Comment from Common Sense:
i'm sure people have told you that FAKE money is 100% different than trading real. Remember, if your expenses are 2k a month for rent and food, you really need a trading account of about 50k. If not, your profits will have to be extra-ordinary -- which is why futures traders take crazy risk, leverage, and usually blow up. You need 2 winning days every 3 to make it. You cannot have more than 1 really bad day every 2 months. I made 10k a day on FAKE money, it's soo unrealistic that it's 100% useless. You'll see. Fake money, right now i'm short 100 contracts. If i get stopped out I will buy 200 contracts, and it's all dumb.
Try to fund an account and trade 1 contract and then see how it is with real emotions at work. If you take too long, trade too quick, execute wrong, overtrade, anything...ur emotions change and it's drastic. I've been trading for 15 years, trust me, I have a clue. I just think paper trading really builds horrible habits. My 2 cents.
I want to thank Common Sense for sharing his views and experience regarding paper trading.
Over the past 2 weeks that I've switched to paper trading, I've been receiving comments from traders who are for paper trading, and those who see little to no value in paper trading. Both groups spoke from personal experiences and I respect what they have to say about the pros and cons of paper trading.
Personally, I think paper trading is useful to the extent that it is used for its intended purposes:
1) For identification of the idiosyncrasies of each instrument that the trader is exploring: how it behaves (NOT how I behave) under different market conditions, how it behaves at different time of the day, what it reacts to most of the time, etc, etc
2) For finding out the right size to trade for each instrument - and this of course is directly linked to how much the trader can afford to lose should he lose. For me, I take into account how much I want to achieve too.
For ER2, 1 to 2 contracts is good enough for me, as 1 point gain and lost is $100. Besides, ER2 has an average daily range of 20 - 30 points, and is highly volatile .
For NQ, a 1-point gain is $20, its range is not as consistent as that of ER2, and in my opinion, is not as volatile as ER2. If I trade 1 or 2 contracts, that WILL make me OVERTRADE.
That said, I noticed that 10 contracts is not ideal, for reasons that I will reveal only after I've accumulated enough data from my paper trades.
I do have a funded account, and was trading ER2 with it before ER2 moved to ICE. I'm just not using it now coz I'm not ready to pay the market for a lesson on trading psychology YET.
To go right into the market trading something that I don't know intimately is like going to war without a strategy, without my ammunitions and without any form of protection. It's no different from just standing in the open and inviting my enemies to put a thousand bullets into my body.
Soldiers are not sent to the battlefield without having gone through trainings and mock exercises.
Students have mock exams and tests before the real thing.
Citizens go through drills to prepare them for terrorist attacks.
Stage performers have rehearsals before the big day - American Idols' finalists rehearse God knows how many times before they step before millions of audiences.
In all of these examples cited, the "FAKE" is supposed to be treated as if it is "REAL". The only thing that cannot be tested and practised is really the "emotions" related to such experiences.
My brother is a pilot. Before he was allowed to fly a real plane, he clocked many hours of flying in "fake planes" - don't ask me what those gadgets were, I just know they are planes that don't actually take off.
Then comes the part where he flies a real plane with a trainer or first officer beside him. God bless them should my brother decide to do something stupid - coz accident can and do happen in trainings.
He's now a qualified first officer who can fly alone, but of course we know that the standard practice in commercial airline industry is that no pilot flies alone. My point is, no matter how good my brother and his co-pilot is, the risk of the plane coming down is always there.
But had he not gone through stage 1 and 2, "risk" is no longer relevant.
We will be looking at "certainty" - the certainty that the plane will surely come down, if it ever was able to go up in the first place.
I'm between stage 1 and 2.
I'm in stage 1 when I know nothing about an instrument.
I was in stage 2 when I was trading the ER2.
In 15 years' time, I might progress to stage 3. And I do believe that there are traders in stage 3 - many in fact - those who know their planes, are responsible enough to coordinate with the maintenance crew to ensure that the plane is safe for take-off, and have all the contingency plans at their finger tips. Should accidents happen, they would know how to troubleshoot so they don't have to make an emergency landing, and if they really have to land their planes, they would have the experience, knowledge and skills to land with as few casualties as possible.
