Day Trading Guide – Chapter 12: Paper Trading Stocks

This is chapter number 12 out of 13. Read the rest:

Read Day Trading Guide – Chapter 1: Introduction
Read Day Trading Guide – Chapter 2: An overview of day trading
Read Day Trading Guide – Chapter 3: Taking Up Day Trading As a Living
Read Day Trading Guide – Chapter 4: Day trading Facts
Read Day Trading Guide – Chapter 5: What You’ll Need to Get Started
Read Day Trading Guide – Chapter 6: Day Trading & Investment Basics
Read Day Trading Guide – Chapter 7: The different kinds of order for buying and selling stocks
Read Day Trading Guide – Chapter 8: Market makers
Read Day Trading Guide – Chapter 9: Technical Analysis
Read Day Trading Guide – Chapter 10: Choosing a broker
Read Day Trading Guide – Chapter 11: Costs of a direct access broker

Paper trading is actually about simulated trading. You are conducting trades without any actual money at risk. Rather what you are doing is just denotes your trades on “paper”. Normally, you can do this through the demo accounts on the brokers’ websites.

This is how you will test yourself to see if you are ready for real-life trading. If you do poorly on paper trading than there is actually no reason to think that you will fare any better in real trading. In fact, it is highly probable that you will do even worse as you have the stress and tension of real life trading and your own real money to deal with. At the same time, there is also a risk of you becoming overconfident if you did extremely well in paper trading. If this happen, you might be tempted to take unnecessary risks and thus end up incurring losses.

Another thing to note is that, many websites have a mock portfolio of shares which you can emulate. This is not how you would use paper trading to acclimatize you to your trading environment. Instead, you should try to follow your own trading strategies and plan to get a feel of how real life trading would be like using your own strategies and techniques. In addition, most portfolio tracking websites do not link to what is happening in the real market thus you may be unaware of the reality of things. You will begin to feel insulated and in the end lucky and that line of thinking is a recipe for disaster.

How long you need to spend time doing simulated or demo trading will depend on you. You will definitely need time to get yourself used to the software than also used to using the software in conjunction with your trading strategy. 

Read Day Trading Guide – Chapter 13: Conclusion