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Paper Trading – One Step Closer to Trading for a Living
Binary Options Paper Trading before Real Trading
Trading for a living… what a dream, right? Being able to give your boss the finger, buy yourself a Lambo and if you feel it’s too hard to tame, just go out again to get a custom Rolls Royce and park them both in your 5 car garage (three spots still reserved for future collectibles). If you don’t like the cold, spend your winter holidays in Bora-Bora or… just buy a house somewhere sunny. And you can afford all this by working just a couple of hours a day because, let me tell you, pro-traders don’t place trades frantically throughout the whole day; two or three are all they need, sometimes even less. Sounds good, I know and believe: there are people living this dream; real people that now live their lives exactly how they want to, all thanks to trading. If you think those people know something that you or I don’t know, you are wrong. The successful traders do not possess some mystical formula for predicting the market; they put in the hard work and learn every aspect of trading, absorbing like a sponge all the knowledge available. They master their emotions and approach any kind of trading with a business attitude, leaving gambling to casino clients.
Let me tell you my friends, the road is hard, it has no shortcuts and it is paved with the empty wallets of a lot of traders that thought they ruled the markets. You will find a lot of perils along the way; temptations like placing a massive trade to get to your final destination faster or just the opposite: being afraid of trading and losing money. I am not going to list all the traps that the market will set for you, but what I am going to do is show you a way to avoid some of them. It’s simple, it’s free, it will make you a better trader and it’s called Paper Trading.
What’s Paper Trading All About and How to Use it?
Paper trading is just that… paper trading. Yes, old school, I know, but incredibly helpful. Get your sheet of paper, your favorite pen and sit in front of your computer, watching the market. When your strategy of choice tells you it’s time to place a trade, do not place it on the binary platform. Instead, write all the details of that potential trade on your piece of paper, including underlying asset, account balance, opening price and time, expiry time, amount risked and of course, if it’s a Call or a Put. Then keep watching the market or do everything just like you would do if you had a real trade. At expiry time, write the details again, including the new account balance which will be higher if you were right about your prediction and lower if you were wrong. You can adapt paper trading to Touch/No Touch Options, Boundary and almost all types of Binary Options, but you will have to be real quick if you want to trade 60 second options.
So that’s Paper trading: writing the details of the trade instead of risking real money. Oh, and if you don’t like the “paper” part, feel free to use an electronic sheet with all the important details. It serves the same purpose and the steps are the same. As you know, nothing is entirely good or entirely bad and Paper Trading can suck sometimes. Why? Let’s see:
Why Paper Trading doesn’t Suck?
What better way of risk free training can you get? You cannot lose any money and you can re-analyze your trades, see what you are doing wrong and eliminate that from your trading. On the other hand, you can focus on the good trades, see what went right and try to repeat that for future trades. The binary brokers that offer demo trading with virtual money are hard to find these days and some of them require you to deposit money into a real account before they will provide you with a demo account. Paper trading is a good substitute for a demo account and you don’t have to ask the broker for anything or deposit real money. Reading about strategies and tools is very important for a trader’s education, but only when you see the strategy or the tool in action can you really decide whether it performs how you anticipated and if it’s a strategy that you will use on a real account.
Why Paper Trading Might Suck?
Did I tell you that the road to trading success is full of perils? Yup, I did. Paper trading can quickly become one of those perils for psychological reasons: imagine that you plan to paper trade for a month and for the whole first week you only place winning trades, looking invincible in the market and growing your paper account from $1K to $2K for a whopping 100% return on your investment. You know what your first thought will most likely be? “What if….?” What if I would have traded real money for the entire week? What if I would have stopped paper trading after just 2 days and went into the real market? What if I would have traded $10K real money? Now greed becomes a major factor and you decide to ditch paper trading, wrongly thinking that you are ready to go live because you want to start making money quickly and regretting the fact that the profits made so far are just on paper and not in your bank account.
There’s a big difference between paper trading and real trading: you cannot lose money while paper trading and this makes you less emotional, improving your trading decisions and giving you a false impression that you will perform the same when real money is involved. This is the greatest trap that paper trading can set for a trader – making him believe that the results when trading real money will be the same that he got in paper trading. You can achieve similar results only when you learn to be a disciplined trader and follow your strategy.
My Conclusion – Paper’s Back in Fashion!
In my honest opinion, Paper Trading is the best way of testing trading strategies, improving your discipline and making you a better trader overall, but only if you use it wisely. You should always use a paper trading account with investment amounts similar to the ones that you will use on your real account. If you want to invest $500 in a real Binary Options account, don’t paper trade with $10K because that will just give you a false sense of what to expect in terms of profits. Overall, it’s the best way of gaining confidence in your strategy and your decision making skills, but be careful, it’s not the real thing… it takes out the emotions involved when trading real money. You will never bite your nails or have sweaty palms while paper trading. These are things that you have to deal with once real money is involved.
Binary Options are Going to Change the World – Part 2By Michael Hodges - Aug 22, 2014