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Thread: "Paper trading - Useful or a waste?"

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    Since I first started researching trading I've heard people say they practiced with "paper" accounts before they started trading and I've heard people say that "paper" trading is useless because it doesn't account for the "emotions" of trading with your own money (or other peoples money in some cases). Anyone who has read my intro's or background know that I am a fan of paper trading and I am going to try and explain why I did paper trade before I started controlling my own money and why I continue to trade on simulated trading systems while I am investing real money.

  2. Default "Paper trading - Useful or a waste?"

    I have a decent career currently doing consulting work for just over a year now (not financial consulting). Before I started my current job I spent 12 years in the US Navy working in the nuclear field. There were two things we constantly did; Training and drills (practice). The two were intrinsically related. We constantly trained on what we were going to do in normal situations and what our actions would be in casualty situations. Casualty situations ranged from nuclear accidents to flooding on a submarine etc. Most detrimental (casualty) situations on a nuclear powered submarine are potentially life threatening.

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    Every week we would practice our responses to many different problems, from simple to the most complex anyone could imagine were remotely possible under the worst case scenario. After a while it became mind numbing to repeat the same actions for the same scenario over and over again.

    6 years ago it was far from mind numbing when a 4" hydraulic line ruptured (hydraulics are what allow the submarine to head back to the surface). To put the situation in perspective I'll describe a bit of the scene. Shortly after eating dinner I went to go do my job (supervise the routine operations in the engine room which generally consists of making sure everyone was watching their equipment and not falling asleep), but what I ended up doing was encountering a smell of oil, followed by finding oil billowing out of a pipe at thousands of pounds per square inch. This oil is what will control the submarine to allow us to get back to the surface of the ocean instead of ending up permanently under the ocean (yeah, that means dead...).

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    I think paper trading is really useful for learning techniques and rules. And having those down pat really makes it easier when you have to deal with the psychology of trading with real money. So yeah, it isn't the "real thing" but it has a very useful function in that it lets you use the rules you have learned in an almost subconscious way while you deal with the fear, terror, dread and greed of actual trading. Sort of like musiciana who can use what they have learned automatically and concentrate on the emotions of the performance, instead of figuring out how to play a certain note. On the other hand, you could argue that paper trading is like having sex with a rubber doll instead of a live woman. But don't forget, you could practice your technique with the rubber doll.


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    All of the mind numbing "pretend" casualties of this type allowed for the crew to have an ingrained response on how to handle the situation. We isolated the problem, restored controls, and fixed the problem. There was no emotion (even though it was a potentially life threatening incident to myself and the rest of the crew), there was no hesitation and there were no second thoughts on what to do.

    The reason for the response was it was a proven and practiced response.

    I still use simulated trading today even though I am trading my own money in the market. The reason is simple. I don't have unlimited capital to trade with so I can't make every trade I see as a possible or even a good trade. What I can do is make simulated trades to practice my system and my rules. Every time I follow my system and my rules for trading I can evaluate whether they need to be modified or if they work. On top of that, every time I follow my system and my rules I get more comfortable following them which makes following them second nature so that is what I will do instead of rebuying a stock because I really really thought stock XYZ was a good buy last week even though it's down 10% now.

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