Should You Paper Trade?

Everyone should keep a journal.

Everyone needs a mentor.

Microblogging is so popular because it has never been easy to journal. Twitter exploded because of the knowledge/network you could leverage.

In a world of Twitter and now Stocktwits for (investing/trading), discount commisions and penny spreads, should you paper trade?

I say no.

You can’t learn if real money and emotions are not on the line. It has never been easier to journal your ‘paper’ trades, but I say dive in small, journal your real investments, no matter how small they are and learn faster.

What say YOU?


  1. Betty says:

    I suppose if you are just beginning and don’t understand the mechanics of different types of orders or wish to witness how theta effects options, paper trading can be useful.

    But beyond the basics, you can’t paper trade emotions and that’s the majority of it. In fact paper trading might be somewhat dangerous in that if you become accustomed to emotionless trading you may tend to take on riskier trades or overleverage without having learned to control fear, ego, et al.

  2. NHBI says:

    Paper trading to test a new trading platform and its tools for 1 month is reasonable. But I agree with Lindzon. Paper trading doesn’t build the relevant psychological habits necessary for real trading. It’s like learning to snowboard on the bunny slopes for a whole year — it doesn’t hurt like the real slopes.  It’s like playing poker with fake money — you’re prone to going ALL IN at the drop of a hat.

    I started with real money and just started small. It sped up my learning curve. To each their own style! ;)

  3. Anonymous says:

    I think paper trading has its place, particularly for testing out new ideas.  But there is a trick, in that you must be emotionally involved in it for it to be beneficial and that’s hard.

    When I paper traded, I made a point of doing EVERYTHING just as I would had I had money on the line – ie trade reviews, logging in spreadsheets, keeping all my normal stats etc. 

    It actually takes a lot of discipline to papertrade effectively :)

  4. theusedblog says:

    (my apologies if this posts 2x)

    The toughest part of investing/trading is the mental discipline required, over time, to be successful.  In my experience the best way for me to learn is by making mistakes.  It’s really easy to make mistakes and shrug them off when it’s ‘paper money’.  Refreshing and watching your brokerage account leaking cash dollars can be disconcerting to the uninitiated. 

    IMO, start small with an amount of money you can afford to lose.  If you can be successful trading a small amount of money, there is no reason why you can’t scale up the operation over time.

  5. theusedblog says:

     The toughest part of investing/trading is the mental discipline required, over time, to be successful.  In my experience the best way for me to learn is by making mistakes.  It’s really easy to make mistakes and shrug them off when it’s ‘paper money’.  Refreshing and watching your brokerage account leaking cash dollars can be disconcerting to the uninitiated. 

    IMO, start small with an amount of money you can afford to lose.  If you can be successful trading a small amount of money, there is no reason why you can’t scale up the operation over time.

  6. Greg says:

    I agree. Simulation can’t teach discipline due to the emotional disconnect. As if I’ll ever learn from real trading, just waiting for that USB shock collar.

    But anyway recognize that the sim isn’t making or losing any money and you’ll have more energy to focus on what you want to learn or improve on. I use it to test setups and see why they fail, see how fast I can recognize which technicals are strongest, memorize outcomes of patterns, or just to test my horrible patience, and ignore the fake portfolio.

    Just make a distinct separation of practice and trading.

  7. Dan Tylenda-Emmons says:

    While I can’t argue with your years of trading experience, I would have to respectfully disagree.  I used to be on the side that you have to have money in the game to feel the real pain of losses.  While there is some merit to that, it is also quite helpful to use paper trading to bring the trader to his or her true potential.  It is only when the trader can learn to REMOVE emotion from the trading process that the trader can reach the next echelon of expertise. 

    This means that the trader removes emotion from BOTH losses and gains; that is, the trader learns to accept losses and gains consistently in the same way — as if the trader has been there before, each and every time.

      • Dan Tylenda-Emmons says:

        Ha!  Nice.  I would have to agree with Speero that ThinkOrSwim “paperMoney” is a great papertrading tool.  Another  tool they have is called “think back”, where you can go back and trade a particular day, or a random day, to practice your trading skills.  I do this on the weekends from time to time when trying to learn a new style or hone my stop-loss skills.