According to Pilot, he has seen so many things that were wrong with the plane he was supposed to fly for each assignment that if he were to give me all the details, I would never take another flight.
Before each take-off, it's his job to fix as many problems as he can. He sometimes have to take off with some MINOR problems. His goal is of course always to land the plane safely.
But he started off with SIMULATED flying.
I treat all my simulated trades as if they were real.
If I won't ever trade 10 contracts, I will not paper trade 10 contracts. I am considering trading 10 contracts, and it's through simulated trading that I will find out if it is the right contract size for me. If it's not, I will adjust it. I do not want to find out it's wrong for me with REAL MONEY.
D can be my witness: I DO sweat even in simulated trading, coz I know that if I'm losing that much in simulated trading, I WILL lose that much in real trading.
i'm sure people have told you that FAKE money is 100% different than trading real. Remember, if your expenses are 2k a month for rent and food, you really need a trading account of about 50k. If not, your profits will have to be extra-ordinary -- which is why futures traders take crazy risk, leverage, and usually blow up. You need 2 winning days every 3 to make it. You cannot have more than 1 really bad day every 2 months. I made 10k a day on FAKE money, it's soo unrealistic that it's 100% useless. You'll see. Fake money, right now i'm short 100 contracts. If i get stopped out I will buy 200 contracts, and it's all dumb.
Try to fund an account and trade 1 contract and then see how it is with real emotions at work. If you take too long, trade too quick, execute wrong, overtrade, anything...ur emotions change and it's drastic. I've been trading for 15 years, trust me, I have a clue. I just think paper trading really builds horrible habits. My 2 cents.
I want to thank Common Sense for sharing his views and experience regarding paper trading.
Over the past 2 weeks that I've switched to paper trading, I've been receiving comments from traders who are for paper trading, and those who see little to no value in paper trading. Both groups spoke from personal experiences and I respect what they have to say about the pros and cons of paper trading.
Personally, I think paper trading is useful to the extent that it is used for its intended purposes:
1) For identification of the idiosyncrasies of each instrument that the trader is exploring: how it behaves (NOT how I behave) under different market conditions, how it behaves at different time of the day, what it reacts to most of the time, etc, etc
2) For finding out the right size to trade for each instrument - and this of course is directly linked to how much the trader can afford to lose should he lose. For me, I take into account how much I want to achieve too.
For ER2, 1 to 2 contracts is good enough for me, as 1 point gain and lost is $100. Besides, ER2 has an average daily range of 20 - 30 points, and is highly volatile .
For NQ, a 1-point gain is $20, its range is not as consistent as that of ER2, and in my opinion, is not as volatile as ER2. If I trade 1 or 2 contracts, that WILL make me OVERTRADE.
That said, I noticed that 10 contracts is not ideal, for reasons that I will reveal only after I've accumulated enough data from my paper trades.
I do have a funded account, and was trading ER2 with it before ER2 moved to ICE. I'm just not using it now coz I'm not ready to pay the market for a lesson on trading psychology YET.
To go right into the market trading something that I don't know intimately is like going to war without a strategy, without my ammunitions and without any form of protection. It's no different from just standing in the open and inviting my enemies to put a thousand bullets into my body.
Soldiers are not sent to the battlefield without having gone through trainings and mock exercises.
Students have mock exams and tests before the real thing.
Citizens go through drills to prepare them for terrorist attacks.
Stage performers have rehearsals before the big day - American Idols' finalists rehearse God knows how many times before they step before millions of audiences.
In all of these examples cited, the "FAKE" is supposed to be treated as if it is "REAL". The only thing that cannot be tested and practised is really the "emotions" related to such experiences.
My brother is a pilot. Before he was allowed to fly a real plane, he clocked many hours of flying in "fake planes" - don't ask me what those gadgets were, I just know they are planes that don't actually take off.
