Every newcomer to trading in the market is at some point advised to paper trade. Saying just that is being to simplistic, in my opinion. The problem as I see it is that paper trading as most people do it, is not very realistic. The paper trader becomes bored, and gives it up for real trading. I use the term “Study Trade”. To me, it is more descriptive of the modality I apply to virtual (non-funded) trading since it implies managing the trades in a manner that closely as possible mimics what the trader would do were he trading with his own money.
Management is a key element of a successful trading program. This includes management of risk, pre-determination of trade entry criteria, trade exit criteria, definition of overall trade strategy, and maintenance of a comprehensive trade diary that includes not only narrative, but trade activity tabular data, screen shots of price charts and position statements, risk profiles as appropriate, profit/loss and percent return on each trade. The data is summarized by day, week month and quarter. Trading is a business, and this data is needed for financial statement and tax return preparation.
It would be too easy to eliminate a lot of this while “paper trading”. Paper trading isn’t real, right? Wrong. That’s the whole point.
Having these trade records has at least three big advantages. a. The study trade process feels like “the real thing”. One feels the wins and losses; the fact that they are not real is still a fact, but it is suppressed in the process. b. If mistakes are made (and there will be mistakes) the trader can go back and study the record material (as painful as it may be to do so) to learn from them. And c. when the time comes for moving into funded trading, the transition can be seamless, without perceptible change in the process.By now I guess you can tell – I am a huge fan of study trading before getting into the real thing. The process should not be rushed. I wish when I was just starting out, that someone had made me understand the importance of this. Unfortunately, it didn’t happen. I was too eager, too impatient, too enthused (too greedy?), and I made every mistake in the book, even adding a few new chapters to it. Maybe what I went through is all part of the grand process of learning the business. It’s no wonder that there are so few successful traders.