Is paper trading dangerous to your success?

There’s often a debate amongst traders as to the value of paper trading – practicing on a simulator.

Here’s a blog post with trading advice from the perspective of struggling traders:

As a trader trying to establish consistency, you need a method that you know you can rely on to produce consistently profitable entries and trade management. Your method is your partner. Before you go out into to the market and risk real money, you want to know your partner intimately, that you can trust him. So first off the bat, paper trading is an important way to test methodologies over a period of time, to know what you can expect, without risking real money.

I’ve seen many new and losing traders flit from one method to another in desperation, losing all the while, when it would have been much better (and cheaper) to just stop trading and really take the time to find something with a high potential and test it. If it looks promising, practice and become really familiar with it, on a simulator.

When I say ‘on a simulator’ I mean in real time. Don’t look back over charts and theorize over entries and exits. You’ve got to do it in a live market for real – only without real money. This applies whether you are trading short term or long term. Long term traders can put in an order and see how it plays out, just as a short term trader can.

Now here’s the really important point: Don’t make the mistake of thinking that because you’ve traded your method on a simulator -even if you’ve done it over hundreds of trades- that you’ll be able to trade it the same way with real money.

This was the biggest shock that I got – as you can read in my very first post. Even though I traded on a simulator in real time for many months, I totally underestimated the effect of my emotions when it came to trading with real money. Even though my method was good – I wasn’t mentally and emotionally ready to trade it.

So, yes paper trading is important and no – by no means is it going to prepare you to trade for real. Its imperative that in parallel to developing and practicing your method that you are also developing discipline, focus, and emotional steadiness.

More on that in the next blog post.

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