think about your trades without seeing what comes next.

Other functionalities are available so be sure to explore the features to find the ones that are right for you as you practice your trading.

The Bottom Line

Market Replay is a valuable resource for traders looking to “up their game” in trading as it contains tradable histories that can be practiced several times over and at the convenience of your own schedule.

If you’ve ever wondered whether you could have traded as scenario differently or better, now’s your opportunity to dissect your choices and analyze the events that, without such a history, happens only once.

You can get caught up with any market action you missed. And you can do it with a simulation that is far more “real” than a back-test. You can also slow time down or stop it completely to analyze other indicators and factors that may be influencing market action.

There aren’t too many platforms that offer an accurate and comprehensive Market Replay platform. Feel free to try our Optimus Flow Market Replay in demo mode first. Note that Optimus Flow also offers numerous other unique features, charts, and indicators that many other retail traders do not have access to.

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.