Learning how to trade – an alternative to paper trading

These are suggestions on how a person can learn how to trade.

1. Read information from the ASX (www.asx.com.au) – heaps of excellent information plus company information, data etc etc. Attend any free seminars that are available.

2. Join forums like this one and read, read, read.

3. Use the SEARCH function on the forum. The question you have has probably been covered already.

4. Get a few books on trading (Bedford, Tate, Guppy et al) (again search the forums for other peoples opinions on the best books). Buy them or check out your local library.

5. Take notes to help clarify information you have gathered.

6. Search the net for abundant information (you nearly don’t have to buy any books). Nearly every site will give you a new snippet of information, which adds to your education (even the commercial ones).

7. Sign up for free reports, stock tips, articles, news – DON’T buy or sign up for anything yet.

8. Join a local trading group/club if available. Talk to people and discuss what you have learnt and what they know (of course you still need to assess the information).

9. Start developing your own system – how to be profitable (expectancy), how to select the trade, how to determine the amount to be invested, how much to risk, how to enter the trade, how to manage the trade, how to manage the risk, how to exit the trade and how to spend your profits (think positive!)

10. Look at derivatives (options, warrants, indexes etc) to broaden your education.

11. Do this for at least 6 to 12 months (don’t be impatient to start trading – all the good opportunities will still be there).

12. Paper trade if you think you will benefit from it. Opinion is split as to the benefits of paper trading but I think it is up to each individual to decide.

An alternative to paper trading:

This requires an amount of at least $1000 - $2000.

THE NAME OF THE GAME IS TO STAY IN THE GAME (PROTECT YOUR CAPITAL!!!).

a) Invest in “Blue-chip” stocks less than $10 using the skills you have learnt in the last 12 months.

b) Invest $100.00 or so at a time (10 x $10, 12 x $8, 16 x $6, 20 x $5, 25 x $4
50 x $2).

c) Brokerage will kill you - $20 in and $20 out (total cost of buying and selling a share $40) but you will get in up to 20 trades.

d) This is the cost of your education and is cheaper than buying a system black box or attending a $4000 course.

e) You will feel the pain of losing real money but you will have gained some great knowledge about real trading.

f) Analyse where you went wrong or why you succeeded.

g) Ask for help if you don’t understand where you went wrong.


Good trading!

Question/s

(1) If emotion werent a factor in trading would paper trading then be acceptable?

(2) If emotion werent a factor in trading would there be more people trading profitably?

(3) Is it better to eradicate the problem rather than fight it or pretend its not there?

Nice post dutchie....
Some good info. here

Dutchie,

Good thread!

With paper trading you cannot accurately mimick the correct purchase price or selling price of a stock.

Snake

tech/a said:

Question/s

(1) If emotion werent a factor in trading would paper trading then be acceptable?

(2) If emotion werent a factor in trading would there be more people trading profitably?

(3) Is it better to eradicate the problem rather than fight it or pretend its not there?

Click to expand...

Nice thread Dutchie

Very valid points Tech. With these thoughts in mind there are some nice articles on www.trade2win.com such as 'To Think of not to Think':The traders Dilemma by Jake Bernstein, 'Pulling the Trigger Q&A by Alan Farley.

Heres an inspiring story and strategy which I personally use.

What I learnt losing 60,000 pounds in my first year as a full-time trader
by Malcolm Robinson.

During my first year as a local (independent trader) on the floor o LIFFE, I bought and sold 8804 FTSE futures contracts, about 40 contracts per day on average.

The result was a loss of 61,620 pounds or 267 pounds per trading day. I was profitable on 55% of the days with an average gain of 1009 pounds, my average losing day was 1780. My biggest one day gain was 7730 pounds and my biggest loss 12,426 pounds. As you can probably imagine, this was a difficult time for me.

I was trying to work out how to make money consistently.

It was the consistency that seemed so hard to find. As you can see I was having a regular expeience of makin money, what was killing me were my losses.

It seemed that every time I got ahead by 5-6000 pounds ovr a period of a week or two, I would lose it all and a few thousand more in the space of a couple of days.

