Paper Trading

“Do you recommend a paper trading account?” This stock trading question comes from James C. who asks:

There are pros and cons for using a paper trading account.

For:

• It allows us to assess how disciplined we really are when it comes to executing our strategy. It’s easy to look back and say, “I would have bought here and sold there” but too often life gets in the way and we forget or just can’t be bothered to do the work.
• It can alert us to execution issues, such as slippage or order types. For example you may have a strategy that uses the closing auction but you find the broker doesn’t offer that facility.
• It can alert you to programming flaws, such as post-dictive errors. Nothing worse than getting a signal and then the next day it’s gone.
• Learning how to use complex platforms and APIs

Against:

• Let me stress in no uncertain terms that paper trading will do nothing to prepare you for real world emotions. Looking at losses on paper and realizing them in real time are simply not comparable. The gut wrenching emotion of watching a loss develop and then how you react to it can never be simulated.