TME 039: Paper Trading


Today we are going to talk about paper trading.  Before we start I want to say I hate paper trading. Why? Because it is boring.  Now that I got that out of the way let’s talk about paper trading. When I became a new trader I started out paper trading. As I said I hated it because it wasn’t enough action. The money did not mean anything to me.

So, what does paper trading consist of?  Paper trading is not real trading. Paper trading is trading without using real money. In today’s time, there are many stock market simulators that can be used but it is not a requirement. The advance of technology makes paper trading easy without having to put capital at risk. If you want to get the most out of your paper trading then you need to take it seriously. The trading that you do in paper trading should be done exactly like its real money. When paper trading it will be hard to trade with the same emotions that you have when trading real money. You can trade $100,000 like it’s no big deal. If you paper trade right when you switch to real trading the emotions will be the same. If it’s not then risk less you are risking too much.


Paper Trading: Practice or Pay

When I watch an Olympic diver, I am amazed at how they jump and flip and land in the water with near perfection. Now if I climbed up on that ladder I would be scared and thinking just don’t die. I would be paralyzed by fear.  There might be some out there who don’t have enough sense to be afraid. When you are jumping from that high it can be dangerous. In both cases the jumper would be a ball of emotions.

Now when you look at the Olympic diver he is confident. Why? Because he has been practicing since he was a child. He learned to jump on low diving boards them moved up. He is confident because he practiced. You either practice or you pay. The question you need to ask yourself is this. Do you want to practice or pay? You are more than likely going to do one or the other.

When I started out I did not want to practice. So I paid. I paid by making bad stupid trades, I paid by losing on emotional trading.  I paid by risking too much. I paid by leveraging too much. I did not practice so I paid. That is the choice you have if you are new to trading. You can paper trade or trade for real one will cost the other will not.


Paper Trading: On Paper

One is a pencil and a piece of paper. I think everyone should have that. Just trade your system on paper. The good thing about paper trading is that you can go get stock prices from the 90’s and test your system out on the historical prices.

To get historical price data you can go to yahoo finance, type in your symbol, and click on historical data. You can set the date to whatever you choose. You can then download the data into excel. Excel is a good way to analyze data to test your trading system. If you don’t want to pay for excel then use google sheets. It is free and good to use for someone wanting to test on historical data.


Paper Trading: Stock Simulators

There are many stock simulators online where you can virtual trade. This takes you thru the process of trading just like it was real. You can learn how to trade without emotions. Then once you are confident in your system you are ready to move to real trading. Most people will not listen to this advice they want to trade. If that is what you are thinking then start small.  You can do a quick google search to find stock simulators. These stock simulators are pretty advanced. Some brokers offer virtual trading if you open an account with them. These types of accounts are good because they give you the same look and feel of what you will be trading.

Paper trading can be one of the best ways to learn how to trade. It is free and you can try your system on the live market. You see how the market moves. You see the danger of risking to much. You can build your system without losing a dime. Practice is the key in sports. It is the key in many things in life. A good trader has tested his system on the practice field.


Paper Trading: How We Did It

When we developed our system, we practiced a lot on historical data. We would go thru prices day by day and see what our system did at that time frame. This built confidence in our system. In doing this we saw that if you risk too much you will lose. We said it before but risk is the most important thing in trading. We gained first-hand knowledge of that by paper trading on 20 years’ worth of data. We accomplished in months what would have taken years in live trading.

This is the kind of confidence you need before you begin trading with real money. I did not go in that order. I first started trading live lost a lot of money then came back and learned by paper trading.   One quick way is to trade a system like ours until you are able to build your own system. This will show you how a system is supposed to work while you are working on yours.  When I was trading blind I always heard that you have to have a system. I did not understand what that meant. When I started to build my system then I started to understand. Emotions kill traders and systems kill emotional trading.  So, if you have a system you can take the emotions out of trading.



Leave a Reply