Paper Trading – Good or Bad?
Nicolas Darvas started trading with his own money, and gained his experience through wins and losses. This is what he had to say about paper trading in his book How I Made $2,000,000 in the Stock Market:
At first I tried to practise on paper without investing any money. But I soon discovered that working on paper was quite different from actual investing. It was like playing cards without any dollars in the pot. It had as much savor and excitement as bridge at an old ladies’ home.
Everything seemed very easy on paper with no money at stake. But as soon as I had $10,000 invested in a stock the picture became quite different. With no money involved I could easily control my feelings, but as soon as I put dollars into a stock my emotions came floating quickly up to the surface.
So, paper trading can teach the basics, but does not build the emotional strength needed to be a successful trader. What can you do if you want to be able to gain trading maturity and experience without losing everything you have?
Clearly the answer is to learn trading basics and the character of the market through paper trading, but later open a small account with real money and start trading for real, perhaps using products such as mini forex contracts ($1 per pip rather than $10 per pip).
You will experience the highs and lows of trading, without the emotional extremes of winning or losing thousands of dollars in a day. Like someone starting at the gym, you don’t go straight into benchpressing 100 kg, but you start small and build on success. As the gym goer strengthens their muscles, they then progress to bigger things.
Similarly, by starting with a small account, you learn to handle small highs and lows, which mentally prepares you for bigger things as you become more successful.
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Tags: Learning to Trade, paper trading