Start your market entry with paper trading

Paper trading means recording your decision to trade and tracking it as if it were a real trade, only without money. Most of those who paper trade have lost their nerve after getting beat up by the markets. Some people alternate between real trades and paper trades and cannot understand why they seem to make money on paper but lose whenever they put on a real trade.

This happens for two reasons. First, people tend to be less emotional with paper. Good decisions are easier to make when your money is not on the line. Second, good trades often look murky at entry time. The easy-looking ones are more likely to lead to problems. A nervous beginner jumps into obvious-looking trades but paper trades the more promising ones. It goes without saying that hopping between real trading and paper trading is sheer nonsense. You either do one or the other. There is only one good reason to paper trade—to test your discipline.

If you can download your data at the end of each day, do your homework, write down your orders for the day ahead, watch the opening and record your entries, and then track your market each day, adjusting your profit targets and stops—if you can do all of this for several months in a row, recording your actions, without skipping a day—then you probably have the discipline to trade that market. Someone who is in it for entertainment will not be able to paper trade this way because it requires work.

To paper trade your system, download your data at the end of each day. Apply your tools and techniques, reach trading decisions, calculate stops and profit targets, and write them down for tomorrow. Do not place your orders with a broker, but check whether they would have been triggered and write down those fills. Enter paper trades in your spreadsheet and your trading diary .If you have the willpower to repeat this process daily for several months, then you have the discipline for successful trading with real money. Still, there is no substitute for trading with real money, because it engages emotions more than any paper trade. It is better to learn by putting on very small real trades than paper trades.