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