I ’ll begin with a formal description. Investopedia.com, a Forbes Media company, defines paper trading as “simulated trading that investors use to practice mimicking trades (buys and sells) without actually entering into any monetary transactions.”
Paper trading is day trading without the loss or profit that results from using real money. You do everything you were trained to do when executing a real-time order, but this, of course, is just practice. You note the entry price in a log, on paper. It’s all about getting your feet wet.
If you’ve ever attended a day trading seminar or training program for beginners, then chances are you’ve been shown how to paper-trade, but you haven’t been adequately shown. You may not be aware that there are right ways and wrong ways to use this learning tool. There are pitfalls that must be avoided. When utilized properly, however, paper trading helps to maximize your real day trading performance.
In the intro to this book, I referred to my initial paper-trading experience. I painted a picture of the typical novice—me—just back from a three-day seminar. Part of my training had been paper trading. Now I was applying that method on my own. At home, I paper-traded for one straight month. My results were absolutely amazing. I made loads of fake money.
Then came the big transition, the morning I decided to start trading with real money. What happened on that day was pathetic.
I didn’t sleep much that night.
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