Wednesday, July 15, 2009
Paper trading and its value to you...
So for the longest time I hated paper trading because I always felt like I was missing out on opportunity. Plus I always put trades on that I would not have done in my live account. But recently I have determined that paper trading can be valuable if and only if you follow the same rules you would if you were to put the trade on in your live account, without hesitation. So what this means is using a realisitic position size (a size your live account could handle). Have an exit price. Basically to get any value out of paper trading you need to trade it as if it were real money otherwise you are just wasting your time. Paper trading is also a great place to test ideas to see how they would actually play out in the real market before you put your dollars at risk. But again you need to be realistic with the size of the position and the risk vs reward.
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Exactly Dominic this is what I'm doing swing and momentum trade testing, testing, testing test.
ReplyDeleteFor me personally, I wouldn't say paper trading is useless, but it's just not the same. I found that by playing with actual money but so small that it doesn't hurt, this worked better for me. With paper trading I was never able to know if I was being realistic or not. It sounds good, but when you hit the button and it's real money the feeling is completely different for me. Using 1 contract at a time worked for me. I felt compelled to check the market and watch the play even though a 100% loss wasn't going to hurt.
ReplyDeleteI liken this to asking a girl out. No matter how many times you go over it in your head, when it comes to real deal it's just different. Maybe it's a bad analogy but hopefully you get the point. If paper trading works for you that's great. I wish it did for me because obviously it's a valuable tool to learn at no expense.
I think you'll find paper trading more useful if you plan on day trading full time: testing trading strategies or developing your own strategies. Personally it's helping me remove emotions out of trading. Right now I'm testing using trailing stops.
ReplyDeleteI totally agree. This is actually why I decided it was valuable and findly found out why it was not useful for me in the past. I have to paper trade in the SMB training before I can go live. In the lightspeed demo you see all real time data and you trade real time, the only difference is that you get filled on the prints vs on the bid X Ask prices. It is as close to the real thing as it comes. I can not wait to go live. But it is great because it is allowing me to develope good habits before I go live.
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