Paper trading is widely discussed regarding its merits, and whether it is of value to a investor as they try to make the changeover to real money investor. One viewpoint is that since paper trading is not real, the profits are meaningless, and are binomo entrar no indication of real money earning. An opposite viewpoint would declare that paper trading is an important step in the trader’s learning development, and regardless of whether it is real, if the investor cannot ‘properly’ paper trade, then they do not be able to real money trade.
I began trading in early 1995, with the motives of becoming an options investor; my first trading education was with the oex options teaching service. Besides options training, the service included ‘tape’ reading, trade management AND sp500 listing futures trading — also included in the service was the prevalent attitude that paper trading was for ‘sissies’.
So i was a new investor, trying to learn and understand completely new concepts and ideas — what was called a trading method AND I was ‘practicing’ with real money — because paper trading was for ‘sissies’. What did I accomplish, besides a big draw down in my account? I quickly introduced to trading psychology and the related ramifications — something else I also knew nothing about. Losing money and a trading psychology ‘wreck’, both from the losses and thoughts like I was too ‘stupid’ to ever learn how to trade, became a combination which took me out of futures trading, and then unfortunately carried over into my options trading i always had previously been doing well with. I just now couldn’t take it any more — I had to somehow start all over, or just quit for good.
Paper Trading Views
Consider: simulator fill prices are not real and won’t be attainable with real money. Even if this is correct, is it really an issue unless the investor expects to be a scalper, trading for really small profits, and thus each tick is important? Granted, but shouldn’t a beginning investor be very selective, focusing on learning their method and the ‘best’ setups that method provides? This would be my viewpoint, and in this capacity paper trading fill prices are no problem.
Consider: the trades will be finished with no risk. No, there isn’t any financial risk in paper trading, but I actually haven’t met nearly as many profitable paper traders as you might expect. Why would this function as the case if being able to trade without risk was this easy thing to do? As well, why not consider self-esteem risk, and an attitude like — how can i be so bad i always can’t even paper trade? The risk feelings like these are probably greater than that of financial risk, and if they may surface, you would want to encounter them before trading real money. As well, even if the issue was only one of financial risk — wouldn’t you want to focus on the confidence of knowing that you used to be paper trading profitable? It would be hard to imagine a losing paper trading being able to viably trade real money.
Consider: there is no feeling involved with paper trading. I was in our chat room watching a paper investor post their trades in order for me to give them feedback, and I noticed that one of their specific plan setups was not done. When i asked why, the investor laughed and said that they were ahead during the day and didn’t want to risk those profits. But the profits aren’t real — how can you not take a ‘base’ method setup when paper trading — isn’t that the point? Would you be in agreement, that if paper trading profits could be viewed in this fashion, that it has the ability to become very real and thus emotional to the investor? I recommend that this is related to paper trading really not being ‘so easy’, and as mentioned above, self-esteem risk can be very emotional.
Besides examples like this, emotions can be added to the paper trading process. Throw away your simulator, and then go into a chat room and post all of your trades — no ‘youknowwhating’ around where you wait to see if the trade was profitable before you post it, like a number of traders i always have observed. What’s the, and when you consider the underlying ramifications of ‘needing’ to do this — the issue certainly isn’t about whether paper trading is of value or not, but certainly best to find out before trading real money. You must post immediately and without lag, giving your direction and entry price, along with subsequent posts of any partially profits, and of course your exit, which ultimately is the determinant of whether the trade was profitable. There is no need to make any comments, or answer any questions relating to your trades — simply post the particulars as fast and real-time as possible And see if you feel any emotions doing this in front of the other countries in the room while you go through a series of losses. Do you want to add even more emotions? Feel the same posting process, but do so where all of those other room actually knows the technique that you are trading, and what the trades ‘should’ be. You will quickly find out precisely how emotional paper trading can be — actually a very valuable exercise for the paper investor to do.
Paper Trading And Making it Further Beneficial
I have two prevalent problems with paper trading, but this is with the trader’s approach, and not with paper trading by definition: (1) the investor does ‘things’ paper trading that they would-could not do with real money (2) the investor views paper trading earning, instead of paper trading talents, as the guideline of whether or not they are ready to begin trading real money.
I have seen too many paper traders, continuously and knowingly, over trade ‘non-plan’ trades, with trading size that is greater than they could pay the border for in a real account — not to mention accept the risk of loss, while also holding trades for risk amounts that they would not accept with real money. Viewing paper trading as a ‘step’ in the learning development and changeover to real money trading, it is vital that the paper investor only trades exactly what, and how they would trade with real money. Do not let yourself to turn paper trading into a game, apparently because there is no risk — the risk of making bad habits that you can’t correct is tremendous, and will prevent any attempt to trade real money. It is now time to learn YOUR basic trading setups, and make necessary adjustments to them and your entry-exit timing, in order to then make money trading them — this is not the time to turn your simulator into a pinball machine flipping at any ball that comes in your area.
There is a problem with focusing on trading earning -vs- trading talents. To begin with, earning places the focus on money instead of on plan. And what is earning — invest the 10 trades and make $75 are you profitable? Technically, if you are net ahead you are profitable, but what if those same 10 trades had a potential of $1, 500, and you only made $75 — are you really profitable? It’s this that I am referring to when i think of trading talents. Instead of focusing on the common metrics, such as win: loss or win size: loss size ratios, I am most concerned with the win size: potential win size relation, and want to maximize this percentage to the extent that is possible.
For instance, when a investor asks about adding trading size, taking the attitude that if they can make $100 trading 3 contracts, they’ll likely can make $1, 000 by trading 30 contracts, the first thing I ask them is what is their talents relation — why increase contract size and the related trading risk, if you ‘should’ be able to earn more income from smaller size? This is especially important for the paper investor, where they should not regard simple earning as an indication of readiness to trade real money, but consider talents — for instance, begin trading real money when you are 60-70 percent proficient with your paper trades.
So what Is your Viewpoint Regarding Paper Trading?
I never thought i always would ever make a dime trading, not to mention be able to trade for a living or get involved with trying to teach others to trade — was this simply a function of starting over and paper trading? Granted that is too bare-bones, however, I do know that it would have certainly changed the start i always had, while very much shortening my learning challenge, and reducing a lot of pain.
Clearly, I am on the ‘side’ that believes that paper trading is not only beneficial, but that paper trading is also necessary — however the value received will be influenced by the trader’s approach and attitude. Needless to say, paper trading as described is something that I have always strongly recommended.