Paper Trading (Simulator Trading)
By Cliff Clark
Is paper or simulator trading necessary to your success? I think this is a very logical and necessary step in the proper implementation of a trading plan but many aspiring traders consider it a waste of time for several reasons. One of the most common reasons given is the fact that it doesn't involve the emotional stress associated with putting real money at risk. I consider trading on paper to be an important part of the developmental stages of any new trader. Here are some reasons for you to consider.
The first step to building a successful trading career is building your trading plan. I've probably talked so much about this in previous articles that you are getting tired of hearing about it. But once you have a trading plan in place you have to gain confidence in its viability. This is where paper trading or simulator trading should be implemented. You don't paper trade to prove that you can withstand the emotional stress brought about by using real money. You paper trade to prove that you are implementing your strategies correctly and your management works. If your trading platform has a simulator trading in the simulator during this time also allows you to learn your trading platform. It's wise not to trade real money until you have vigorously tested your trading plan on paper and know that it can make money for you.
The paper trading phase of your plan should be logged in a spread sheet. Trades should stick to what is defined in your plan, positions should be managed according to your plan. There should be minimum performance requirements that should be met before putting real money put at risk.
I don't think the paper trading portion of building your plan has to be extensively long. Once you are confident that you have a working plan you can put it to work with small risk, lets say $10 or $20. This is where you start putting your emotions to the test.
Starting out in this way will likely save some of your hard earning money in the early stages of your development as a professional trader.
2 trades for me today with +1.5R total
1st Trade QCOM +2R
148.39/149.97 exit 143.25
12% gap down under pivot support and 50ma after a strong daily double top rejection,. I took it on a congestion breakdown with a fairly wide stop, leaving my 2R target 50c over its ATR, slow but consistent move down with great RW, hit my target on the penny before it bounced.
2nd Trade AQB -0.5R
9.40/9.70 exit 9.56
I rarely trade stocks under $10 and even more rarely short them. I liked this daily chart as it broke its uptrend channel and stayed under a strong 9.50 support line enough room to its daily 50ma. I entered after a pullback with a fairly wide stop but only 1/3 of its ATR used at the time. It failed to break down with the strong market open and stayed in a narrow range.
I actually broke my plan with this trade as I lowered my stop to a pivot where price made a big bounce earlier at 11am with a large seller sitting there. My thought was that if it breaks that level again then it will likely...
1 trade for (-1R)
I took a BD on QCOM. I was worried about the target being close to the daily range, so I took a tighter stop on the 2 min chart. I am looking through PTS right now, most of the examples have 2 options for where to put your stop. It looks to me like one of the stops would be at the bottom of the main consolidation area, and the other at the bottom of where there has been a shakeout or turnaround bar (if there has been one). Due to the daily range I took the tighter one on this. In hindsight it seems obvious to take the wider stop, but in the moment it looked ok.
I was then looking at the 15 min 3BP on QCOM, but the reason I used a tighter stop in the first place was because of the range. The 15 min 3BP would have needed to have gone even further than the wider stop on the 2 min BD, so I didn't take it.