  8. Daniel Speer says:

    I’ve had this conversation many a time with @gtotoy:twitter – as he would disagree with your post, Howard.

    However, I’d agree and disagree. Originally, I would’ve agreed completely – paper trading serves NO purpose. That was my premise. But in the last couple of years switching to DAY TRADING equities, I’ve found it serve a much bigger purpose.

    In swing trading, you have absolutely no money on the line if you are trading paper. You can wake up at noon and be down 12% and just hit the reset button. When you are DAY TRADING, though, you’re focused much more on the technique and your execution, and less focused on the money part of it.

    I believe in day trading paper trading serves a much bigger purpose because you are getting a better feel for the market and a better feel for how things move, because you are watching it at all times. If you’re swing trading (and any good at it) you’re not going to stare at your position and watch the ticks all day. That’s not what swing traders generally do.

    I think paper trading a swing trading strategy creates bad habits – at least, it did for me. I was much less concerned with what I was doing because I knew I was going to hold for several days, and I had no stress at night because it WASN’T REAL. When I paper traded a day trading account, I was only focused on my technique because it’s different – day trading is all reaction and execution. Swing trading requires patience, an emotion that is deeply affected by whether or not it is REAL.

    I don’t mean to steal any spotlight from your post, but I recently posted my further take on my blog at #YGT here –

      • Daniel Speer says:

        thinkorswim by far. real time quotes, real market feel, REAL trading platform. whether or not one agrees with my statements above, it is the best platform to daytrade or paper trade on, mainly because you don’t even have to open a real account.

        arguably lightspeed is my favorite platform, but they only give you 2 weeks ;)

          • Daniel Speer says:

            The platform is free, if that’s what you’re referring to. Otherwise, it was thinkorswim that was purchased by $AMTD. I have no clue if Lightspeed is owned by anyone, just actually made the switch recently. Best broker switch ever.

            Even though I still use thinkorswim charts. Don’t tell lightspeed that though.

          • JQuereau says:

            Lightspeed is independent., and has recently been buying software from other prop trading firms.  It is a decent execution platform but severely lacking in filters.  Most people add MadScan or TradeIdeas.  You can trade on a simulator, but I’m not aware of any backtesting features.

      • Daniel Speer says:

        Yeah, I’m an amateur web developer and can’t figure out how to code it into my custom blogger layout. Waiting til September to move YGT to wordpress. Thank God.

  9. Anonymous says:

    I agree with you Howard, that paper trading does not make you squirm when the market is going against you or lose sleep.  These are essential emotions that a trader needs to feel and then deal with to be successful.  Unless the loss means you cannot buy that next house, car, dinner or whatever it is just like playing your x-Box, an interesting diversion.  You cannot learn the primary role of a trader, risk management, without skin in the game.

  10. Anonymous says:

    Very interesting topic Howard. I will quote myself from The Stocktwits Edge Book.

    “I paper-traded while I learned anything and everything I could about the fundamental
    nature of the equities market and how to decipher the technical data left in its wake.
    Now, there are a lot of naysayers when it comes to the value of paper-trading.
    Some casually dismiss it as a potentially useful tool because it somehow can’t evoke the
    “real” emotion of trading; that you need to feel the risk. That’s just silly. As is the idea that emotion
    somehow even has a place in a successful trading strategy. It doesn’t. In fact,
    emotion is probably the ultimate culprit for 99% of the accounts that blow up. And
    therein lies the rub. Trading is an intensely emotional activity. After blowing up
    my first account, I stuck to paper trading for a full year.

