Learning to paper trade is a great place to start on your journey to learn to trade for a living
What is Paper Trading? It is where you simulate a trade without investing actual money. Paper trading is simulated trading where you can practice your trades, buying and selling. You can test new strategies before trading in a live account. Many online brokers offer clients paper trade accounts where you can also learn their system and tools without risking money in live trades.
Professionals have been paper trading for decades and it used to be that people would just note down, on paper, their trade without out placing the order through their broker. Noting down the purchase and sale price, keeping notes and a record of their progress.
Now many brokers allow customers to have a paper trade account and place simulated trades. It makes recording the trades easy and also gets you familiar with your brokerage system and placing trades.
I would suggest that if you are new or experienced as a trader to take advantage of these systems and develop your skills and your edge as a trader.
Part of my system is to daily place at least 5 paper trades and do this for strategies that I use or am developing. In addition to using an online brokerage to place and log the simulated trades, I also keep a log in a spreadsheet, noting down what Strategy I am using, the details of the trade, and the exits that I have set for the trade. I always note down 3 exits, the first is my target, where I intend to sell, second is my stop, the maximum risk I am willing to have in the trade, and the third is the time limit that I am placing on the trade, how long I expect to be in the trade and if it extends past this limit I exit and reevaluate the trade and other opportunities that could be a better use for my capital.
I also include notes as to why I am entering or exiting the trade, observations, and things to look for. These notes help me keep the trade as planned so I execute my strategy and also help me review the trades afterward.
Tracking these trades allows me to review my trades to see where I am doing well and what needs improvement. I can filter and see my losses and see if there is a common issue that I need to remedy. I can sort and see which strategies I am winning at and which ones I am not. It can also help me see where I maybe changed something that was working and get back in successful actions.
I do this when I am actively trading in the market and when I am waiting for the next opportunity that I want to invest in and when I am not actively trading.
Part of this is to keep your integrity in on your practice, and how you track your trades. I don’t change numbers or kid myself to try to pretend that I would have entered or exited at a different time. If you are honest with yourself and keep good records you can learn a lot from your paper trades.
One of the biggest things I hope you find is that there is endless opportunity. A volume of practice and committing to those 5 paper trades a day will help you discover more and more opportunities.
When you hit a down streak review your strategy and look to see if it’s your strategy, your execution of it, or changes to it.
When you are on a winning streak do the same with an even closer eye to what you are doing and what is working and write it down.
I started in the markets by studying, going to seminars, and paper trading. I paper traded for months, learning and refining my strategies before putting capital into my trades, and the practice paid off, it helped me stick to my exits and kept me executing the strategies that I had refined.
Placing those paper trades helped me learn markets, as I was studying I could test and apply what I was learning, I was not limited to placing a few trades because of limited capital and I could see how my strategies worked and what needed to be improved all in real-time.
This helped me get better at using my tools first getting familiar with them and as I continued to study and place simulated trades I got better and better, decisions faster and I started to see what was important and what was not.
Some of the benefits it will:
- Help you learn to apply your tools
- It teaches you to apply and think with application from the very beginning.
- Learn indicators and market basics as you practice
- Learning and refining your system
- Help you understand and get better at order execution and timing
- Discipline you as a trader and make you a more professional trader
- Track and log your wins and losses
- Refine your risk-to-reward profile
- Test and add new strategies
Perfect practice makes perfect, treat it as a professional. Your results will entirely depend on how you implement your paper trades.
Start by making 5 trades a day.
I think the wrong thing to do if you want to learn how to trade and create a system that you expertly execute is to read and think about it. I am strongly in favor of getting your hands dirty and starting to do the actions that you will build into a routine.
If you are reading something to apply it to see how you can use the data you are going to learn more and it will probably stay with you longer.
