Advice on paper trading....

ADONAI1ST · Jan 9, 2017

Gotcha said:
The whole point of taking a few real trades is really to test yourself. Of course having a strategy which has an edge helps, but honestly, I would imagine most traders would say that they had moments where all the best plans we completely overlooked.

The way it works in trading is that you will either make money on the next trade, or lose money. You have to accept this, and see how you react to this. Now don't get me wrong, this is actually much more complicated than it sounds. I think it was Mark Douglas who in his book gave good example of how gambling is different than trading, and much harder. With gambling, you know how much you're willing to lose, you know when the game starts, and when it stops, and then its done. With trading, you can of course stay in longer, and make more, and lose more. There really is no end to the bet if you don't respect your stops and targets. This makes it way more complex.

But if you just start with a basic amount of knowledge, and a basic idea of what you're looking to do, there is nothing wrong with taking a real trade if you will stick to your parameters. For example, assume you want to get in on a trade when you see price getting to some previous swing low because you've noticed that a couple of times during the day, it has always bounced back up. So perhaps you enter, hoping to buy at 2200 and make 4 points. If you're wrong, you have a stop it place to get out at 1998. For this risk to reward ratio of 1:2, you really only need to be right 50% of the time to have a killer profits over long term.

The interesting part would be is if you can actually honor your stop, and get out when you said you would, and if you can also honor your target, and get the 4 points that you were hoping for. Now don't get me wrong, I'm not suggesting that its always best to be firm and dictate what price has to do, but when you're starting out, you simply don't have the experience to be in the rhythm of the market, you just want to see if you can control yourself.

If you did this same type of trade 10 times, and knowing that you only need to win 5 to make a killing, would you still be willing to make these trades if the first 2 don't work out? Will you let your psychology affect your ability to put on the next trade simply because you lost twice in a row already? This is the type of shit you need to figure out.

Now who really knows what the win rate should be, and some don't even subscribe to the notion that you can assign win rates like this since each moment in the market is unique, but you need to see if you can stick to a certain plan that has a decent set of parameters that takes into account the trade sometimes working out and sometimes not.

What you will not find at ET is people actually posting about this stuff so you don't get the impression that its important. But if some of the traders who are actually profitable posted on here, and posted this type of stuff, you would see how it almost looks random. There are a bunch of losses, there are a bunch of wins, and its just business as usual.

Also, figuring out why some trades don't work is good, but at the same time, you can't be wrapped up in it because its impossible to figure this out. Mark Douglas says that when a trade doesn't work out, it simply means that those traders who would have otherwise bought at this level and hence helped it take off simply weren't around to buy. So if you're trying to figure out why the trade didn't work, you will never know since you have no idea they were about to go to lunch, etc.

I bet that most beginning traders would do better with random entries but very strict trade management rules rather than trying very hard to predict where price is going and then freaking out when it doesn't do what they thought it would and then get desperate to get out, or double down, or whatever else their emotions tells them to do.

Once you get used to the statistical nature of trading, and detach yourself emotionally from it, you can work on finessing where and when to enter, and in what direction.
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Now this I understand. I think I may do what I was thinking in the first place and just make some trades on paper...........Right now I just need to get the feel of using a few platforms and make some really simple trades, setting up charts, building watch list ect....I have really no experience in none of that. I could care less about winning on paper right now or anything like that. Just make some trades. I will take what you said into consideration and use it one way or another! I may just start watching some charts tomorrow and just do that for awhile. Thanks for the info Sir!

Handle123 · Jan 9, 2017

It really takes for most, myself included over 10,000 hours plus of watching delayed or real time charts before you can get decent at reading charts. It be like this, you found a 747 jet airplane(software) out in the desert where you just bought land, You have no idea about anything of the airplane, how to use it, whether it can be used or even fly, so you find manuals and much much time of trying to figure out what parts goes to engine or frame, you have to piece it all together one part at a time.

Tim Smith · Jan 9, 2017

comagnum said:
Small positions rock - much harder to get shaken out of a trade. It's one of those odd trading paradoxes - when you go small you often make more money.
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Its not a paradox, its RISK MANAGEMENT !

Trade within your means and you'll make more money because you loose less money when you make poor decisions. Over time this has a cumulative effect (just like reinvesting dividends).

Go greedy, leverage to the max, and you'll forever remain a B-Booker and be another one of those statistics who blew out their account in a few months.

Turveyd · Jan 9, 2017

Paper trading is great to learn a method to trade, obviously your discretionary and just hoping to wing it, like we all start off, which is fine, paper trading will teach you than guessing isn't the best long term plan so fine.

Sadly, most including myself can't trade Live the same, greed, fear create over thinking, hesitation and doubt which is where the real trading issues lie and take years of bashing head against the wall to over come.

You odds are very low on ever cracking this, but better than winning the lottery, and once cracked money could be become no object stick at it, but keep the losses / time to a hobby level for the time being.

wildchild · Jan 9, 2017

ADONAI1ST said:
Can you give me a little more info on why you believe this? How can one do this and not kill their account? Would you say it best to maybe paper trade, then make a real trade, then go back and see why you lost on paper?
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For one, even on platforms like IB, I don't know that you actually get realistic fills.

Second, there is a big difference between having something on the line and not having anything on the line. It causes an entirely different emotional response.

