Anyone wanting to succeed with any form of trading will be keen to read up on the mechanics of trading as well as about other individuals who have succeeded in their particular trading field. Reading up is great, reading up on anything will over time help you build knowledge, generate new ideas and see things from a new perspective. There is however one thing which comes up often in trading literature for which I completely disagree with – paper trading!
Here’s the thing, I have read dozens of books on trading over the years in addition to tons of online content, blog posts, YouTube videos and the like and the paper trading argument comes up again and again and always with the reasoning that it is a good thing since you are not risking any “real” cash! To someone who is new to trading this will inevitably seem like a good idea, minimising risk is of course key to successful trading and with paper trading a strategy can be proven first before any “real” cash is risked!
Now, I don’t specifically disagree with reducing risk, however, I still think paper trading is a bad idea for one reason more than any other, hesitation! – let me explain…..
When placing a trade (for real) most people who are new to trading will hesitate before pressing the deal button and committing to the trade. The reason for doing this is at this point the theoretical risk of losing money becomes very real and it is only natural to question what you are doing when money is involved. It might not be evident at first but over the log term hesitation will inevitably cloud you vision, see you missing the ideal entry point for trades and cause undue stress in the process!
Paper trading of course removes the risk of losing any “real” money but as such does nothing to help in the process of removing this hesitation form trading, for my money this is a key component in being able to stick out the early and often rough stages in anyone’s trading career and being able to stay the course and eventually become profitable. Many successful traders will tell you they were hopeless at first and only through persistence, hard work and controlling their emotions eventually became successful later on.
So, all-in-all, hesitation is something you want to be completely devoid of whilst trading – either make your trade as planned or pull out all together, anything in-between is a slippery slope and wont end very well!
For my money it is a much better idea to start trading with small amounts of money and see how things go, even though you wont win or lose much the process will be real and mentally you will be playing a very different game! Even though the stakes are small you are still trading for real and getting comfortable making decisions and executing them, in time removing any hesitation from the equation.
If you are one of the few who sticks to trading for the long term (and many don’t) and are continually improving yourself then this hesitation phase will mostly disappear over time and pressing the button will become just another emotionless process which is exactly what it should be. But here’s the thing, this will only happen when you trade for real, using paper money will never get you to this point!
This is only my opinion of course and I’m sure many will disagree with me, please feel free to comment (below), I would be very interested to hear what other new and experienced traders think about this!