Paper Trading Simulator - Here's what you need to know

Today we're going to talk about paper trading on a simulator: what you need to know, should you do it, and what to watch out for.

Before I forget, I'm setting up a new website: www.mytradingroutine.com

On this website, there’s a video of me showing you exactly how I find the best stocks and options, how I place the trade, and the most important things that you need to know when picking stocks, options, when to enter, when to exit, and all the good stuff.

So, paper trading simulators...

Are you using them right now? If not, you should.

Let's get started.

I received a question that said, "Hello. I've watched that video about the trading routine. Very informative. Thank you so much for sharing. I have a couple of questions. Is this only a long swing trading strategy and also do you do day trading?"

Before I answer the question, let me tell you about another one that I received. It asked, "Also, what do you think about paper trading? I'm trying to do paper trading, but I know with real money it is different.”

Yeah, absolutely!

It is different to trade with real money than with paper trading.

However, I think that everybody should be trading on a simulator first. So, I want to tell you why that is. I want to tell you what to keep in mind and then I also want to give you a free resource.

I want to give you the, in my opinion, best trading simulator that there is on the market, and the cool thing is, it is free. Does that sound good?

So, first of all, why should you paper trade?

Think about it this way... When they are training pilots, right? I mean, to fly a plane with actual people in there...

How do you train them? First, on a simulator.

After they train on a simulator and pass a lot of tests, then they are allowed to go into a real plane, and this is where they are training with a coach, with a trainer, with an experienced pilot.

Now think about this, if they would not be on a simulator, would it make sense to go right into a plane and start flying? Of course not.

You need to take trading on a simulator seriously.

It is different than live trading, but if you lose money on a simulator, you will lose money in real trading.

Think about it. If they would train the pilot and every single time on the simulator, this pilot crashes. Do you think they'd say, "You'll be fine! Just go in the plane. It'll be OK." Of course not, right?

So, same here with paper trading.

Trade on a simulator until you are successful.

Now, this does not mean that you will be successful when you're trading live, but trust me, it is the other way around.

If you're not successful on the simulator, chances are that you will never succeed in live trading. It will be extremely difficult.

How long should you be on a simulator?

Well, in my personal experience, for at least 40 trades. It's like 40 test flights on a simulator. So, why 40 trades? First of all, 40 trades give you enough data to have a statistically significant sample.

If you only place three trades and you say, "Oh my gosh, all of these three trades are a winning trade. Let's trade live." That is not enough. Even 10 trades are not enough.

So, based on my personal experience, and when working one on one with private students, traders that I personally mentor, I always say you have to place at least 40 trades on a simulator.

Where do you find a simulator?

Well, there are several companies out there that are offering simulators.

My head coach Mark and I, we tested more than twelve simulators. Most of them are not very realistic and that's one of the things that you need in a simulator. You need a realistic simulator.

The one that we found to be the most realistic is…

Paper Money from Think or Swim

All you need to do is Google Paper Money Think or Swim. When you go there, you'll see: Register for Paper Money Think of Swim. Very easy, very straightforward. It's free for 90 days.

TD Ameritrade offers it and you don't need to have an account with them. A free 90 days should be enough for you to paper trade and get some experience with this.

One more thing - very, very, very important when it comes to paper trading…

When paper trading, there's usually a button that says, "reset all."

This means you can wipe out whatever you did and start over fresh.

And sometimes this is very appealing, isn't it? I mean, sometimes it's very tempting to say, "Oh my gosh! I had a few losing trades. Let's start over."

Don't do this. And here's why.

In real life, in live trading, there is no such a button.

I mean, wouldn't that be nice if such a button exists where you say, "Start over. Put all the money back in the trading account. All the losses that I had?" No. Take your paper trading seriously.

You want to make sure that you will learn how to climb out of a hole. Because you will make mistakes when paper trading, and you will make mistakes in real trading.

So, it's better if you learn how to overcome these mistakes - don't think that if you made a mistake once, you'll never make it again. Come on. It will happen.

It happened to me the other day.

I was live trading at one of my events. While explaining something, I accidentally used a limit order instead of a stop order.

Now, I caught myself, but you see, even after all these years of trading, it can still happen.  Fortunately, I was able to correct this mistake, but hey, mistakes happen all the time.

If you enjoyed this article, make sure you leave a comment and let me know if this was helpful for you. I really appreciate all the comments.

If you have a question like the person I mentioned, leave a question. I’ll make sure that I answer it in an upcoming article.

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