Dan,
If a trader has chosen a trading plan that is NOT successful while paper trading, they can't hope to succeed in live trading.
This point is well taken, but I see two problems with it. First is denial. A hopeful, wannabe trader can come up with all kinds of excuses why paper trading is NOT successful, including the old "I wouldn't have done that if it was real money on the line. I'll just ignore this 2 stick loss here and add up my winners. I won't make THAT mistake again, so it doesn't count." And second is the fact that almost everyone gets to the point of "making money" on paper, often doing things they either cannot or will not do when trading live. Along the way they are likely to develop bad habbits that will be broken later at great expense, or not at all. I don't doubt there are some highly disciplined people who can go about this the right way and benefit from this first paper trading step. I firmly believe it's a small minority.
Commissions and slippage can eat up your account even with small positions.
I don't expect all of you to agree with me, but far better to suffer this in a small way early instead of in a bigger way later, IMHO.
I suggest testing each trading plan by paper trading. If successful, follow that with live trading small positions, followed by larger positions.
For someone who has experienced the real market and is testing a new system or plan I agree this is a good approach. I still don't think it's the right way for someone who has never experienced real world slippage, being in the money in a trade and having it turn into a loss after repeated failed attempts to get out, then deciding the worst is over and waiting for the rebound, only to have the cycle hit again, ultimately paying through the nose for holding out too long for that one last teenie. These things don't happen to paper traders who play a see a quote hit a quote game.
I will say that there are some places where you can do more realistic "paper trading" like some of the online "contests". Some of them give delayed "fills" so you don't get used to thinking every price you see is the price you get. The problem there is it's too easy to dismiss that "reality" element with the idea that in the "real world" you would have gotten that one, and too easy to hold on to things you should have stopped out of because chances are they will come back. Often they do, and no one really suffers when they don't.
I think I've said my piece on this issue, so I'll just respectfully agree to disagree with anyone who has a different view.
Dan |
