TLM Q&A Blog - Paper Trading

Every new trader starts out their journey and either knows a little about paper or simulated trading, or quickly discovers it. This question comes up daily, and I finally wanted to sit down and nail down this concept.

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Q: Should I paper trader? If so how long? What platform should I use?

A: If you follow me at all, you know that I am not the biggest fan of paper trading. We will get into some of those reasons why later, but it simply lacks to portray the true emotional side of navigating the markets. Your practice routine should be as close to the ‘game’ as possible, so making sure your simulated training phase of your learning process is as close to the real deal as possible is crucial.

There are other ways to gain that exposure to the markets as a new trader without taking on crazy risk and that is what we will dive into as well.

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The Pitfalls of Paper Trading

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Like I said above, when you are paper trading, you don’t feel the same emotional attachment and connection to the decisions and moves you are making in the market. It is just fake monopoly money. You’ll take more size, hold longer through losers, not follow your system right, etc. Even if you think you are following your strategy and rules properly while paper trading, it will be much different when real money is on the line.

When you are trading real money outside of the simulated world, feelings of anxiety, stress, and fear come up which fog your decision-making process. As a trader, you have to let those emotions come and learn how to deal with them. While paper trading, the money you are making and losing isn’t real so you don’t feel these emotions, and as a result, don’t learn from a young point in your career how to deal with them.

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What Should I do Instead of Paper/Simulated Trading

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I recommend trading extremely small size on an account instead of paper trading. Even 50-100 shares if you are nervous and new. There is absolutely nothing wrong with that when you are starting out, and trading small size will actually force you to feel the key emotions that come alongside risking your own money, even if it doesn’t seem like a lot of money. It is still your cash on the line, no matter how big or small, and even with small size the losses/wins will feel ‘real’ and will impact you in some way. Trading small size allows you to feel the pulse of the market more and mimics a more realistic trading environment/experience than paper trading monopoly money.

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How Long Should You Paper/Simulated Trade

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Personally, I would only paper trade (not risk any of my own money) for a day or two if I was new to get used to the platform and the order entry buttons. Learn to buy and sell stocks on whatever platform you choose and learn the inner workings of the platform.

After that, I would switch to risking small size for a couple of weeks until it gets boring, and you see 2 weeks of consistency in your trading. I wrote a great blog on how to size up as well so make sure to check that out for a deeper breakdown.

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What Platform Should I Use To Paper Trade?

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Almost all platforms have some version of simulated trading or paper trading. TC2000 has a great one for beginners, and DAS has one that is a little more expensive but closer to the ‘real deal’ of what professional’s use. You’ll want to practice paper or simulated trading on a platform you actually will be using as well when you go live, if possible, to make the experience as real as possible.

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