Lesson Learned: Go-Live Readiness System

ID: LL_048 Date: 2025-12-15 Category: Risk Management / Capital Deployment Severity: CRITICAL Status: IMPLEMENTED

Context

On Day 9 of the 90-day R&D phase, CEO asked: “At what point can I start using real money instead of paper trading?”

Analysis revealed:

  • Only 8 total trades (need 100+ for statistical significance)
  • Only 4 options trades (75% win rate, but not enough data)
  • Only 9 days of trading (need to experience varied market conditions)
  • Max drawdown already exceeded 10% threshold

The Problem

No systematic framework existed to determine when paper trading success translates to real money readiness. Risk of:

  1. Going live too early → Real losses
  2. Going live too late → Opportunity cost
  3. Going live without clear criteria → Emotional decision-making

The Solution: Phased Deployment System

Core Philosophy

“Paper trading is free tuition - real losses are not” “Preserve capital first, grow it second”

The 5-Phase System

Phase Days Max Real $ Max Contracts Key Criteria
0: Paper Only 1-29 $0 0 Learn without risk
1: Micro-Test 30-59 $5,000 1 30 trades, 55% options WR
2: Small Scale 60-89 $15,000 3 60 trades, 60% options WR
3: Full Deploy 90-179 $50,000 10 All criteria met
4: Scale Up 180+ $80,000 20 6mo profitable

Key Criteria for Go-Live (Phase 3)

  1. Time: ≥90 days paper trading
  2. Sample Size: ≥100 total trades, ≥50 options trades
  3. Win Rate: ≥55% overall, ≥60% options
  4. P/L: Positive, ideally ≥$500
  5. Risk: Max drawdown ≤10%
  6. Stability: No system failures in 7 days

Deposit Strategy (While Paper Trading)

CEO is depositing daily to Alpaca. Guidance:

  • Continue deposits regardless of paper performance
  • Keep uninvested deposits in T-Bills (BIL) for ~5% yield
  • Target $3,000-$5,000 by Day 90
  • Don’t touch until Phase 1 unlocked

Tools Created

  1. scripts/go_live_readiness.py - Daily readiness score
    • Calculates weighted score across all criteria
    • Shows progress bars and action items
    • Saves daily snapshots for tracking
  2. scripts/milestone_alerts.py - Milestone tracker
    • Tracks Day 30/60/90 milestones
    • Sends alerts as milestones approach
    • Shows criteria status per milestone
  3. config/capital_deployment.json - Phase configuration
    • Defines all phases and criteria
    • Safety rules and hard stops
    • CEO approval gates
  4. config/go_live_checklist.json - Machine-checkable criteria
    • All criteria with thresholds
    • Priority levels (CRITICAL/HIGH/MEDIUM)
    • Phase gate requirements

Safety Rules (NEVER VIOLATE)

Hard Stops

  • Daily loss > 3% → Stop trading for the day
  • Weekly loss > 5% → CEO review required
  • Max drawdown > 10% → Return to previous phase
  • 3 consecutive losses → Pause options for 1 week

Phase Demotion Triggers

  • Real trading significantly underperforms paper
  • Win rate drops below 45%
  • Risk management rules violated
  • Emotional/revenge trading detected

Key Insights

  1. Statistical Significance Matters
    • 4 trades at 75% WR could easily be luck
    • Need 50+ options trades to trust the win rate
    • Small samples can be wildly misleading
  2. Time-Based Learning
    • Markets behave differently during:
      • Earnings season
      • Fed meetings
      • Year-end tax selling
      • Summer doldrums
    • Need to experience at least one of each
  3. Real vs Paper Psychology
    • Paper trading has no emotional weight
    • Real money activates fear/greed
    • Start small to calibrate psychology
  4. Gradual Scaling is Key
    • Phase 1 validates execution works
    • Phase 2 validates strategy scales
    • Phase 3 validates edge is real
    • Phase 4 maximizes returns

Implementation

# Daily readiness check
python3 scripts/go_live_readiness.py

# Brief status (for dashboards)
python3 scripts/go_live_readiness.py --brief

# Milestone tracking
python3 scripts/milestone_alerts.py

# Machine-readable output
python3 scripts/go_live_readiness.py --json

Current Status (Day 9)

Readiness Score: ~15%
Phase: 0 (Paper Only)
Days to Day 30: 21
Criteria Passed: 1/10 (Positive P/L only)

Key Gaps:
- Need 92 more trades
- Need 46 more options trades
- Need 81 more days

Takeaway

PATIENCE IS ALPHA

The urge to go live early is strong but dangerous. Every day of paper trading is:

  • Free market education
  • Risk-free strategy refinement
  • Data for statistical confidence
  • Time for system hardening

The money being deposited daily will be there when ready. There’s no prize for going live early - only risk.

Tags

#risk-management #capital-deployment #go-live #paper-trading #milestones