In this article, we’re going to talk about the best stock market simulator. We’ll take a look at several different ones, and I’ll discuss:
- What they are
- Why you need to use one
- Pros and Cons of stock market simulators
- The best trading simulator
But first, let’s answer the question:
What Is a Stock Market Simulator?
Stock market simulators, or trading simulators as they are also known, are programs or web-based applications that look and feel like a real trading platform.
Of course, there is one key difference: in a stock market simulator, you are trading with paper money and not your own funds.
Using a simulator is a great way to get familiar with trading on the stock market and test out different trading strategies without the risk of trading with your real, hard-earned money.
Why Should You Use a Stock Market Simulator?
Here’s how I think about this: How do airplane pilots train before they are allowed to fly a plane with cargo or passengers?
With a flight simulator! Just like trading simulators, flight simulators are designed to train pilots in all of the different scenarios and situations that could arise during a flight.
Things like turbulence, flying through thunderstorms, and flying at night, can all be simulated so the pilot can gain experience and know what to do when they happen in real life.
After pilots have successfully passed the simulator, they move on to flying a real plane. Even then they will have experienced pilots sitting with them for support until they are comfortable and capable enough to fly the plane on their own.
If an aspiring pilot was crashing a lot of planes in the simulator do you think they would be allowed to move on to flying a real plane?
Pilots train in the simulator until they are successful and the same reasoning can be applied to trading as well!
Here Are 3 Reasons Why You Need To Use A Stock Market Simulator
Reason 1: Prove to yourself that your strategy is actually working
Whether you invested in a trading strategy or developed one yourself, you will want to make sure it works before you use it to trade your real money.
This is the perfect reason to fire up a trading simulator and see if the strategy is successful, and most of all, understand why it is successful.
You might have lost some time trading in the simulator, but hey, at least you didn’t lose any money!
And now, when you have perfected your trading strategy and are ready to move to the real thing, there is a better chance you can be successful with it right off the bat!
Reason 2: Prove to yourself that you can actually trade the strategy
Every trading strategy works at some point, you just need to learn the specific rules of entering and exiting a trade.
Sometimes these rules are based on your indicators, while others rely on chart patterns or fundamental data.
Whatever your trading strategy relies on, you can make sure you know EXACTLY when to enter and exit your trade after you’ve practiced it in your paper account.
Trading is definitely more challenging than you think, so prove to yourself that you have what it takes to execute with your trading strategy before you commit to trading with real money.
Reason 3: Make mistakes!
Wait, what? I know this sounds strange, but hear me out!
When I first started to trade, I was so excited that I just wanted to jump in every morning and start trading. I even took the time to develop my trading strategy, so of course, I wanted to put it to use and make some money!
Long story short, I started to trade with real money and ended up losing money with my trading strategy because I made mistakes.
But that’s normal! No trader is successful 100% of the time. When you start something new, especially something as difficult as trading, you will make mistakes.
Here are some of the mistakes I made as a new trader:
- BOUGHT when I was trying to SELL
- Traded 1,000 shares instead of 100 shares
- I bought at 33.03 instead of 30.33
- Bought shares of AM instead of AMD
… and many, many more stupid things!
Even if you are much smarter than me, and I know a lot of you are, practice on a stock market simulator first and make your mistakes in your paper account.
Learn from these mistakes, write them down, and study them. And then, when you are ready to trade with your real money, you can look back at these mistakes and learn how to avoid them!
IMPORTANT: Please Take Trading On A Stock Market Simulator Seriously!
YES! – Trading on a simulator is different from live trading.
But if you lose money on a simulator, I guarantee you will lose money in real trading as well. Let me explain.
Remember earlier when we were talking about pilots training in a simulator?
We agreed that a new pilot that crashes the plane every time they train in the simulator wouldn’t be trusted to fly a real plane with passengers.
Well, the same is true for trading.
Use the trading simulator until you are successful in it. Take the time to seriously perfect your trading strategy, until you are ready to fly the real plane.
Another important thing to note: If you make money on a stock trading simulator, it does not guarantee that you will make money in the real stock market.
The stock market is unpredictable, but if you take your training seriously, you will have a much higher chance of success when you leave the simulator.
How Long Should You Trade On A Stock Market Simulator?
My recommendation is to use the simulator for at least 40 trades, and here’s why:
In my opinion, a sample size of 40 trades is enough to have a statistically significant sample of your trading performance.
After 40 trades, you should be able to determine if your trading strategy is working. You should never judge your performance off of 5 or 10 trades, just like a pilot shouldn’t fly planes after just 5 or 10 simulations.
Let’s say you make 5 trades in the simulator and they’re all winners. You might instinctively say, “Oh wow! All of these trades are winning trades. My trading strategy works perfectly so let’s trade live.” That could be a big mistake!
That’s why I like to use 40 as a nice round number because it should give you enough data to make an informed decision on your strategy.
It also provides enough time and experience to make mistakes. As we talked about earlier, you WILL make mistakes, so why not make them in the simulator.
For every 40 trades, I’d say you will make between 3-5 mistakes. Sometimes more and sometimes less, but on average, 3-5 is normal. Learn from these mistakes and try not to repeat them when you are trading with your real money.
When I work with my private students that join my mentoring program, I always insist that they make at least 40 trades in the simulator before even thinking about trading with a real account.
What Is The Best Stock Market Simulator?
There are plenty of companies that offer trading simulators, so it might be difficult to narrow it down. Luckily for you, Rockwell Trading’s head coach Mark and I tested more than twelve different trading simulators.
Honestly, we found most of them were not very realistic when it came to simulating order fills. This is one of the most important criteria that we were looking for as it is crucial to have a simulator that gives you a realistic order fill experience.
We tested 12 stock market simulators, only ONE met all our criteria:
The best stock market simulator that we found is PaperMoney from ThinkOrSwim
Just a side note, I have found that ThinkOrSwim changes their URLs from time to time. If the link doesn’t work, just Google ‘Paper Money ThinkOrSwim’.
The paperMoney platform is offered by TD Ameritrade. The best part about it is, that it’s free for the first 90 days! You don’t even need to have an account with TD Ameritrade to use it.
These 90 days should be more than enough time to make your 40 simulation trades and work on your trading strategy.
Oh yeah, there’s one more thing before you get started….
VERY IMPORTANT When Using A Stock Market Simulator
While you are using the trading simulator, there is almost always a button that says ‘Reset All’. This button wipes out all of the data and starts over from scratch.
You might be tempted to hit that button after a few losing trades, but please, don’t do this!
The reason I say that is because in your real-life account, there is no reset button. Wouldn’t we all love to have a reset button on our accounts when we experience some losing trades?
But of course, that doesn’t exist. This is all a part of taking your paper trading seriously.
Remember our third reason to use a trading simulator? Make mistakes!
Don’t ever lose sight of this because as unfortunate as it is, you will make mistakes while you paper trade and when you trade with your real account.
Hitting the reset button limits you from learning from these mistakes. Recovering from losing trades and losses is a critical part of learning how to trade.
So don’t take the easy way out and hit the reset button when trades go against you! It’s all a part of the learning process.
Here’s what we have learned today:
- What is a stock trading simulator?
- Why should you use it?
- Pros and cons to trading simulators.
- The best stock market simulator.
Hope this helped, as I believe this is something we all need to do before we start trading for real. I often see questions about trading simulators, so I knew I had to do an article dedicated to the topic.
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