jho, if it makes sense to you and you find it useful, what difference does it make what anybody else thinks? If it makes no sense to you and you don't find it useful, then don't do it. If it's necessary for you to get permission to do something by gauging consensus opinion, you're in the wrong vocation.
Just chipping in to say that papertrading is quite useless in my opinion, as it's how you react to drawdowns and handle your own mentality during trades that eventually will be key to your trading success (if you trade discretionary). Sure, it can be good to get you to think about how you're set up and all, but paper trading for many months is ridiculous. Rather start off with one lots for a while, at least that's real money - then increase size as you go along. Paper trading a trading system, or forward-walk-testing, is of course something completely different. I am not a trader of systems, but this would (if successful) give you confidence in your own system and allow it to run with the necessary discipline from your side.
It all depends on your strategies and how serious each fatcor will affect you. Eg: If you're a daytrader, then slippage is of more concern to you. Let's talk about something about paper-trade. Paper-trade should not be the place to test your strategy only. You can do more. You need to simulate as much as possible. 1) Simulate money management & position sizing You need to decide how much money you put on a trade. Some people just practice their strategy without any consideration of money management. You need to decide how much you place per trade when you are live. So why not practice this as well. Be realistic and practice the same amount of capital you are ready to invest. It's no good to play with $100,000 while you will only invest $10,000. Different amounts of capital varies in trading strategies. 2) Simulate decision-making procedure If you daytrade, you need to make lightningly fast decisions. You can't be hesitant or you will get a much worse entry/exit prices. 3) Simulate execution procedure & reaction Don't write your order on paper, or you miss one important element which is execution procedure. You need to be familiar how you place your order. Even if your mind says "go", your slow reaction will make you lose a valuable opportunity. 4) Simulate order fill Try to papertrade a market with real-time data. When you place an order, the software will check if the market can fill your order. You can practice several things in this way: - feel (the problem of) slippage - what you will do if the order is not filled? - how you get your order filled when the price is suddnely uup/down - how you react if your stop-loss order has not been filled - and so on 5) Simulate every aspect of your trading routine Everything looks fine in papertrade since external factors will not affect you. but if you trade real, there're some trivials which can cause you great harm. You opened a position and watch, but you feel like going toilet, what do you do? Telephone rings when trading, you answer the phone, but you find out you miss a very good opportunity when you come back, what do you do? Something spoils your emotion when trade (eg your parents scold you badly), what do you do? When you papertrade, never call a halt. You can't stop the market when you trade live. If you decide to leave in the middle ofa day, it implies you are going to forgo every big opportunity you may come across on that day. But when you trade real, are you willing to give them up? Think about it. 6) Simulate your psychology Yes, it seems to be contradictory since what paper-trading misses is psychology. Many people said that. Wrong, my opinion is opposite. It is possible to practice your psychology if you are determined to work on it. There're several approaches to do so: - papertrade seriously. Treat every virtual dollar as real. No leisure trading! No excuse! No "if's"/ "shound have"! - set rewards & punishments - feel your greed & fear. Imagine what you feel when you encountered many consecutive losses in one round. If you feel the pain and start worrying, you make it. Try practice and practice until you can control your psychology. Remember deeply how you deal with your psychology when you get several (big) losses, or when you miss some biggest opportunities, or when something went wrong (eg your computer)? When you trade live, what you need to do is opposite. Simulate your psychology (in papertrade) as much as possible. Never let extra/unexpected psychology come in and take you in control. They are only devils! They won't help you in any way. When you can copy everything in papertrade to live trading, you are destined to fortune-making. Good luck!
There seems to be a mixture of opinions here about Paper Trading versus Real Money Trading. Many here are talking about Simulator Trading but calling it Paper Trading. A few are talking about writing trades down on paper or looking at hindsight charts as paper trading. I myself don't consider looking at hindsight charts as paper trading because no trades were executed via any type of platform (real or fake). Simply, whenever I hear someone say they had paper traded... I always assume they used a realtime simulator from their broker or some third party simulator execution platform that has the ability to go from real money trading to fake trading (paper trading) with a click of a button. Once again...looking at hindsight charts is not paper trading... If anything it is manually backtesing your method if that at all because you are looking at where you would have entered and where you would have exited based upon the rules of your trade methodology. Therefore, I highly recommend you use your broker simulator if its a new execution platform or some major software upgrade until you are comfortable that you can place orders without making mistakes due to some unfamilarity with a particular software menu or until you finish backtesting a new strategy. The above shouldn't take longer than a few weeks if that at all and then start trading with real money with a small size until your confident you've minimized the possibilty of making mistakes. Heck...a few weeks ago I accidentally bought Emini ER2 when I meant to buy EuroFX EC (first mistake like that in a few years) and I've been trading for +15 years. After making a mental/execution error like that...I stayed small size for the remainder of the trading day. What about the debate about returning to simulator trading when enduring a drawdown period (consistent losses)??? I think returning to simulator trading is appropriate if this is a drawdown period that has exceeded the worst case scenario from your prior backtesting results. However, if your going to return to simulator trading it needs to be productive in that your trying to determine the impact of making changes to specific areas of your trade methodology... Once again, backtesting these new changes and then traversing into some simulator trades of such changes shouldn't take more than a few weeks. Mark
=============== jho; Its suprising how much your guts react to real time money ; compared to paper trading!!!!!!!. Still find paper trading useful to a certain degree; record my real time trades on paper notebook anyway. And still do some paper trading , even while I am in a real time trades; easier to study paper trading [including realtime trades recorded on paper]than simulator results. Trade small starting.
Paper trading can only have real value if done live with a current live price. You do it as testing runs or you do it as a prelude. It is not an indefinite or long term phase. It is also pretty useless to do it if you have not taken the time and trouble to understand thoroughly the market you are going to trade in. You need to know your market back to front.
Yes agreed! Alternatively, you may replay a historical set of tick data in real-time which should have the same effect (sure you shouldn't have any memory about that day or you fall into making hindsight decisions)
You show that you really don't know at all. So there is nothing I can add which you would be able to understand.
I laughed my a$S off when I read this part! Where the hell are you trading from? Your parents basement? "WmWaster, Get up here RIGHT NOW and take out the TRASH! I told you to do it an hour ago!" "But Mah, I'm in a really important paper trade right now!"
What's up? Maybe the example is sheer bad, but everyday issue does affect your emotion and so your trade performance/decision. You can easily think of an example in daily life. You need to be aware of them, so you won't suffer losses or make silly mistakes when they happen.