Modern Application Specific Instruction Set Processors (ASIPs) have customizable caches, where the size, associativity and line size can all be customized to suit a particular application. To find the best cache size suited for a particular embedded system, the application(s) is/are executed, traces obtained, and caches simulated. Typically, program trace files can range from a few megabytes to several gigabytes. Simulation of cache performance using large program trace files is a time consuming process. In this paper, a novel instruction cache simulation methodology that can operate directly on a compressed program trace file without the need for decompression is presented.