Paper Trading Vs The Real Deal

[2manywhiners]

I'm a trader and investor. I have multiple accounts, each with its own purpose. I'd say my range is anywhere from 5 minutes to 5 weeks. Sometimes it's 5 seconds (ever traded Goog with too tight of a stop?) Sometimes it's 5 months.

Look, what I've been trying to get at is this: It doesn't matter what I trade or how I trade it, what matters is how it moves and how I intend to incorporate that into my trading strategy. What I'm saying is this; find a plan, set the appropriate risk tolerances, calculate it's profitability (how much potential risk vs how much potential reward) does the nature of this strategy seem logical? too easy? too risky? too time consuming (length of trade) for the amount of potential reward? If after all of these questions (and many, many more) you can't find a reason to NOT trade it, then give it a go.

Like I said in an earlier post, Divide your initial trading capital by ten, or even twenty, and trade it live. You'll find so much more knowledge by trading live money (even a hand full of pennies) than you would by paper trading. (again, this is my opinion for beginners; not automation, new platforms or unorthodox trading styles)

more tomorrow... if necessary.

Good luck.

 

[rols]

I agree that paper trading is mandatory when it comes to auto trading. But for any other reason it's the same difference as playing Medal of Honor and actually being in the Normandy landings.

 

[rols]

 

[romik]

Quote from rols:

I agree that paper trading is mandatory when it comes to auto trading. But for any other reason it's the same difference as playing Medal of Honor and actually being in the Normandy landings.

Don't agree with you at all on this one. First of all let's categorise paper trading and simulated account into One. Both are essential practises before attempting to trade real account. There is no argument that would justify what you have said.

I can reverse your statement by saying the following: - There is no point in simulation prior to flying a space shuttle. Are we clear now?

Simulation is extremely important, but psychology can not be linked to simulation issues. It's a different subject.

When kids train to be a pro tennis player, there are 2 main parts of preparation process - drills and mental toughness classes. A combination of the two MIGHT make them a pro, for sure without them though, the chances of making it in the ATP are extremely remote.

It boils down to common sense - it rules.

EDIT: Even Agassi, with all his talent, after a while realised the importance of simulation, that's what made him a more consistent player.

 

[rols]

Have you any idea of the selection process required to be a NASA astronaut?

Yes of course paper trading can teach you the controls etc but I'm talking about the bit where most traders fall down - the emotional/psychological part. How can trading 100 contracts on a simulator with pretend money compare to trading 100 contracts with your own dosh?

 

[romik]

Quote from rols:

How can trading 100 contracts on a simulator with pretend money compare to trading 100 contracts with your own dosh?

To trade 100 lots you need access to at least $500k making a 2 point stop equal to 2% of your trading capital. People whose trading capital equals their net worth...are doing the wrong thing to say the least OR high risk takers.

In the above case $10000 loss is not substantial enough to trigger your emotions.

EDIT: I know a wealthy gentleman, who wouldn't cross the highway for "50 large ones", try telling him what you have told me. It's to do with capitalization and risk management.

 

[volente_00]

The key is to train your mind to react to trading real money just as it did with a simulator. Enty, exit, stop.... over and over again, enter all of them and sit back and enjoy the ride knowing you did the best you could do for the conditions that led to the trade. For newbies there is no better way than to trade small size in order to adapt to handling the emotional aspect of real money.

 

[2manywhiners]

one more take:

Ever played online poker? (I'm not relating trading to poker, that's a whole other forum) Well, I have played three types of online poker; free simulated money no-limit & limit, very small limit, and high stakes no-limit. I'm sure a lot of people on ET have played all three types as well, and already know what I'm getting at.

Those who don't, well, it's like this; the simulated money poker games are absolutely ridiculous. I played these for a while before opening a cash account, and what I had learned about online poker was that no one played very well, everyone just kept raising and re-raising, no one left the hands when they were supposed to (except for me) and eventually I started doing similar things because: a) I often mucked the better hand after someone raised repeatedly, and b) I tried to slow play good hands by simply calling and not raising. Well, after playing by the "rules" and losing regularly, I decided to just play real aggressive, and in return I won (simulated money) more often.

