Revisit the Paper Trading Concept

Calendar February 25, 2008 | Posted by Jorge

*This is a repost of an previous entry found here while we’re away on vacation. Enjoy!

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.

Category Categories: Trading Strategies | Tag Tags: | Comments Comments

  • I did paper trading just to learn the basics, but I agree that to really excel to making real money, you need to get in real world scenarios.

    Just like in sports. You can practice, practice, practice, but when game times comes around everything goes faster and looks different.
  • I'm on board with paper trading to learn the ropes - for a short period. After a few months of executing trades and watching the effects of your decisions, then it should be time to start trading with real money.

    Just jumping in with cold hard cash without any idea of what you are doing... not so good. Paper trading ( using one of the virtual trading websites ) shows you the jist of how to execute a market or limit order, what the difference is, and how it affects your portfolio.
  • mark
    I think it just depends on how disciplined you are. If you're not going to treat it as real money then yes it's a waste of time to paper trade. I think people should take paper trading more seriously since trading with your own money will disenchant you really fast when you're losing despite how much effort concentrating you put into it. Also just my opinion but it seems like getting advice like that from a broker to trade a real account as much as possible isn't totally unbiased.
  • Jon
    If you are serious about trading, I believe paper trading is essential, along with bactesting (if possible based on your strategy). Trade as if it was real money, otherwise of course, it will be useless. However, it will help you work out any problems and start learning on the psychology behind trading. Set yourself some objective and paper trade a similar amount to what you have in your account. Once you are ready start with a smaller amount and build up your account as the months goes. Don't try to go all in at once. If your methods are sound, there will always be another trade and the market will always be there for you, so don't rush. Seems like you have done very weel, congrats, keep up the good trading.
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