Hi Tae Kim; It is true that paper trading and real trading are world's apart. That is why paper trading is so useful. Sometimes a problem can be solved only by looking at it from a different direction...
If a trader is great at paper trading, but fails at real trading, then his problem is likely to be one of the two things you mentioned that distinguish paper from real trading.
If it is bad fills, he needs to work on improving his finger action, or modify his paper trading assumptions, or even change his trading system to one that doesn't require decent fills. Maybe he's getting quotes that are too slow.
If it is his emotional state, then he needs to alter that state. Paper trading can give him the confidence of knowing that his system will work, provided he only uses it properly.
I have also seen traders perform almost deliberately unrealistic paper trading. This would be a sign that the trader wants to fool himself. An example would be trading at a size larger than the liquidity available. Another example might be simply ignoring his losing paper trading days. A classic is to eliminate losing days by doubling share size after each losing trade - it works great on paper, but the real trader blows out his account doing this. These are forms of fantasy land...
In any case, paper trading does provide useful input to the trader. To me, paper trading is sort of an ideal game, one where I am relaxed and at peace. I should do it more often, in order to measure how far from perfection I am in my emotional control during real trading, or in my ability to predict realistic fills while paper trading.
-- Carl |