When the time came to open a cash account I started off with small limit games (like $0.50 & $1.00) and I was absolutely amazed at how conservative MOST of the players were. Was $5 really a lot of money? Well, the first week I stuck with the tried and true simulated money method of "raise first and re-raise later, then go all-in" but to no avail. I lost $25. Whoa. Big money right? Well, that's what I thought, but apparently any amount of money in online poker causes people to play differently. I have since played in online high stakes no-limit cash games and tournaments, and I found that most players still play with the same strategies as the $0.05 limit players (granted, they have superior skills to the lesser players, but they follow the same poker fundamentals)

Lying in bed last night, it dawned on me. Simulated Trading isn't any different from Simulated (money) Poker, they both operate the same way as their "real" money counterparts, but the logistics and the emotional effect on their trading (or playing) style varies to an incalculable degree.

I'm not saying beginners should open an account and start trading $20,000 the first day. They shouldn't (neither should you... learn the platform intimately first) but they should start trading a portion of their capital relatively quickly, if for no other reason than to avoid the false confidence that is inherent with paper trading.

A guy I know very well once told me that he had a better day than I did, because he made over $500 on paper, and I was up only $10 at the end of the day (after fees) with real money. Now, I understand his rationalization, had he been in the market, with live money, he would have been up at least $450 right? I made 4 figures that week (this was on a Friday, I think) but even if my week had been $50, his rationalization would have still been wrong. (side note) I eventually mentored him after he finally did go live, but only because he literally begged me. He had six REALLY rough months after going live and he just kept saying over and over, "I never had a down week on paper... this is wrong, something is wrong with the market..." he eventually did "get it" but not until after he had lost some money. Had he started LIVE with a small portion of money, he wouldn't have had the rough period he did, because he never would have made the $10,000 per month on paper. Would he have been better off in the long run? I dunno. But I do think so, mostly because the effect of paper trading successfully had really skewed his psyche. Take from this what you will, I'm sure he's not the only person with a story like his...

 

[Cheese]

If some have done simulated trading and benefited also fine.

Paper trading is not about paper trading for months. Paper trading live is about practice and training for a whole day session for as many times as the novice or trainee needs. You will confront live market conditions real trading so this is a useful prelude engaging your brain in exactly the same way that you will need to do for real trading.

Its amazing how many believe in the machismo of pulling the trigger or pressing the button without all aspects of careful preparation and practice being implemented beforehand.

 

[2manywhiners]

quote from Limburger:
Paper trading is not about paper trading for months...

Paper trading live is about practice and training for a whole day session for as many times as the novice or trainee needs. You will confront live market conditions real trading so this is a useful prelude engaging your brain in exactly the same way that you will need to do for real trading.

quote from 2manyPEOPLE-DON'T-LISTEN:
Simulated Trading isn't any different from Simulated (money) Poker, they both operate the same way as their "real" money counterparts, but the logistics and the emotional effect on their trading (or playing) style varies to an incalculable degree.

I'm not saying beginners should open an account and start trading $20,000 the first day. They shouldn't (neither should you... learn the platform intimately first) but they should start trading a portion of their capital relatively quickly, if for no other reason than to avoid the false confidence that is inherent with paper trading.

the effect of paper trading successfully had really skewed his psyche

Automation and new platforms are a different story.

HELLO. I THINK I NEED TO CLARIFY MYSELF.

Beginners. Learn the basics of trading. Formulate multiple possible trading strategies. Open an account. Learn the platform INTIMATELY. Trade a small portion of your capital. Evaluate whether it's a viable strategy or not.

If you undertake this type of plan, you will not have to face the inherent challenges associated with the ability to paper trade successfully. Many people go through this, and because of the skew paper trading presents to your psyche, end up losing confidence in their ability to trade successfully.

quote from Limburger:
Its amazing how many believe in the machismo of pulling the trigger or pressing the button without all aspects of careful preparation and practice being implemented beforehand.

Is that what myself and others have been saying? Hmmm...