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Tips on How to Paper Trade

Updated on March 18, 2011

Attend a Seminar

You may now believe you can jump into the stock market and start trading. Do not jump as yet for there is no reason to be in a hurry. There will always be more workable opportunities to make money after you are fully prepared. If you are a novice trader, you should seriously consider applying the following steps in order to become a sound, consistent trader:

Perhaps you can start by attending a seminar for beginners where you will learn the basics of trading and investing in the stock market. In the seminar you will be taught what work and what doesn't work. You will meet with others like you and you can exchange ideas. Get yourself good books on stock market trading and read as much as you can. You will find there is a lot of information to be read. In return you will benefit from the experiences of these authors and traders without you having to lose your own money in losing trades.

Extra Account for Paper Trading

Find an online stockbroker who will allow you to have an extra account for paper trading only. A paper trading account should provide trade simulation functionality. Your paper trading account should have its own account number, username and password, and will be given the same real-time market data and trading permissions as your actual account. This paper trading may have a small monthly fee of $5 to $30. Join that and pay that small fee rather than go for those free ones in the internet. This is for real only that you do not loss or gain real money. Go ahead and simulate your strategies in this paper trading account before trading real money. Decide on a period of time; say three to six months, in which you will restrict yourself to paper trade.

Online Stock Brokers

Armed with sufficient knowledge, decide on how you want to trade - perhaps you want to work at home by using an online stockbroker. Search Google for the best online stock brokers. There are websites out there that specializes in comparing and contrasting the best online stockbrokers. When you make your decision, you have to consider the commission rates beside other considerations.

Find an online stockbroker who will allow you to have an extra account for paper trading only. A paper trading account should provide trade simulation functionality. Your paper trading account should have its own account number, username and password, and will be given the same real-time market data and trading permissions as your actual account. This paper trading may have a small monthly fee of $5 to $30. Join that and pay that small fee rather than go for those free ones in the internet. This is for real only that you do not loss or gain real money. Go ahead and simulate your strategies in this paper trading account before trading real money. Decide on a period of time; say three to six months, in which you will restrict yourself to paper trade.

Value of Paper Trading

If paper trading is done in other forms outside of fee paying paper trading account with your online broker, there is lack of good representation of how you would actually perform in real trades for the following reasons:

  • 1. Lack of honesty. People are never honest with themselves. If you use your online broker account, once you initiate a trade, then your broker's trading platform will account for price, bid ask slippage and commissions, profit and loss. You never get the chance to use eraser.
  • 2. Motivation. Maintaining motivation is a big problem. Creates an incentive to do well in your paper trading. Use your broker's trading platform to see if you are making profits that would motivate you.
  • 3. Stop loss. Setting an objective and a stop for every position you enter. With your broker's trading platform, you can easily accomplish this by using automatic stop loss orders.
  • 4. Use this paper trading period to learn as much as you can and test any of your broker's platform applications.
  • 5. Learn to keep good records - get into the habit of keeping good records. With your broker's trading platform, the records are on the system - you never get the chance to use eraser.
  • 6. Learn to place just a small part of your money at risk at any one time. This will give yourself the chance to make a few mistakes here and there and still retain some money to continue trading and apply what you've learned.

I write this as an active trader, not as a pure theoretician who keeps his own money off the speculative table. As a reader of stock market trading literature, you will find that many speculators who are writers will hardly admit to having had a losing trade. You may be tempted to admit that there exists an unwritten law that speculators who are writers tell of their gains but never their losses.

The Author’s page is designed to help beginners and average readers make some money as an extra income to supplement what they may be earning elsewhere - details of which you can find in My Page, if you will.

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    • 2patricias profile image

      2patricias 8 years ago from Sussex by the Sea

      Good hub. Stock market trading is not a route to quick riches! Best to enter with caution, as you say.

    • profile image

      MysteryLeo 7 years ago

      Take a look at this:

      http://www.traderbots.com/stocks/AllPortfolios.asp...

      Essentially it shows you lots of trading systems paper trading. Really interesting to see what works.

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