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Beware Of Paper Trading


Paper trading isn't worth the paper it's done on, simply because there is no money involved. You are a lot different when your chips are on the table. With nothing at stake, you can sit back and look at a quote machine with equanimity. When there is no money involved, you can sit back with a pad and pencil and follow technical indicators. You can even take time away from the market and go to the kitchen for a sandwich. Try selling a hundred S&Ps and see if you are interested in eating.

George Angell, West Of Wall Street
So true BUT (yeah, big BUT)

Your ultimate goal should be to trade with the same pace of mind as you papertrade.

Once you have a system (you do, do you?) you need to block all emotions and just trade your system.

It, not only, will be better for your trading account but you will live longer without a heart condition...
Here's a scenario: Your DSL connection goes down. Do you panic (at this point) more when you're paper trading or with real money?
I think the correct answer is "with real money"

What system do you use rverheyen?
I did not say that I'm that confident about my trading strategy. I just pointed out that this should be the ultimate goal.

And about that DSL that goes down: For every position I take I have a stop loss immediately. So losses are limited, even when not online.
That's obviously a very sensible thing to do - putting in a hard safety stop at the same time as entry. I assume that the stop is held at your broker or the exchange and not on your local trading computer?

What George Angell is saying here is that paper trading does not mess with your head like real money does. This is not only true in trading but in many things in life. Buying a car or house... Your emotions aren't involved when your "looking" at different cars and homes but when you have to hand over the money you "feel" different and often you question yourself about whether this is right or not. However, before you got to the point of handing over the money you were 100% convinced that it was the right thing to do and only when parting with that hard earned cash and signing on the dotted line do you doubt yourself and bring your emotions in to play...
Your right completely, but if you can trade with a good system and block your emotions (that's going to the hard part) it should me more easy to get some money out of the market.


And Yes it's a stop at the broker/exchange ;)
quote:
Originally posted by rverheyen

...if you can trade with a good system and block your emotions (that's going to the hard part) it should me more easy to get some money out of the market.

So what we need is a way to paper trade that not only allows you to learn or test a system but also trains you emotionally to what it feels like to place money on the line.

I remember having this discussion a while back and suggesting that a person could attach a device between your computer and yourself and each time you lost money during simulation you'd get a solid electric shock. This would bring some sense of emotional realism into the simulation and it would not let you frivolously trade without a valid setup.
I think it is better for your health if you should start trading a small amount (1?!) of mini contracts in stead of using electric shock ;) Trade with money you are willing to lose.

My planning for now is to papertrade for at least 2 months (when the results are not good, this could be longer). But a few times a week, when I spot a pattern or setup that should be easy money I do a real trade. Sometimes it fails, but losses are limited.

So I learn the market when papertrading and also learn to deal with emotions when losing/winning real money.

Everybody needs to find his system which is going to work for him.

I don't have unlimited $$$ for trading so I need to take it slow and use all the resources I can find because when the money is gone the account is gone and one more trader is gone...
quote:
Originally posted by rverheyen

My planning for now is to papertrade for at least 2 months (when the results are not good, this could be longer). But a few times a week, when I spot a pattern or setup that should be easy money I do a real trade. Sometimes it fails, but losses are limited.

So I learn the market when papertrading and also learn to deal with emotions when losing/winning real money.

Right - that sounds like a sensible approach. But wouldn't it be great if we could learn to deal with the emotions while we are paper trading? That way we would know how we would feel and react while in a real trade with real money...

I discussed this concept with a trader who tried to abstract himself from the emotions and money management part of the trade by just picking out the entry signals and then leaving the trade management up to his wife. He'd shout the order upstairs to his wife and she would place the order and manage it according to his strictly defined set of rules.

He said that as much as he wanted to leave her alone to manage the trade he just couldn't and kept on running upstairs and overriding what she was doing.
I can actually relate to a perfect example in the market right now. I am paper trading and "forward testing" a new strategy in the ES. I went long at 1262.50 @ 10:03 EST and the trade immediately went into profit. From the subsequent high at 1264.5 it then retraced 3.25 points to 1262.25 before moving up to 1266.00. It was an easy draw down to hold through because I was paper trading. However, if that was real money I may well have killed the trade the first time it came back to break-even.
rverheyen: Are you still around? How has your trading been with the Time Horizon Target methods?