5 Tips to Get the Most Out of Paper Trading

Building a solid trading career is all about preparation.

Many losses early in a trader’s career can be avoided. Trading a paper account is a great place to begin developing your system along with a little confidence. If you’re currently paper trading, or are looking to start, here are some things to keep in mind.

Choosing a Platform

Trading Methodology

The first thing to do is pick a quality broker. If you spend a little time now picking a broker you like, it makes it easier when switching to a live account because you will already be familiar with their platform. I use Infinity Futures and find their platform to be fantastic.

You can read my review of the Infinity Futures AT Platform if you’d like to find out more about the specifics. The nice thing about Infinity is their paper trading platform is identical to a real account which makes it a breeze when switching over.

What to Focus on When Paper Trading

1. Get Acquainted – Familiarize yourself with the platform and make sure you know exactly how everything works. You don’t want to give up money due to silly user error mistakes. Better to make those mistakes now on the demo account than when real money is on the line.

2. Take Notes – This is an iterative process so record everything. Keep a notebook in front of you and record as much as you can. This will primarily be related to your trade setups as emotional discipline is hard to develop on a paper account. Go through your notes after hours when the markets are closed and see what patterns you find.

3. Follow a Written Plan – The purpose of a paper trading account is to master a methodology so when you turn to live trading execution is effortless. Write down some criteria for entry’s and exits and follow this methodology. Work to develop this set of criteria and review your plan each night.

4. Execute Bad Trades – That’s right. Experiment with taking a trade that doesn’t meet your criteria and see what happens. You want to have a plan for all possible scenarios. “Always expect the unexpected.”

5. Analyze in Sets – Group your trades into blocks of 20, 50 or 100 and base your analysis off this data. Don’t make any snap judgments off any individual trade. They are all part of a larger statistical set.

When Trading a Paper Account…

Do:

  • Experiment and test new ideas (it’s paper money so it can’t hurt you).
  • Keep your position size small. Trade a reasonable lot size, but experiment with multiple contracts.

Do Not:

  • Expect the same results on a live account. Once real money is on the line your emotions will begin to influence the way you trade. This is the next big step to master.
  • Switch to a live account to soon. Take the time to master your methodology first on paper. Once you prove to yourself at least a month of consistency, then consider going live.

10 Mistakes to Avoid

Last November I had the opportunity to speak at the Las Vegas Traders Expo. I spoke on the top of trading mistakes, more specifically. I made available a rerecording of my presentation, How to Avoid the 10 Costliest Trading Mistakes. You can also read about my trip and download a copy of my presentation slides.

The Take Away

If you can’t make money on a paper account, you won’t be able to make money on a live account. More importantly if you DO make money on a paper account, be prepared for different results when switching to a live account. That’s just how it is. Most of this is tribute to the emotions involved with having real money on the line.

Master your trading discipline while trading a paper account so you can work on mastering your emotional discipline when you switch to a live account.

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About Tim Racette

Tim is a full-time trader in the futures and stock markets and founder of EminiMind.com. He is also a Chicago-land native, competitive mountain biker, adventurer, and ASU Sun Devil.

5 Responses to “5 Tips to Get the Most Out of Paper Trading”

  1. Do you see a value in paper trading? How has paper trading helped you?

  2. This is a very good article.I am in paper trading mode at this point.I have a live account with AMP Trading and NinjaTrader as my platform.Im still using my demo to try some of the techniques you have here.

  3. Hi Tim,

    I have used optionsxpress for a few years – any comments on their platform?

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