Digital Paper Trading: Preparing to Profit

One of the leading causes of investment failure among traders is their failure to prepare fully for trading by not doing paper trading. Today, paper trading tends to be better known as digital simulation trading, but the principle remains the same.

Before the days of our modern technology and high speed Internet, people who were new to trading would take stacks of play money (or simply enter a balance into an imaginary bank account) and then invest some of that money — on paper, only — in a real investment instrument during real trading hours and then track it. They would also take profits or place stop-losses in the same way. They would add or take away money from their stacks or accounts exactly as the real performance of their chosen investment within a particular time period dictated, and by this methodology measure their progress.

Digital Paper

The point of this was to get their brains working in a real-world way about stocks, options, or whatever they were going to be investing in. Even with today’s webinars, the fact is that all the observing and all the reading of successful traders cannot make you into the successful trader that they are. As a physical trainer might say to a client, “I can’t do the push-ups for you.”

Practice is the only way to have success and profits with trading. But, there’s the obvious problem and danger of risking money for the sake of practice. And thus have trading simulator software programs been developed so that you can trade in a way that’s real, yet do so without risking any of your real money before you’re ready.

Self-Confidence Is of Paramount Importance

Regardless of what system you’re going to use or who you’ve learned your trading methods from, without a rather ruthless sense of self-confidence in the market you’re going to lose your shirt. Self-confidence is what gives you the focus to make the bold moves that you have to make for profits. Since nobody wins 100% of all trades, self-confidence is necessary to prevent yourself from getting rattled at losses and making things worse or getting scared right out of the investment world entirely.

Trading simulation programs help you develop that all important sense of self-confidence. This is an intangible quality. When you have it developed, you won’t feel as if you’re merely imitating some other investment legend’s moves. You will feel that you own what you’re doing, a sense of competence and knowledge that will drive you forward and help you to get even better and become more profitable.

There’s No Better Way to Prepare

Who makes money from reading about the market? Who makes money from attending investment webinars? Who makes money just from having a hot software platform to help them invest? Nobody, of course.

Investing is all about doing, not sitting around thinking about it. This is so obvious that many people jump in without properly preparing to invest. They tell themselves that their mentors and videos have bestowed all the powers they need for profits upon them.

And this is one reason why 95% of all investors either lose money or only break even.

If you don’t do simulated trading before you pony up some real money, you’re under prepared to invest. All-star baseball players still go to Spring Training for good reason.

Game Theory

As titillating or frightening as it can be, investing should be fun. It’s the fun of profiting as well as the fun of taking calculated risks and winning that keeps great investors going. How can something so important be taken in with an attitude of fun? Through treating it like a game.

Investing isn’t like casino gambling or playing poker. But does have to be approached like a game. Trade simulator software allows to you to develop this sense of gaming without your risking a dime of your real money.

You Are Your Competition

How long should you do simulated trading before you’re ready to risk some real money and go after real profits? There’s no set time. It all depends on how soon you find yourself consistently winning more than you lose in the

An excellent rule of thumb is to measure your total performance at the end of 30 day periods of trading. Use the universally recognized “profit factor” for this. Profit factor is calculated by dividing your gross winnings by your gross losses. If your profit factor number is less than 1.28, you should keep on paper trading for another 30 days and then calculate it again. If it’s above 1.28, you can consider yourself ready to risk real money, however it’s even better to wait until you have it at 1.5 or above.

Take your time. If you have to paper trade for four months before your simulation profit factor is where you want it to be, then so be it.

All successful investors today were paper traders once upon a time. You can be like they are!

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