Find a working, "real money" strategy, then figure out how to either automate or optimize it, do it religously until it doesn't work (no "system" will work for long for obvious reasons)...and then go back to standard trading techniques...find what is working, repeat the process.....seems to have worked for us for the last 28 years or so. Paper trading tends to give the trader "delusions" of profitablitly, and does not take into account psychology, market fills (or lack therof), timing, etc. IMO, it's better to just trade 100 share lots, get better, move up as your confidence and skill level increases. Don
IB's paper trade account is pretty good. It's fairly realistic. I like to use it to either 1) play with a new strategy idea, or 2) try new things with the platform. You mention options. IB is not for the option beginner. Thinkorswim (TOS) has a papertrade ability now (I think it's fairly decent, but some of the fills are a little optimistic). I believe papertrading serves for someone who 1) has very little experience trading, 2) is learning the order entry platform, or 3) is experimenting off the beaten path. Some of these new trading simulators are very realistic and will give you a feel for the mechanics. However, confidence, discipline, and overall psychology can only be tested live. Work out some of the nitty gritty details on paper, then go live with as small a size as possible for awhile.
Paper-trading is a form of testing (those who say it's useless either don't understand what it's supposed to do or how to do it properly or both). If you jump into "real" trading with nothing more than what seems like a good idea, you'll most likely be broke before you ever gain traction. Develop your own tentative strategy or use somebody else's, like Wyckoff's or Dunnigan's or even Ross's. But rather than just jump in, test it. Find out for yourself if it has any chance at all. Then, if it seems to have promise, paper-trade it. Get some idea of how bad the drawdowns can be, the ratio of winners to losers, the ratio of profit to loss, the longest uninterrupted string of losers that you might expect, etc. Only then should you approach the market with real money, in small lots. If the reality doesn't meet your expectations, then you most likely went through the simulations incorrectly. As I said, DbPhoenix has good stuff on this at t2w.com.
The point is repeated practice. It needs to be done live - not simulation on past trading days. So you can - - do it mentally - paper trade or - test trade (real trade 1 lot) What you will discover is the mistakes or misunderstandings anyone can make even after you have detailed preparation and market knowledge in place. The market offers you money every day so I know that getting everything right and up to a very high standard is the correct approach.
For automated system, paper trading is mandatory since software bug is unavoidable during its development or its first operation and cannot be tolerated with real money. Once a software is robustly functional and strategy seems to work, there's no point to continue paper trading in order to optimise it. Contact the Broker near you!
I've used a simulator- or I guess you could call it a session copier and replayer- it helped me a lot- i put a method together using it. Technicals are only part of trading-consider trading e-mini index futures, they'll fill just like your paper trades- instantly and you can add economic data to it..like employment reports, inflation reports , oil prices and so on. E-mini index futs will fill just like paper trades. Practice there.
I have made 9 paper trades and only lost money on one of them. After commissions, I made a little over 1,650 in 16 days. - nathan
If you are planning to trade live, then trade small with real money. Short story. I trade for a living. It's what I do. This is my job, this is my paycheck. When I enter an order into the market, I know that that trade is the reason why I'm either eating an 18 oz Prime Rib at an upscale restaurant, or a $4 Prime Rib SUB at Quizno's. You don't (and can't) get that from paper trading. period. Put money into your ideas/strategy and then test it. LIVE. You'll find out pretty quick whether it's a viable strategy or not. Automation and new platforms are a different story. But for beginning traders, paper trading is masturbation (as hypostomus put it). Quit "Jackin' the Beanstalk" and go introduce yourself to the market. She's a great big fat lady who loves fresh meat. Trust me, she'll like you. By the way, when was the last time you read an interview with a successful trader that went something like: "Well, I paper traded for several months, then I dabbled with a small amount of money. After I lost that, I went back to paper trading again. Lost a little more money, paper traded another new strategy, and that was the one that turned out to be the holy grail of trading, and I struck it rich." ??? I haven't read that interview either. Now, go introduce yourself! I said she was fat, I didn't say she was ugly.
Paper trading, even when done so on a good simulator is mildly useful for getting comfortable with platforms/reaction speeds/theoretical strategies but it is worlds apart from actually trading. Even if you were the most disciplined robot in the world (which you are not), the difference in emotion, senses and concentration which affect decisions when live is something that simply cannot be replicated artificially. There's too many things that are different in paper v live to list. It really is like you going to an arcade, completing Sega Rally championship and then claiming that you could step into a Nascar and be a hero. Also, even if you were some kind of freak of nature that has no conscience and a fully automated system that you wouldn't tamper with, no matter how big a winner/loser you were riding, you can't dream of accurately replicating fills/order execution. If you are trading futures (which I assume you may be if you are holding trades for as little as 5 mins) I think you will find live trading to be absolutely nothing like trading a simulator. Once you have spent two minutes looking at the speed the order book changes, prices get flipped and winners turn into losers, you might find that you initially lose focus of those factors that you previously based your strategy on, be they charts or fundamentals. It's like a game within a game. Just as a sideline, when I started trading (at Refco Trading Services/Macfutures) you have a decent spell on a comparatively very very good simulator. Those of us that were consistently making a profit 'went live' quite quickly and the first two weeks were basically a lesson in adapting to the difference in speed/fills/orderbook manipulation/queuing tactics. A lot of guys simply couldn't cope with the stress and anxiety that came along with what, some people deem as the hardest part of trading- conviction when some ****hole is manipulating prices. If you are trading particular instruments, you will absolutely need to learn how to deal with SIGNIFICANT 'flipping'. That's a whole new thread and I wont go there. Best of luck. The answer is simply start small and don't give in. It can be done.