It is imperative that you learn to be profitable “paper trading” before you trade with real money.

So, What Good Is Trading with Paper?

Although paper trading doesn’t have the same psychological “feel” as trading with real money, it is a great way to practice your trading skills in a stress-free environment, so you can focus on your approach and trading system. Paper trading gives you the time you need to hone your trading skills without losing money. 

Every financial market is a championship arena. Short-term trading is a zero-sum game. When you enter any financial market, you are competing against some very skilled and professional traders, so entering it as a novice puts you at a distinct disadvantage. To give yourself a fighting chance, you need to enter the markets with as close to the skill of your competition as you can possibly get without actually having traded with real money.
 
That’s where paper trading comes in. Developing your trading skills with paper trading allows you to practice without the pressure of competing against others and yet gives you the opportunity to discover if you can be profitable. If you can be successful in the world of paper trading, you will most likely be profitable trading with real money!

As I mentioned earlier, it is often said that paper trading is not useful because you will not “feel” the emotions you would when trading with real money. The fact that this is true is actually a reason why paper trading is a good idea. It is a great way to practice your trading without the stress of the real thing as a logical first step in the process.

There will be time enough later AFTER you have developed your skills to deal with the psychological and emotional aspects of trading. It is first better to have your trading approach developed and THEN work on developing your trading psychology.

The best analogy I can come up with for this is to compare paper trading to other forms of simulated training. For example, pilots spend hours and hours in a flight simulator to hone their flight skills. No one questions the validity of their doing so.

So, don’t be impatient with your paper trading. It is a necessary step in the process of learning to trade. Allow yourself time to develop your trading skills and approach. This is time very well spent, so no shortcuts here.

eSignal includes paper trading as a feature of its software. Find out more.

*Reprinted (and modified) with permission from Bennett McDowell of TradersCoach.com