Hi Kevin; Regarding paper trading. Traders are divided about whether this is useful or not. I'm one of those who believes whole heartedly in it. But some observations.
First, paper trading is more accurate the longer term your trading is. In other words, very fast traders have to worry a lot more about the last 1/16th (or 64th), and that means how good their fill is, and that cannot be easily simulated on paper. The first problem is that even with a very high speed quote system, a large percentage of the quotes on a fast moving stock will be obsolete most of the time. (This is particularly true if you have just been accidentally double filled and the stock is now running at a rate of a price level per second against you.)
Second, paper trading is particularly good to allow you to see how you trade without the emotional stress of having money at risk. I, personally, find that I paper trade much, much better than real trade, and that I also enjoy paper trading more. (I'm really not the type that likes to take risks.) In particular, on days when I paper trade, the other traders are more likely to listen to my comments, and I am much more sure of what I observe. I am working on this...
Third, paper trading can contribute to the extremely bad habit of doubling up on losing trades. I have seen this repeatedly with beginning traders. In fact, I ought to type up a list of "losers I have known," a list of the typical trading types that come in and blow through an account. An amusing thing to do on a trading floor is to take a group photograph, and then cross out the traders as they augur in (Seattle is AKA jet city, so here, "augur in" means crash). The place I trade at, now rejects the vast majority of the people who ask about opening an account, and they do not advertise. I think they should, but they figure word of mouth is good enough.
One of the old traders told me that at one office he traded at (in S. California) had a solution for those annoying trades which end up going nowhere, and with a big spread. They just offered out a 1/16th below the ask, and yelled out "I think XXXX is about to run up!"
The new guys would then take them out of their positions. Maybe paper trading would allow you to clue in to who was making useful comments...
-- Carl |
