Paper trading is widely discussed regarding its merits, and whether it is of value to a worker as they try to make the passage to real money worker. One viewpoint is that since paper trading is not real, the profits are meaningless, and are no indication of real money profitability. An opposite binomo viewpoint would are convinced that paper trading is an important step in the trader’s learning further evolvement, and regardless of whether it is real, if the worker cannot ‘properly’ paper trade, then they will not be able to real money trade.
I began trading in early 1995, with the reasons of becoming an options worker; my first trading education was with the oex options teaching service. Besides options training, the service included ‘tape’ reading, trade management AND sp500 index futures trading – also included in the service was the prevalent attitude that paper trading was for ‘sissies’.
So i was a new worker, 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 the effects – 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 which i 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 Viewpoints
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 worker intends to be a scalper, trading for very tiny profits, and thus each tick is vital? Granted, but shouldn’t a beginning worker 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 not an issue.
Consider: the trades will be through 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 mutually might expect. Why would this as the case if being able to trade without risk was such an 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 profitably trade real money.
Consider: there is no sensation involved with paper trading. I was in our chat room watching a paper worker post their trades in order for me to give them feedback, and I noticed that one of their specific plan setups wasn’t done. When i asked why, the worker told me that they were ahead for 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 worker? I would suggest 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 noticed. What’s the, and when you consider the underlying the effects 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 regarding 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 rest of the room while you go through a series of losses. Do you want to add even more emotions? Go through the same posting process, but do so where the rest of the room actually knows the way that you are trading, and what the trades ‘should’ be. You will quickly find out the way emotional paper trading can be – actually a very valuable exercise for the paper worker to do.
Paper Trading And Making it Further Beneficial
I have two predominant problems with paper trading, but this is with the trader’s approach, and not with paper trading by definition: (1) the worker does ‘things’ paper trading that they would-could not do with real money (2) the worker views paper trading profitability, instead of paper trading proficiency, as the guideline of whether 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 afford the margin for in a real account – child 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 further evolvement and passage to real money trading, it is vital that the paper worker only trades exactly what, and how they would trade with real money. Don’t allow yourself to turn paper trading into a game, theoretically because there is no risk – the risk of making bad habits that you can’t correct is tremendous, and will circumvent any attempt to trade real money. This is the 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 near you.
There is a problem with focusing on trading profitability -vs- trading proficiency. To begin with, profitability places the focus on money instead of on plan. And what is profitability – invest 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? Goods on the market I am referring to when i think of trading proficiency. 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 ratio, and want to maximize this percentage to the extent that is possible.
For instance, when a worker 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 proficiency ratio – why increase contract size and the communicating trading risk, if you ‘should’ be able to bringin more cash from smaller size? This is especially important for the paper worker, where they should not regard simple profitability as an indication of readiness to trade real money, but consider proficiency – 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, child be able to trade for a living or become involved with trying to teach others to trade – was this simply a function of starting over and paper trading? Granted that is too simplistic, however, I do know that it would have certainly changed the starting symptoms 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 structured on the trader’s approach and attitude. Needless to say, paper trading as described is something that I have always strongly recommended.