Third, it teaches you nothing of money management. The name of the game is managing the trade sizes which paper trading does nothing about.

wildchild · Jan 9, 2017

Gotcha said:
The whole point of taking a few real trades is really to test yourself. Of course having a strategy which has an edge helps, but honestly, I would imagine most traders would say that they had moments where all the best plans we completely overlooked.

The way it works in trading is that you will either make money on the next trade, or lose money. You have to accept this, and see how you react to this. Now don't get me wrong, this is actually much more complicated than it sounds. I think it was Mark Douglas who in his book gave good example of how gambling is different than trading, and much harder. With gambling, you know how much you're willing to lose, you know when the game starts, and when it stops, and then its done. With trading, you can of course stay in longer, and make more, and lose more. There really is no end to the bet if you don't respect your stops and targets. This makes it way more complex.

But if you just start with a basic amount of knowledge, and a basic idea of what you're looking to do, there is nothing wrong with taking a real trade if you will stick to your parameters. For example, assume you want to get in on a trade when you see price getting to some previous swing low because you've noticed that a couple of times during the day, it has always bounced back up. So perhaps you enter, hoping to buy at 2200 and make 4 points. If you're wrong, you have a stop it place to get out at 1998. For this risk to reward ratio of 1:2, you really only need to be right 50% of the time to have a killer profits over long term.

The interesting part would be is if you can actually honor your stop, and get out when you said you would, and if you can also honor your target, and get the 4 points that you were hoping for. Now don't get me wrong, I'm not suggesting that its always best to be firm and dictate what price has to do, but when you're starting out, you simply don't have the experience to be in the rhythm of the market, you just want to see if you can control yourself.

If you did this same type of trade 10 times, and knowing that you only need to win 5 to make a killing, would you still be willing to make these trades if the first 2 don't work out? Will you let your psychology affect your ability to put on the next trade simply because you lost twice in a row already? This is the type of shit you need to figure out.

Now who really knows what the win rate should be, and some don't even subscribe to the notion that you can assign win rates like this since each moment in the market is unique, but you need to see if you can stick to a certain plan that has a decent set of parameters that takes into account the trade sometimes working out and sometimes not.

What you will not find at ET is people actually posting about this stuff so you don't get the impression that its important. But if some of the traders who are actually profitable posted on here, and posted this type of stuff, you would see how it almost looks random. There are a bunch of losses, there are a bunch of wins, and its just business as usual.

Also, figuring out why some trades don't work is good, but at the same time, you can't be wrapped up in it because its impossible to figure this out. Mark Douglas says that when a trade doesn't work out, it simply means that those traders who would have otherwise bought at this level and hence helped it take off simply weren't around to buy. So if you're trying to figure out why the trade didn't work, you will never know since you have no idea they were about to go to lunch, etc.

I bet that most beginning traders would do better with random entries but very strict trade management rules rather than trying very hard to predict where price is going and then freaking out when it doesn't do what they thought it would and then get desperate to get out, or double down, or whatever else their emotions tells them to do.

Once you get used to the statistical nature of trading, and detach yourself emotionally from it, you can work on finessing where and when to enter, and in what direction.
More...

The real similiarity between trading and gambling is the money management aspect. I play poker, and although I don't really consider poker to being gambling, the way to make money is to manage your money properly. Same thing in trading.

Illini Trader · Jan 16, 2017

I have traded both IB and TOS and with IB they would not let you trade anything on paper that your live account was not authorized to do. For example; it you were not a pattern day trader you could not paper trade that way.

With TOS you can do anything. Fills on TOS are about as realistic as a paper account can be. On options they give you the mid point of the bid/ask and that is generally obtainable in the live market but not always. On Futures they fill you at the last price traded and that will over time slightly overstate your paper results as that is a half tick advantage over live trading.

But as one responder said to you. Paper trading is where you verify your system edge. ie does it make money for you. If you can't do it on paper you sure can not do it live. You will also find that your trading edge is only 10% of the game. The other 90% is dealing with the emotional factors of having your money at risk.

Xela · Jan 16, 2017

wildchild said:
For one, even on platforms like IB, I don't know that you actually get realistic fills.

Second, there is a big difference between having something on the line and not having anything on the line. It causes an entirely different emotional response.

Third, it teaches you nothing of money management.
More...

So of your three reasons, the first is something you don't know; the second is true but just one of its limitations rather than a reason for not doing it at all; and the third is criticising it for something irrelevant that it doesn't purport to be anyway (it can't enable you to fly through the air either, but that also isn't a reason for not doing it).

Are those three reasons really the best you can come up with? Even I could argue a better case against it than that, and I'm on the opposite side of the argument to you.

wildchild · Jan 16, 2017

Xela said:
So of your three reasons, the first is something you don't know; the second is true but just one of its limitations rather than a reason for not doing it at all; and the third is criticising it for something irrelevant that it doesn't purport to be anyway (it can't enable you to fly through the air either, but that also isn't a reason for not doing it).

Are those three reasons really the best you can come up with? Even I could argue a better case against it than that, and I'm on the opposite side of the argument to you.
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You think money management is irrelevant to trading. Are you kidding me?

Illini Trader · Jan 16, 2017

wildchild said:
You think money management is irrelevant to trading. Are you kidding me?
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Don't get too excited here, all Xela said was that paper trading does not teach money management as that is not its purpose. So Xela felt your criticism of the use of paper trading for that reason is invalid and is correct in that.