I would like to ask the elitetraders here if they make use of paper trading to improve their trading/investment performance. Is it a waste of time or are there indeed benefits from paper trading? Interactive Brokers provide a good paper trading platform. If it is really a waste of time as I have read from feedback of some folks here, why would IB spend so much resources building a paper trading platform? If you have tried paper trading and have enjoyed some benefits, please share your experience. I will prefer to hear from those who have actually tried it rather than those jump to conclusions without trying. Thank you.
there's benefits to the noob to understand the platform and avoid costly mistakes (for instance not realizing market orders don't work during the gap but limit orders do). Should be incredibly useful if testing algos or trading strategies too. It takes risk assessment away from the equation however, so discipline may go completely out the window once in a real account. It could also help train your trigger finger and take the hesitation from executing.
Hello helpme_please, Good question and logical comment. I have paper traded for nearly a year already and each trade I take is a serious trade to grow my own trading experience and find a consistent profitable trading method. I also back test as well. Paper trading is not a waste of time. Trading real hard earn cash with no EDGE or proven proftitable results is a waste of time and waste of you and your family money. Now, some traders will say you want experience real emotions until trade real money. Maybe so, each case is differnet and depends on the person trading. For me, I have a goal to reach , then I will go live trading. Now for those just messing around taking crazy wild trades, with no stop loss, and messing around hoping something works, yes then paper trading is a waste of time for that trader. But if you set yourself a REAL goal and hold yourself accountable to that goal. Then its not a waste of time. I have paper traded for nearly 1 years with the cost of $0.00 and loss $0.00. In my opinion, I learning the best I can trading paper. It makes no sense to me to trade my real cash, if I can't make money trading paper. I rather used my saved cash for vacation or nice pair of shoes or something. I just save the capital. Trade paper til you triple your account. Keep it simple.
It's good for a lot of reasons but only up to a point. You can't replicate the emotion paper trading which is the more difficult part. If you already understand all the mechanics then it's time to trade with real money but with smaller size and work your way up.
Can't speak for others but I do. No and yes there is absolutely benefits from paper trading. Don't use IB's paper-trading platform to test out your strategy. Use it just to get familiar with its complicated, user-unfriendly and crappy platform. If you want to paper trade, use Ninja Trader or MultiCharts. It's absolutely essential for you to test out your trading system risk-free before risking your real money to trade in the real market. Trust me, the losses you incur from an unprofitable trading system is not worth it. It's better to find out the profitability of a trading system when no money is involved. That's what's going to take the emotion out of your real trading, confidence in your system.
It's really important to paper trade when you're first starting out trading, when testing new strategies, or when testing a new platform. I agree that it doesn't get you ready for the emotion of real trading, but never trade real money until you've figured out what you're doing and how everything works. If you have the option between a broker-supplied paper account and a client-provided simulated account, it's better to use the broker's account for the following reasons: 1. Behaviour of order fills will be more consistent with that of a live account 2. Same thing applies to order restrictions (things like invalid orders, margin calls, etc.) 3. Broker orders sit on the Broker's server and will be filled even if your computer is not running or is offline (client side won't do this--your computer needs to be running and online).
paper / demo trading is 90% technical, 10% mind management / emotional control. live trading is 90% mind management / emotional control, 10% technical. you have to pass paper / demo trading, and be able to control your mind, before you do live trading.
Hi it's absolutely necessary to paper trade a system well enough before actual trade. But assuming similar success in real trading based on paper trading success is debatable. So, one has to adjust psychological aspect when they put real money on.
Thanks for all the answers. Some argue against paper trading because paper trading is super slow compared to back-testing. Back-testing is much faster because testing period can be over several years and results appear within minutes. So, why paper-trade when back-testing is far more efficient? What are some advantages of paper trading over back-testing?
Paper trading can be a crutch to avoid facing the truth. There should be a healthy balance. For example, if you're continuously trying somewhat orthogonal strategies, instead of honing down and improving one in a paper test scenario, then you are trying to avoid the truth, whatever that may be. I use paper trading once I've verified that an algorithm doesn't suck on backtest. Then, during paper trading, I find 100 different problems in execution that have nothing to do with the algo and want to kill myself because I hate computers.