Upcoming Free Training Event: Practice Makes Perfect We have all heard this saying before, and it really is a wise statement. If you are reading this article then you are thinking of following that saying. You have started off trading on the right foot.
How should you paper trade? Just doing a quick web search pulls up many results for different trading simulators, games, and paper trading platforms. But are these really the best way to practice your trading? Are these platforms just like the real world? We are not going to dive into any specific programs or websites, rather we are going to look at general categories or types of platforms that you can use to practice your trading.
There are three main platforms we are going to look at:. When searching the web, simulators and trading games are probably going to be at the top of your results list, but what are they and how do they work? Well they really are just what their titles suggest-simulators or games.
Often these platforms are designed not so much for testing a strategy or specific trading style, but to get you interested in the market and let you practice general concepts. These platforms typically let you practice using fictitious or historical data.
These simulators also often cost money. If you are new to the markets and just looking to poke around a little a simulator might not be a bad idea. The next main type of paper trading is through the use of the tools provided by your broker. This method is absolutely a step in the correct direction and has some very valuable advantages.
Also, the stock data you receive is much more current. The goal of your broker is for you to start trading with them so they can collect trade commissions from you. Because of this they quite often provide their paper trading platforms for free.
These will vary from broker to broker so you will want to check how your broker handles paper trading and not just take my word for it. TOS is truly a fantastic platform for trading and can be quite complex so getting comfortable with it in a paper trading environment is not a bad idea at all. However, the big issue with using the PaperMoney platform for practicing is the fills that you get on your orders.
What do I mean by this? Well, first you need to understand the spread you can read more about the spread here. Basically the spread is the difference in price between the bid and the ask for any given security or stock. This spread can be as little as a cent or two or as large as several dollars. Typically, when you are trading with real money you will get filled on either the bid or the ask.
So lets use an example. Now your plan or strategy thinks the stock will go up in price which will allow you to eventually sell for a profit. However, you still need that stock to move at least 10 cents in your direction to be back to break even. Why is this an issue? Well rather than being at an immediate loss like you would be in real life, you are actually just break even. All in all, your brokers tools are not a bad idea or way to practice trading. However, you need to make the paper trading as realistic as possible and middle fills make that very difficult.
This last option is going to be the most work, but will also be the most realistic method to paper trading. When trading with paper and pen you can get the best of both worlds.
You can still use your brokers tools for all of your charting and scanning. However, when it comes to order entry you will use your pen and paper. I strongly recommend the spreadsheet or paper and pen method. I have actually created a free spreadsheet that you can use and a video walking you through how to use it to make your practice trading as realistic as possible. You can find that video and spreadsheet here. All of these methods of paper trading are better than nothing.
You should never just jump into the market without testing your strategy first. I use the paper and pen method on a regular basis when I am looking at new setup or strategy, and I strongly encourage you to do the same.
If you have any other questions or comments please leave them below, I love to hear your feedback and its extremely helpful to others who may just be starting out.
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