Candlestick Trading Blog
January 21, 2008
Online Paper Trading
Online Paper Trading – Necessity or Hindrance? If you are new to the stock market world and to stock trading, you may want to invest your time and money into an online paper trading system. Paper trading is different than live trading because with paper trading, there is no real money involved. The transactions are imaginary and the new investor can afford to make mistakes. Many investors believe that if you cannot learn to properly paper trade, then you will be unable to make money trading stocks. Other successful traders actually believe quite the opposite. These investors believe that online paper trading profits are meaningless and can in no way indicate real-money making potential. I think that the best way to address both opinions is two-fold. Conduct online paper trading to learn the investment basics only and do not procrastinate getting into the market. Give yourself a time-limit (some say three to six months) and then quickly begin to invest a very modest amount of real money. Do not allow yourself to turn online paper trading into a game either. This can lead to very bad habits that you will not be able to correct very easily. You must try and keep it as real as possible, even though it is not. Reasons for this will be discussed later in this article. In addition to online paper trading, a new investor can also conduct self-guided paper trading. This is old-fashioned paper trading where you do everything by hand. You do not trade with real money and do not yet have a broker. There is also broker assisted paper trading that is basically just what it sounds like. You can enlist the help of a broker to assist you with fictitious trades while you are learning to invest in the stock market. Many believe that this investing strategy will increase the learning curve. Online paper trading, however, seems to be the most popular method for investors who want to practice stock trading, without risking actual money. When you begin to conduct online paper trading, be sure that you follow some basic guidelines. All traders should keep a trade journal. This enables you to monitor the trades, your trading style and your trading options. You can assess your progress and can also evaluate your stock charting capabilities. You should also be sure that you are trading realistically and that you try many different exit strategies. Determine if you tend to exit your trades too early, or if you wait to long. Online paper trading is a great way for you to develop your own personal trading style. The last concept that should be mentioned when discussing online paper trading is emotion. It is for this word alone, that the smart investor should try to keep this form of “practice trading” as real as possible, as mentioned above. When online paper trading, there is no “fear” of losing real money. You do not experience the range of emotions that go hand-in-hand with online stock trading; therefore you don’t know how you will react to it. Greed and fear may overcome you, one more than the other, or perhaps both more than you anticipated. On top of that, you can imagine the added stress of trading using a portion of your child’s college fund or your retirement fund. Unfortunately, online paper trading miserably fails to deliver the emotional effects of trading with your own money. That is why it is important to learn to paper trade online, commit to a three to six months time-frame, and then begin investing a modest amount of real money. Overcoming greed and fear is the hardest concept for 99% of all investors, probably even 100%. The sooner you begin to conduct internet stock trading with real money, the closer you are to managing the range of emotions involved when you trade stock. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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