Then comes the part where he flies a real plane with a trainer or first officer beside him. God bless them should my brother decide to do something stupid - coz accident can and do happen in trainings.
He's now a qualified first officer who can fly alone, but of course we know that the standard practice in commercial airline industry is that no pilot flies alone. My point is, no matter how good my brother and his co-pilot is, the risk of the plane coming down is always there.
But had he not gone through stage 1 and 2, "risk" is no longer relevant.
We will be looking at "certainty" - the certainty that the plane will surely come down, if it ever was able to go up in the first place.
I'm between stage 1 and 2.
I'm in stage 1 when I know nothing about an instrument.
I was in stage 2 when I was trading the ER2.
In 15 years' time, I might progress to stage 3. And I do believe that there are traders in stage 3 - many in fact - those who know their planes, are responsible enough to coordinate with the maintenance crew to ensure that the plane is safe for take-off, and have all the contingency plans at their finger tips. Should accidents happen, they would know how to troubleshoot so they don't have to make an emergency landing, and if they really have to land their planes, they would have the experience, knowledge and skills to land with as few casualties as possible.
According to Pilot, he has seen so many things that were wrong with the plane he was supposed to fly for each assignment that if he were to give me all the details, I would never take another flight.
Before each take-off, it's his job to fix as many problems as he can. He sometimes have to take off with some MINOR problems. His goal is of course always to land the plane safely.
But he started off with SIMULATED flying.
I treat all my simulated trades as if they were real.
If I won't ever trade 10 contracts, I will not paper trade 10 contracts. I am considering trading 10 contracts, and it's through simulated trading that I will find out if it is the right contract size for me. If it's not, I will adjust it. I do not want to find out it's wrong for me with REAL MONEY.
D can be my witness: I DO sweat even in simulated trading, coz I know that if I'm losing that much in simulated trading, I WILL lose that much in real trading.
5 comments:
Nice post girlie girl. You are right about people taking mock test of all kinds and acting like they are REAL.
There is going to always be two sides to the paper trading argument, but you made a very strong case for the benefits of it when used properly. Thanks for the post.
"Q"
LOL. I would have thought more about my comment if I knew you were going to post it on the home page. No worries. :) I do like your response, and the airplane analogy is pretty common, and accurate; however, real money is like flying near a storm -- or wind shear.
I really hope you duplicate in real money your recent paper trades. I wish you the best and will keep checking in.
Here are a few links of interest to me.
http://www.tradingmarkets.com/.site/eminis/commentary/LarrySchneider%20/-76545.cfm
http://www.tradingresource.com/content/articles/Why-Paper-Trading-Is-Counter-Productive.html
:)
Common Sense, Quentine,
Thanks very much for your notes and comments. Do you keep any blogs?
Jules,
On target with this post 100%. I also agree with quentin - it's all about how you treat the simulated trading. If you aren't realistic and don't treat it seriously then, yes, it is a waste of time. Otherwise it is pure gold in my opinion.
For the record I find that the difference between my real trades and simulated/paper trades is negligible (i.e. less than 5% difference). Of course I use a highly disciplined approach to both "fake" and "real" trading. I have a highly quantitative approach and have hundreds of mental and physical "maps" to help me navigate the markets as well as accurate simulators.
As far as psychology is concerned, I will state this. The main reason most traders fail isn't inadequate psychology. It is that they do not have a quantifiable edge and they don't understand risk management. Period.
Yes psychology is important, but it isn't a band-aid for lack of edge. If you have done your homework and if you have practiced adequate risk management there is absolutely no reason to believe that simulated/paper trading is "useless".
LT,
You've done a much better job expounding on the topic :-) http://lordtedders.blogspot.com/2008/10/paper-trading-waste-of-time.html
Yes, I've seen people wiping out 100k simulated accountS. No one should be deprived of such fun :-) But after the fooling around stage, the simulated account is useful for marking out the parameters of your trading systems, strategies and plans.
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