Paper Trading – One Step Closer to Trading for a Living

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, 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 could 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? Believe me, 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 is paved with the empty wallets of a lot of traders that thought they can rule 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.

To make sure everything is clear, I am going to give you a paper trade example. First of all, you have to get your hands on a charting package like TradingView, Meta Trader 4 or NetDania’s ChartStation because the charts offered by binary brokers are not gonna be enough. Now, let’s assume your trade signal is the crossover of 2 moving averages so when you see that happen on the chart, you will write down the details of the paper trade:

 

Account balance: 1,000
Asset: GBP/USD
Trade type: Put
Expiry duration: 15 minutes
Trade opened at price: 1.2325  
Trade opened at time: 11:00 am
Trade closed at price: *fill in once the trade is closed
Trade closed at time: *fill in once the trade is closed
Amount traded/risked: 25
Amount gained: *fill in once the trade is closed
Amount lost: *fill in once the trade is closed
New account balance: *fill in once the trade is closed

Notes: Price is in a downtrend, slow movement, moving averages are almost flat but still doing down etc. (write here your thoughts about the trade and about market conditions; it will help you in the future when you review past trades).

 

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.

And because we’re simply awesome, we can offer you an alternative to writing everything down. That alternative is CommuniTraders, a free and complex trading platform that works exactly like a Demo account and can be found on our Forum. In the past, binary options brokers didn’t offer demo accounts and CommuniTraders didn’t exist, so paper trading was almost the only option; hopefully now you can use our platform for free and of course, you get a “History” tab so you don’t have to bother writing down all the trading details I’ve mentioned above. For more information about how CommuniTraders works, check out this article: Welcome to CommuniTraders 2.0 – Where Trading Becomes Social!

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 or her believe that the results when trading real money will be the same like in paper trading. You can achieve similar results only when you learn to be a disciplined trader and follow your strategy. 

 

 

Paper’s Back in Fashion… But There’s a New King

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 don’t want to do things on your own, you can use our CommuniTraders platform that I’ve mentioned above, which plays the role of a free Demo account. We’ve put a lot of work into it and we offer it free to all of our Forum members, so please check it out.

Overall, paper/demo trading is 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.

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