    What I discovered through that experience was that my single greatest
    obstacle to pulling off successful trades wasn’t my interpretation of the technical
    data I was relying on for the setup; it was the constant bombardment of all kinds of
    emotional impulses we all experience everyday as human beings. And giving in to
    emotions tends to lead to some rationalization or another for deviating from the
    original trade plan. In reality, the most successful traders operate completely
    devoid of emotion, like machines. Why? They are machines. Paper-trading offers
    an effective risk-free method for humans to practice trading like a machine and
    temper the natural tendency to let emotions interfere. I highly recommend it as a
    prerequisite for first time traders and any trader who feels like they’ve maybe lost
    their edge. For me personally, as a result of the foundation I laid with my paper
    trading, I now pull the trigger on a trade knowing exactly where I want to sell my
    shares and where my stop is. And more often than not, my trade orders are entered
    in advance and executed automatically, in an effort to even further remove the
    temptation of emotional interference. Plan your trade. Trade your plan.”

    Hope this helps :)

  11. mattrixDOTinfo says:

    The first time I learn a new trade (or T.A. skill) I will paper trade to ensure that I have covered important areas. I’d rather not be surprised by a trade because I missed something.

    For example, trading a skinny butterfly using options as presented by Seth Freudberg from SMB Captial. I built this spreadsheet (see and I am paper trading the SPX to gain experience rolling the trade. I’ll paper trade it once or twice to build confidence that I have the mechanics of the trade plan down pat.

  12. Pingback: Wednesday 7atSeven: paper trade talk | Abnormal Returns
  13. AbdulAlikon says:

    I am behind you on this. I paper traded my way to inflating my ego to an unhealthy level. When I started to trade that’s when I started to learn. 

    Learn your lessons; but learn them the hard way.

  14. JQuereau says:

    I’ve been trading stocks for ten years and was assigned a mentor when I began.  I can remember the first few weeks while trading on the “simulator” version of the trading software.  This period was intended for me to become familiar with the software, observe my mentor, get comfortable with tape reading, etc.  While this period did serve its purpose,  in no way did it train me to deal with the day to day emotions of gains and losses or intraday volatility in my PNL.  Do I try to make it all back at once?  What did I do wrong today?  What are the upcoming events that could have an impact on the stock I trade?  Paper trading will never make your brain churn through these questions and learn to fight off the mental pitfalls.  It would take an extremely disciplined and meticulous person to gain real actionable experience from paper trading. 

  15. nike46 says:

    Having been around for a long time, I have seen hundreds of traders blow out their accounts and have to go back to their day jobs. I figure about 90% of traders lose all their money before they learn to trade. It seems to take 3 to 5 years to quit losing money. How do you keep your friends alive during that learning period. I have seen alot of people hurt over the years. I know you do not learn as fast paper trading but at least you survive while you are learning. The biggest problem is all new traders think if they learn all the technical aspects of trading they will be profitable. The trading schools encourage this idea. It takes about 5 years of trading to realize that the biggest hurdle to making money is ourselves. Our egos and our need to be right are our biggest obstacles. (proof of this is our inability to take stop losses which result in horrendous sharpe ratios.) Eventually we recognize that our trading psycholgy is holding us back and we make the changes. By the time this happens, 3 to 5 years have passed and we are lucky if we are still around. When new traders ask me what was the turning point for me when I suddenly became profitable, I say when I realized that my own ego and my need to be right was really sabotaging my trading. Once the psychlogy is right, the money flows easily. Learning those lessons is hard. 

    • max says:

      agree with you on taking the stop loss. most important thing i have learned is to place the stop and allow it to get hit . i lost a lot watching my stock go down with me onboard.

  16. Eric says:

    As a discretionary trader it never helped me. As an algorithmic trader, I would not leave home (or my terminal) without it. As a ‘gone fishin’ trader, it is sure fun to comment on your blog, Howie.
    — Eric

    PS cant login to disqus from inside the den of thieves. sorry bout that. fawk!

