What did Robert Goddard have in one hand during the early days rocketry? Of course, a model rocket! Did this famous pioneer eschew simulation? No! If he had, it's doubtful he could have ever got it up and off into glory as he did.
Papertrading success doesn't guarantee Live trading success. Papertrading failures guarantees Live trading failures.
I'm sure any serious and experienced trader will tell you.... You don't really learn how to trade until you lose a lot of money and go through sleepless nights. Those are the times when you reflect the most and think through a million things and remember your mistakes and learn what NOT to do or figure some solutions to any issues. BUt you can never get that kind of a lesson from "paper trading" though because those losses from paper trading just don't hurt enough....
Papertrading is like playing poker on the play tables. Different story when the pots are real money $1000s
I think paper trading is BS. You are miles ahead by opening a real account and tading small. But version77 has a valid point I had not considered before.....a profitable, experienced trader using simiulation to test an idea. When most people speak of paper trading, they are newbies. Their motivation is to avoid pain. You will experience pain as a trader. Read all the books you want, paper trade your ass off. But until you are sitting in front of screen watching a postion go into the toilet, you haven't begun to fathom what trading is. And paper trading only delays the inevitable.
Paper trading has very limited use. You don't have the Greed and Fear that you feel when real money is on the table. Greed and Fear will cause you to exit to early or hang on for that extra 20% only to see your trade go from +100% to minus 50% in 1 day.
How can anyone dispute this statement??? Basically its a litmus test, if you can't pass that, you can't move onto the next level, thereby saving one money, therefore it makes sense.
My only comment is that I think backtesting of VERY simple ideas is the superior way to approach live trading. IMO you are going to lose money from the start no matter WHAT you do, so you might as well trade small with tight stops on no-brainer setups until you get the rhythm of it.
I am in the minority here, but I find papertrading very useful. I paper trade and trade real money at the same time. With any new strategy I manually backtest it and then forward test it on paper for a sample of 10 trades usually, sometimes 20. This forward testing or papertrading I find very useful because it helps me to refine my initial rules in accordance with realtime market feedback and when you start trading any new strategy you tend to make a few mistakes at first. It also tells me whether the backtested edge will actually work in realtime or is suitable for my own trading style. I personally don't notice a lot of difference between paper trading or trading real money as long as I focus on following the correct procedures and not even thinking about the money. I know trading firms that take on traders and do not let them trade real money until they are consistently profitable on the simulator. I think that is a good idea myself. No rush, the market will always be there. You first have to have a proven edge before you can make money.
As a 100% mechanical trader, I found papertrading useful as a newbie. It helped my wife and I work through the logistics of keeping a log, checking fills, and developing a feel for the process. Also, just sitting and waiting through the trades and developing patience was valuable. I changed my environment until the stress was gone (eliminated the charts on the screen and put tape over the realtime P/L). Then it became very mechanical. When I switched to realtime trading the process was smooth and although my big mistake was to start a journal at the same time, it worked out fine. From a practical standpoint I found limit orders were worthless (simulation gives you a instant fill when the limit is touched...only in my dreams). Stop orders were filled accurately. Market orders were off by the spread (simulator always gave me buy fills on the bid and sell fills at the ask). As long as the method takes into account proper slippage, I think papertrading is the way to go before putting real money on the line. I've seen a few surprises since going live more than two years ago (like 4 points slippage once on a stop order in the ES), having a couple of trades broken and logging in the next morning to find a position I thought was closed. Other than that the papertrading experience was very useful and I highly recommend it to just going cold-turkey live. 42yotrader