“Paper” Trading is Pointless

I was listening to one of my lessons from thinkorswim when one of the instructors suggested something unusual. He said, in a nutshell, to overtrade. In other words, experiment with different derivatives, invest in small quantities, and trade, trade, trade until you learn how things work. That made some sense which then got me to thinking. Everyone always touts paper trading as practice before taking on the real thing. But paper trading’s the same as Monopoly. Everyone does silly things because at the end of the day, it’s a game. Well what if I were to take a stance against paper trading and tell you that the best way to learn isn’t paper trading but actually blowing up a real cash account?

Here’s my question to you. Assuming you’re entering the market for the first time, what’s the best way to make sure you pay attention to how things work? Do you pull up a website with $100k in paper money or do you jump right in (after doing your research of course) with a few thousand with the understanding that you may lose it all? What’s going to force someone to pay attention to how the markets work? Now, I’ve been in the markets since June of this year. While paper trading is nice, I very rarely pay attention to my papertrading account. I’m always following, adjusting, and learning from my cash account. If I were to lose everything in my cash account tomorrow, at the very least I’d know why. There is no reset button.

Overtrade and blow up an account. I think that’s the best way to learn how to invest in the stock market. Not only are you getting the experience from trying different strategies on a small scale but you’re forced to follow with due diligence since your money is actually at risk.

Jorge 31 December 2007 Miscellaneous
Full Time Trader - Revisited NYMEX Crude Oil New Intraday High

Viewing 7 Comments

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    Good question. I do believe that experience trumps education, any time, any day. That said, maybe, just maybe, it might be a wiser idea to experiment with someone else's money, rather than your own? Which is why you should get a job on Wall Street before you bet your life savings. Just my 2 cents, and to each his own, so what's good for me may not be the best thing for you...
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    You know, I've seriously thought about stepping aside from my PhD track and completing our university's one year master's program in finance for that very reason. Problem is two-fold. First, I wouldn't even know where to start in terms of getting my foot in the door with Wall Street. Second, my future wife won't be happy hah! Out of curiosity, do you think Wall Street would want a nuclear engineer in their ranks? I mean... the damage I could do isn't as bad as what some of those CEOs did in 2007.
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    Maybe you should read this - http://www.blogmaverick.com/2004/04/13/the-stoc...

    Wall Street is desperate for people who know everything about a specific industry. You don't have to quit your field. You can leverage your knowledge and use it as a tool to exchange information and learn.
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    I was going to thank you for the link but I realized it was to Cuban's blog (I'm a Miami Heat fan). Actually thanks for the link. I'll probably post more detailed thoughts on my future thoughts and plans. Frustration's setting in I think with my current situation. Thanks again though!
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    Hey Jorge, if I may, I think that paper trading is a safe way to learn how the market works to some extent, especially if you don't have a "real account" to be able to blow up!! Fair enough if you do have a lazy few thousand dollars that you won't miss, but even with paper trading, I followed on with small trades and built up from there.
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    You gotta have the discipline and mind set to think of it as real trading. Paper trading is a great tool
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    Ange,

    I guess my experiences with paper trading haven't been as useful as yours. I've been trading since about June 2007. I've only really paper traded twice, when I first began trading and when I switched from Zecco to TOS. Paper trading did nothing to help me get over my fears of my first trade, my first gain, and my first loss. After I took my first true gain (EMC, +$2000) and my first loss (EMC, -$2500), it was only then that I actually learned how trading worked. Paper trading is definitely safe and should be used to some extent, especially if you're trying a new strategy, for example an iron condor, but for actual trading experience, nothing beats having real life risk in my opinion.

    Andre,

    Paper trading's a great way to refine your trading rules, I'll admit that! Would backtesting be considered paper trading?

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