Paper Trading

Paper trading or simulated trading can be of significant assistance to beginner stock traders as a means of enabling them, without risking any real money.

In order to acquire a feel for the markets and to try out various trading strategies and systems prior to committing any capital in "real-time" trades.

In other words, Paper trading gives you the opportunity to practice trading and gain valuable experience without the risk of losing your hard earned capital.

Demo Trading

There are numerous Web sites that permit you to "Demo" trade and track a fictitious portfolio of stocks. However, most of these are not recommended as paper trading vehicles for beginner traders as the quote and price data on many of these sites is not updated frequently enough and access to such essential tools as the Nasdaq Level II quote screens is rarely provided.

Paper trading should be carried out with the same trading platform that you expect to use when you are ready for real trading. In this regard, many direct-access brokers will allow you to open an account in "demo" mode using live market data and a direct-access software program such as RealTick. You can use this "demo" account to learn how to use the various software features and to paper trade as much as you possibly can in a realistic environment.

Paper trading is useless if you are not simulating real-life day trading as much as possible. For this reason you should try to approach paper trading as if you were committing real money. This involves setting up a trading plan dealing with the following:

• Identifying the stock or commodity you plan to trade.
• Entry & exit points.
• Stop loss limits.
• Risk and Reward profile.
• Capital available to trade.

Duration of paper trading

How long should you paper trade before commencing to "real-life" day trade? There is no set rule in the trading enviroment in this regard. You should continue paper trading until you become completely comfortable with the trading system and confident in your ability to use such techniques as "limit orders" and "stops". Most people should, in my opinion, paper trade for at least a 4 to 8 weeks before they commit themselves to trading real money.

Important: Success in paper trading does not ensure success when trading in the real market. It is a know fact that it is normally easier to profit in a paper trading environment than in the real markets - in large part because emotions tend to cloud trading judgments when real money is at risk. Nevertheless, the proper use of paper trading can be a very useful tool to increase your likelihood of success when you begin trading real money in real-time.