A bit expanding the question asked here, I want to try and test a strategy using a simulated(paper) trading. As a first step, I have tried to find any brokers who provide a convenient simulated trading platform. However, after some thought, I have decided to use simple manual "excel" approach. My strategy is based on the below assumptions:
- The decision whether to enter/leave a position will be made by EOD, when the closing price for the same day is known.
- The buy/sell action will be performed the day later, once trading starts.
So basically I'm going to wait for next trading day, see the actual prices on that day and write down the price I would have paid/received. Needless to say, that my main concern here is to create a simulation as much close to the real thing as possible. So I thought of what factors must be taken into account to make this simulation process a bit more life-like. I came up with the below list:
- Brokerage fees. Can be easily deducted after each performed transaction.
- Tax. Can be easily calculated.
- Availability of buyers/sellers???
The last(third) issue seem problematic since I can't figure out how to take that into an account. I'm perfectly fine to just use the close price for decision making stage, but when I execute the order the day after, I'd want to be sure that I actually can buy/sell the desired papers and I don't want to assume the day's open price to be equal to the last day's close price. So, according to my understanding, I will need to have an access to the order book to see the actual bid/ask requests, including the number of shares(or anything else). It seems to me that utilizing the order book records in my simulations, will make the results more real, thus it will incorporate all unsuccessful/partially executed orders into the calculations.
Do you agree with that? Can I actually access this info or maybe it can be calculated indirectly in some way? What other factors could I incorporate into my calculations to make it more robust?