      • Loose132 says:

         i have said it for years . paper trading never worked for me . very small lots with real money is where it is at . trading is easy . emoitions and the mind psych is the difficult part. you need real money for that;

  17. zortrades says:

    there is no such thing as paper dating, so you shouldn’t paper trade…I wish i was 18 single with facebook,twitter, quepasa etc…

  18. Rick says:

    Daniels’ post was spot on. how you use the simulator/paper money account is also important. if you are a new daytrader and you only have a 25K or less account and you start by firing off 10 lot ES contracts or 1000 shares of aapl positions just for fun you are doing yourself no good. To increase your simulator success factor you need to journal a plan and a mission statement like: my goal is to 1) learn the platform & tools inside & out, 2) learn a system that fits my personality & account size. 3) find, practice & take all trades from my developing playbook. 4) state, my goal is to consistently make on ave  X dollars a week for X number of months . when you can acheive all that I believe that your success factor at becoming a profitable trader has greatly increased although even though you succeeded in Sim you still may fail. everyones psychological make-up is diffrent and some just aren’t programmed to do this.

    fighter pilots train & spend countless hours in simulator mode even when they have manys hours of real flight time and/or actual combat experience. the fear of dying in a dogfight is removed by the simulator but they keep their skills honed and in perfect harmony with their tactics, weapons systems & instruments.
    many of our developing & top surgeons are using simulators to practice complicated surgeries. If these Top Gun pro’s are training and using simulators why shouldn’t traders use them?

  19. ivanhoff says:

    Paper trading could be viewed as “technologically challenged” people’s substitute for backtesting. It has its benefits. I absolutely agree with you that nothing can replace personal experience with your own money on the line, but I also realize that doctors go to school for 8-10 years before there are let in the operation room. Education comes before practice. 

  20. Heritage Capital says:

    There must be academic studies done on the topic that give a definitive statistical conclusion.  From personal experience; I never did it, wouldn’t advocate it and don’t believe in it.  You’ll never make it to the NHL if you don’t learn how to skate well.  How do you that?  Skate, skate, skate.  Same for trading. 

  21. Ranjan Roy says:

    Depends on product you’re watching, but in the absolutely initial phase: no. Starting out as an assistant on a trading desk at a bank, the initial months were “book trades, get lunch, and paper trade.” The latter was naturally interesting, but the act of saying “i’m stopping myself out” is mentally lifetimes away from hitting the button and forcing yourself to stop out. 

    Finally my boss allowed me a book with fairly tight daily stops, monitored my positions, etc. Suddenly it wasn’t fun anymore, suddenly you actually had to manage risk. Best thing that ever happened and taught me more than any amount of paper trading ever could. Start small and build up.

    My caveat is with products that demand a high capital base to trade. Naturally you might be interested in the longer-term and the only way to truly learn about a market is to watch it with obsessive detail. In these cases, only real option is to paper trade..but if you’ve never really traded any type of product, this would be completely ineffective as well. 

  22. greinacker says:

    Somewhat related, for those who play poker, you know that it’s a COMPLETELY different game when you’re playing for money you care about.  If you’re playing for free, or playing for some amount that’s immaterial to you ($5?), it’s one game. When you’re playing for something that’s significant to you (or the potential winnings are significant), it’s a whole different game.

    I don’t have much more to add to the great comments here – other than to mention that IMHO paper trading is invaluable when learning to trade something like options, where it’s not always obvious at first what your position value will be for various moves in price or volatility.  Thinkorswim’s platform is great for modeling this!

    • options I never have really traded so I woud agree with your expertise for sure.  i dont think ANYONE learning to invest needs to know options at all.  The story for another post.  

  23. James says:

    I say paper is great to learn a new trading method before committing capital.  However, owning a hundred fictional shares of isn’t nearly as emotionally significant, nor occupying, as owning just one real share and compounded by the fact that the rise and fall of your account value is at the whim of the overall market.

  24. pointsnfigures says:

    Depends.  We used to paper trade on the floor all the time when we were clerks.  If you found yourself saying, I would have bought them there-and it was the stone cold low-paper trading isn’t much good.  

    Try to make it as realistic as possible.  Use the system you envision and try it.  Keep track of your P+L. Also try to figure out your commissions and subtract them from your profits-along with any ancillary stuff that you will have on a fixed cost basis month to month.  Even though you should ignore fixed costs, you still have to pay them. 

    if you find that you’re system is successful, then actually trade.  Start small and grow tall.  If you are making money trading small-up your size.

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