Paper Trading

Paper Trading - Help or Hindrance?

Paper trading is an emotional and controversial subject among traders, a well recognized cause of excessive foaming and frothing and general forum meltdowns.

Quite Frankly, I don't see what all the hoop-la is about. You have to learn somehow, why not get the basics down without throwing any money away? You're going to throw enough money away when you start trading proper, so you might as well enjoy this brief paper trading internship while you can.

Paper Trading is extremely valuable to those of us bitten by the emini day trading bug, or those of us who plan to trade online. Can't for the life of me think why anyone would want to call a broker to place a trade when one has a perfectly good computer hooked up to the phone line. This is the twenty first century, even for those of us living in the boonies with recent indoor plumbing and ancient tractors. Even camel and goat people in the desert have cell phones and laptops, for pete's sake.

What makes paper trading great for day traders is you can get a free trial to one of those electronic trading platforms or online simulators, from lots of brokers (like PFG or Orion Futures). You don't even have to open an account there to use it. This is also neat because it doesn't allow you to lie to yourself; the trade is either entered or it isn't, you can't rewrite history to show your wife how much money you would have made, because the blasted thing saves everything exactly as you did it.

Paper trading with an online simulator allows us to become very familiar with our trading platform, order entry and exit procedure. It's not practical to make all your ignorant newby mistakes while trading real money. Remember, you're going to have plenty of opportunity to do that. Paper trading can teach us most of the mechanics and basics, and hopefully we'll have gained at least some sense by the time we open our margin account.

What paper trading doesn't teach us is what to do when the whole mess goes to hell with a bang and a shower of feathers because a wild turkey got a notion to roost on the power line running to your farm over a mile of woods and fried itself and your transformer trying to peck a tick off the scrawny neck of its buddy sitting opposite, and you with an open position and one of those stupid mobile phones that needs electricity to work.

It's called panic.

Emotion is something paper trading cannot teach us. Traders suffer a lot from emotion. Elation, fear, greed, and of course blind hatred for their broker. Alan Greenspan is emotionally well-known among day traders as well.

If you're stuck with wanting to trade one of those markets that don't support electronic trading, although why you'd want to bother is beyond me, then you'll have to do the old fashioned kind of paper trading. This requires an end of day or 10 minute delay charting service, preferably free, because traders are notorious cheapskates.

Luckily there are plenty of free online end of day charting services to choose from. If you look on the Bookmarks page of this site, you'll see a link devoted to Charts. I think the paper charts of yesteryear are now extinct, and why would you need them when you have a printer anyway? Yes, Virginia, you can even print both sides of the sheet to save paper.

Paper trading also falls short in the fills and slippage department, even with an online simulator, although the simulator comes closest to being impartial. If you're paper trading manually, be sure to subtract for brokers commissions (yes you HAVE to pay your broker) and take off a point or two for slippage.

If you're making out like a bandit, you're probably lying to your wife. Admit it! If you're losing, you're doing something wrong. Either figure it out or you may as well quit and take up tatting.

More to follow on paper trading.

-shaggy

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