Article Paper Trading: Waste of Time or Valid Learning Method?

T2W Bot

Staff member
Numerous discussions of paper trading, and its value as a learning tool, usually see participants divided into two camps. One claims total uselessness of paper trading, another vows never to start without it.  The scoffing camp points out the obvious limitations of paper trading:

It doesn?t allow you to estimate slippage during your execution.
It leaves unanswered the question of whether your order has a chance to be executed at all.
It keeps you in a relatively relaxed state of mind as there is no pressure of endangering real money.
It also doesn?t allow you to master your order routing tools in full. 
Finally, it?s very easy to cheat oneself, changing one?s decision after the fact and booking corrected results.

Is this all true? Why, of course it is. Does it render paper trading useless? By no means. Paper trading can be extremely helpful if two conditions are met. The first is apply this learning tool at the right time and with the right purpose. The second condition is...

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Spreadbetteur

Active member
10/10 score from me.

Paper trading is great for newbies, trying new systems or tweaking your system.

Best show some paper trade profit, before risking real cash.

If you cannot be profitable with paper trading, you are not going to be profitable with real money. So I would suggest that anyone new at the game starts with paper trading first, though being very strict, as the article suggests.
 

barjon

Legendary member
Good article.

The warning "Do not use paper trading to project what kind of money you are going to make" is particularly apposite.

Only a few will match their paper results for real - so, after paper trading, start small.

good trading (paper or otherwise)

jon
 

Bluebelle

Member
I've given this 10 also : I agree with every word. I first paper traded traded options via Peter Hall at FTS who was absolutely passionate about making sure that investors paper traded until they were happy with the mechanics (this was pre-internet) and, crucially, the size of their positions. Peter even went as far as to make an arrangement with a stockbroker who allowed you to place 'dummy trades' as if they were real, which is about as close as you can get to the real thing. (Sadly, he's now retired)

I still made mistakes i.e. losses, still do, when I went live, but by the time I did I was happy that that was just part of the process, a cost of doing business, if you like, in the way that a pc, Sharescope, the FT etc. are, and the key to successful trading was winning more than you lost. You can only do that, in my view, if you have a system and, whenever I try anything new, I paper trade it first.

The thing I particularly agree with here is 'don't kid yourself' !!! It is easier to do that when your paper trading, for obvious reasons, and I think most people proably do when they start.

It is only when you're trading with real money that you really feel the pleasure and pain !!!
 

roguetrader

Senior member
10 / 10. A well written and informative article. I would be of the opinion that paper trading is an imensely valuable tool. One other point that was not mentioned, is that here you will begin to build your discipline that will serve you well in the live trading, as the author suggest everything should be written down, if it isn't written down, you didn't do it. If it is written down, then that is what you did, so there can be no hindsight manipulation of........"well I would have closed there if it was real" This discipline of writing down every action and accepting the result good or bad will be the foundation of your discipline in the real situation.
 

fudgestain

Well-known member
Paper Trading: Waste of Time or Valid Learning Method?
Valid.
 

bullcar

Member
Better than nothing at all. But, simulators can give very close to real results - thats why the bigger arcades use them. I have used them and they are very good tools for trying out new markets.

The problem with paper trades is that its a bit like playing golf on the driving range. You learn nothing from the bad shots and think you are when hit one out the middle.
 

ale

Active member
As someone trying to finalise a system I find this article hits the nail on the head.
The valuable comment re keeping your trader's number on speed dial in the event of a pc crash leads me to another point - once you have a system that works on paper, keep the same records when you go live. It will seem superfluous until you have that pc crash and try to remember what trades you have open when making that all important call.
 

nine

Senior member
lol ptt ... you might be kind enough to enlighten us with an argument to support your opinion. :)
 

pttrader

Active member
Kiwi said:
lol ptt ... you might be kind enough to enlighten us with an argument to support your opinion. :)
Emotions don't kick in until real money is on the line. And emotions can wreck any good system. No system is really tested until money is put on the line because only then can it be tested by the emotional factor. Even mechanical system need to be tested by the emotional factor.
 

nine

Senior member
I agree with everything you said about the importance of the emotional impact of money --- but so does the author of the article.

That doesnt negate the value of paper trading for a competent trader for:
- forward testing a system
- running a "failed strategy" to rebuild confidence or prove that market conditions have come back into line

or for a new trader for the above plus:
- learning more about execution (noting the imperfections of simulations)
- learning more about what they have to do to be ready to execute.

Its amazing the number of new traders who didn't paper trader or didnt paper trade long enough who do what Mark Douglas (who also agrees with you :)) would characterize as emotional damage to themselves and lose tens of thousands of dollars and (in some cases) create bad habits.

So, I'd agree about it being "trading lite" but would argue that there are some good places for it.

Edit: After reading your response: Yes, I wondered if you had :)
 
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pttrader

Active member
Kiwi said:
I agree with everything you said about the importance of the emotional impact of money --- but so does the author of the article.

That doesnt negate the value of paper trading for a competent trader for:
- forward testing a system
- running a "failed strategy" to rebuild confidence or prove that market conditions have come back into line

or for a new trader for the above plus:
- learning more about execution (noting the imperfections of simulations)
- learning more about what they have to do to be ready to execute.

Its amazing the number of new traders who didn't paper trader or didnt paper trade long enough who do what Mark Douglas (who also agrees with you :)) would characterize as emotional damage to themselves and lose tens of thousands of dollars and (in some cases) create bad habits.

So, I'd agree about it being "trading lite" but would argue that there are some good places for it.
Kiwi,

I agree 100% with you. I didn't say it had NO use,. I just said it wasn't very useful. In the end it is only when the emotions kick in that one really knows "how" they will trade "whatever" system they have tested papertrading. It could be useful for the testing of a strategy ...etc or practice but these aspect don't make money in the real world because of emotions not being there and slippage..etc. I just don't see papertarding as VERY useful but if it helps someone in ways I can't comprehend then hey I am all for it them doing it. I must confess I didn't read the article.
 
Repetition of an act is an important element in mastering any technique. The more familiar we are with the elements involved, the more accurate we will be.....Time will do the rest.
 

barjon

Legendary member
Sorry to spoil your fun but, this since this thread is an archive thread associated with a Knowledge Lab article; since it has strayed wildly off the primary topic; and since it has degenerated into some personal sniping, I have done some vigorous housekeeping.

good trading

jon
 

dforant1

Newbie
me

paper trading is to see if the method works. If it does it will instill confidence. If one is scalping for example it will take quick moves and decisions. Anyone trying out a new method or indicator etc., without testing would be just financially irresponsible. Ummm, if the planned strategy is working, count on making money!!!
 
 
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