Step By Step Guide To Start And Master Paper Trading

There are some tricks behind it and certainly how much effort you put into learning a new topic always counts. Based on the knowledge you have acquired, you can make an incredible living from day trading.

At the initial phase, you might get puzzled with complex statistics but not to worry. Follow a disciplined approach, and slowly you will understand the whats and whys. If you aspire to become a day trader, first and foremost, you have to study a lot.

Education is the only way as there’s no other alternative. Study the market thoroughly to gain knowledge of how it functions.

What is a Day Trader?

There’s a lot to know when you decide to start trading. Before even going into the deep waters of paper trading, you should know what is a day trader. The trader who buys and sells security positions on the same day is known as a day trader. Since they don’t wait overnight for selling stocks, they can’t expect large profits in day trading.

What Is Paper Trading? When Do You Need It?

Learning paper trading is unlike the traditional education system where you need books, tutorials, training videos. You need all these, and along with that, you have to utilize your grey matter to face any situation.

Everything will not be explained in books or course materials. There you will get the fundamental idea, that’s true, but you have to implement them in a real-life situation. Here the concept of paper trading comes into action.

In the simplest form, paper trading is day trading without real money. You will record entries, exits, position sizes, but you will not place trades actually. This is named so because, as a form of simulation earlier, the majority of the people recorded their trades on paper or computer, although that has now been replaced with paper trading software and apps.

This is ideal for the absolute beginners to get a feel of the market without making any real investment.

An example will make it clear. Suppose you are working on a trading strategy, and you believe a particular stock will breakout at $3.97. When the stock reaches that point, you record your entry, and when you feel the best time to sell out, you record your exit at that point.

At the end of the day, you could analyze where you were right and where you need improvements.

Guide to Paper Trading and Excelling at Trading

Paper trading would become a valuable tool if you can utilize it properly. It provides an environment of real trading experience. Remember the following points before you begin.

Step 1: Record As Much As Possible

Apart from recording only the entry and exit points, keep track of the paper trades in detail as much as you can. You will have a clearer vision of the stock market. What else will you note?

• Why did you enter and exit this trade?
• How many shares did you buy? Why did you buy these many shares?
• Did the trade go as you expected? If so, why? If not, why?
• What was the risk-reward ratio?
• Finally, what did you learn from this whole trading session? Did you enjoy trading? Was it too complex?

Getting all the details might be a tedious task, but you will get the insights that will help you to set strategies during real trading.

Step 2: Take a Realistic Approach

You will find hundreds of paper trading simulators that will let you open a paper trading account, but most of them will not help you to obtain the feel of the real-world trading experience. That’s only for fun where you can play with money.

You won’t be able to enter positions with real money as you did with the simulator. Alpaca is a trusted technology-enabled company that helps people in making the right decisions for asset management.

Step 3: Analyze Your Trading

To improve the trading strategies, you have to analyze the trades again and again to understand the functionality, pattern it follows, and to obtain more insights that you missed earlier. Closely notice all the points that made you a winner or loser in each case.

Such analysis will help you figure out your strengths and weaknesses based on which you can create your next strategy. Thus you will become more confident while trading with real money.

Step 4: Understand the Difference Between Paper Trading and Real Trading

You should realize that paper trading is just a simulation tool that provides you with a trading environment where you will get the essence of trading. It has a significant role in bridging the gap between the theory and practical approaches.

But the real scenario is more complicated. Since your real money is involved, you should be more careful and well informed before investing the capital.

Losing $1322 may not be a big deal on paper, but this loss, in reality, might make you lose hope of any further investment.

Step 5: Be Aware of Liquidity

Liquidity allows you to buy or sell stocks. Unlike paper trading, you can’t buy or sell stocks of any amount and any size in real trading that you want to. In that case, you might need to rethink the strategy to get the best return from your investment.

Step 6: Practice for Better Performance

You can test the real-life trading techniques like ‘stop-loss’ or ‘limit order.’ It is similar to net practice before facing the opponents.

‘ Stop-loss’ is a price you set for selling stock, and it will automatically trigger once the price reaches that point. ‘Limit order’ is also setting the selling price below which you won’t go.

Conclusion

Paper trading is necessary to get adapted to market like circumstances but don’t forget that it is only a simulation. The real picture is more complex. Follow the steps mentioned above properly to foray into paper trading. With time and dedication, you can master it.