Why Paper Trading is important as a Trader?


Stock market screen of a paper trade with a piece of paper and the words papers trading across it

So many people are day trading these days, it wouldn't sound like a bad idea to just get in the game and make your quick share. The only way to see if day trading is for you is to try it.

I mean why shouldn't you... Right? Why aren't you, you are missing out. We're currently going through the longest bull market in history.

If you are willing to make a $25,000 investment out of your savings right now, have no proper strategy set in place, and willing to take all the risk that comes with trading as an inexperienced beginner. Then take your shot. But I would NOT recommend it. If you decide to start day trading, the way to become an expert before you spend your first penny is through practice and experience!


What is a Trading Simulator

This practice all begins with getting a demo account with a brokerage firm with its simulation program. In a paper trade simulator, you will have a limited amount of "pretend" money to invest in either a simulated market or the real-life stock market, depending on what trading simulator you use. A trading simulator I highly recommend is Simulated Trading by Tradestation.

Back in my day as a pioneer day trader, Paper trading was a lingo we used to say back in the early '90s as day trader pioneers. It means the same thing today in making fictional trades for your risk-free benefit. Except technology wasn't advanced in the manner that we had stock market simulation systems on our computers. This meant the way we got to practice in the stock market without spending a dime but in our prehistoric way. We did this from watching a day trader making real trades with money from behind, then making your trades straight from a pen and paper.


A Paper Trade

In the financial world. The coined term of a fictional trade (either buying or selling) in a LIVE market made by an investor is called a paper trade. With paper trades, no real-life money is risked at a loss, but no real money can be gained either.

The most important thing you can gain from a paper trade is your strategies and experience with the stock market because that's what they were made and designed to accomplish. To practice day trading with paper trades will never gain you money, but knowledge of the art.


Dangers of Practice with Paper Trading

Practice makes perfect. But there's no reason to keep paper trading forever. I recommend that you should not be in a stock market simulation for more than four weeks, a minimum of two weeks. That is because, despite paper trading sounding completely harmless, it can cause one major problem on a trader. Paper trade psychology

There will come a point where the paper trades will not feel real anymore. Since you're not risking any real money. Once you decide to day trade with the money out of your pocket on the market, that's when reality kicks in. If you are day trading on simulation for more than four weeks. You may gain lots of experience and new strategies on the simulation market. But you will then begin to learn the real psychological dangers that come with day trading.


How Long Should I Practice Paper Trading?

70-80% of day traders lose money. But that doesn't come without reason.

Say you get into day trading, but start on a simulator. You may lose some money. But won't contribute to that statistic. If the traders who day trade smartly never took the time through practice with paper trades, that failure statistic would be even higher. Nobody should be trading with real money in today's markets. That is until you are a consistent and profitable trader in your trader simulation mode. Once you are consistent in your simulation mode and learn day trading discipline. I recommended you go to the market live with real money but work in very small amounts of shares.

Although, your training won't end after your time in the stock market simulation.  It will continue until you are truly confident in your success ratio. Students will always ask me my thoughts on when they should take it to the next level by risking money. I tell them to first start with a small lot of shares (50-100 shares). Once you are right about 70% of the time, that's when you take it to the next level of shares with 200 then 500. Slowly pacing yourself with your success ratio until you reach your ultimate goal of trading 1,000 shares as a professional day trader.

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