Paper Trading Vs. Real Time

By Al Thomas

If you decide to become a serious trader in stocks or commodities it is always suggested to practice paper trading. The same for when you buy a new trading method.

There are many systems for sale. Some work well and others do not, but they continue selling them. When I owned my brokerage company I had one broker who sold a cattle trading method. One time he made $150,000 in 30 days following the signals. I called him and said, “Mike, it is time to take a vacation to get your head settled down”. “No, Al, I know what I am doing”. During the next month he lost $155,000.

He was charging $3,000 for the system. Checks only. How many of these he sold I don’t know, but real time trading shows even an expert trader can lose big money.

When people are using a new method they should paper trade it to be sure they understand the signals. If the trader misinterprets even a small part of the system it could cause a big loss. A few months following the signals will make him confident he is entering the orders correctly.

Buying any system that has several steps the signals must be followed exactly as given. As practice goes along a novice trader may think he has discovered a way to tweak the system to make it work even better. Don’t do this.

If you paid big bucks for it then follow the method exactly.

A novice trader will buy a system, paper trade it for a while and finds it works OK. Then he will decide it is time to put real money to work.

Now comes the hard part. When real money is on the line the trader will either not act quickly enough or pull the trigger too quickly. Either way it will affect the outcome of the trade. Usually a few ticks either way won’t make much difference, but being gun shy or waiting too long can mean the difference between profit and loss.

Day traders especially can get buried with slow reaction time.

The advance from paper trading to real time is like night and day. The psychology is completely different once you have your own money on the line. The same goes for you Las Vegas shooters.

With a paper and pen in hand watching the prices slide by is entirely different when those numbers represent you’re your money.

Short term or day trading is very difficult. The trader must make split second decisions all day – buy or sell. It takes a certain type of personality to be successful. Many people try day trading. Few are successful.

Even as a floor trader I could not do it. I made my money waiting for the long term position to present itself.

The biggest obstacle to trading, investing, short term or long term, when real money is on the line is you.

Al Thomas’ book, “If It Doesn’t Go Up, Don’t Buy It!” has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know. Copyright 2009 Williamsburg Investment Co. All rights reserved.