At the time I was too unhappy with my performace to be willing to spend any time analysing my results. If I had I would have discovered that during this period all I needed to do to go from a loss of 61,620 pounds to a small profit would have been to avoid just 10 trading days.

Those 10 days cost me a total of 69,169 pounds.

At the end of this period I was so frustrated, fed up and stuck that I decided to quit trading and return to a more secure career.

It only took me a few weeks to abandon this plan and return to trading. I felt sure that I had the raw talent to become a consistently successful trader, what I needed, I reasoned was some support.

Support to stop me from having the huge losing days that were crippling me financially.

I approached a firm I knew that backed traders on the floor and they agreed to back me with 20,000 pounds of trading capital. We would split profits 60:40
and I was to set an initial daily loss limit of 500 pounds.

If I hit my 500 pounds limit the firms floor manager would come and tell me to go home. The third day trading I lost about 3500 pounds and nothing happened, no one came to ask me to stop trading.

I felt very foolish, but continued to trade for the remainder of the week while avoiding any contact with the floor manager. The following Monday (the weeks losses had totalled about 5000 pounds) I got a message to meet the director with whom I had; made the agreement (it transpired he had been away the previous week).

I was sure that he was going to say the deal was off. Instead to my surprise, he told me how important it was that he could trust me.

He needed to know that when the market was volatile he could trust me not to be racking up big losses. He suggested that I start afresh. Needless to say I was both relieved and grateful.

So I went back to the trading pit that morning with the determined intention to not lose more that 500 pounds.

The next two weeks turned out to be one of the toughest periods of my trading career and one of the most rewarding. Stopping when I was down was hard.

I realised that what had been at the root of my large losses was my inability to accept losing at all. To me losing was unacceptable.

Such was my intolerance for loss that I lost for ten consecutive days. But as the days progresses, even though I continued to lose 500 pounds a day. I found my mood lifting.

I actually started to feel OK about losing as long as it was within my limit. At the end of this 10 day period of losses a seeming miracle happened; I started to make money.

My target was to get to +1000 pounds and then not give back more that 20% of my gain. So when I had a profitable day I was making between 800 pounds and 2000 pounds, for an average of about 1200 pounds. Not only did I start to make money, I did so for 15 days in a row, three entire weeks without a loss.

This marked the beginning of a new era of trading for me. In retrospect, I believe that I had been trading scared, scared that I was really a loser. The two weeks of rigidly sticking to my loss limit caused me to revaluate myself.

I started to feel good about myself for sticking to my limit. Before it was bad if I lost money now it was only bad if I lost more than my limit. Before I never knew whether I was going to make 1000 pounds or lose 5000 pounds, now I knew that the worst case was a loss of 500 and that was OK.

I started to see that sticking to my trading limits was a sign of strength and my confidence started to rise. Looking back at my first years losing streak, if I had restricted my losing days to 500 pounds my loss of 61,620 pounds would have turned into a profit of 83,525.

Not only that, I think that had I been sticking to a loss limit during that period, my confidence would have been that much greater and my percentage of profitable days would also have been higher.

Scared money never wins, as the saying goes. If we are scared, what are we scared of?

'Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure.

It is our light, not our darkness that most frightens us. We ask ourselves: Who am I to be brilliant, gorgeous, talented, fabulous? Actually, who are we not to be? You are a child of God. Your playing small doesnt serve the world. There's nothing enlightening about shrinking so that other people won't feel insecure around you.

We are meant to shine, as children do. We were born to make manifest the glory of God that is within us. It's not just in some of us, its in everyone. And as we let out own light shine, we unconsciously give other people permission to do the same. As we're liberated from our own fear, our presence automatically liberates others' - Nelson Mandela

Cheers
Happytrader

There are 6 ways I know of to eradicate emotion in trading.

Individually or combined (depending on individual circumstance) emotion I believe can be totally eradicated from the equation.

(1) Dont trade if your under capitalised. If your nett worth is $5000 and you commit this or even 50% of it to trading you'll watch every tick and make emotive dumb decisions. If you have a nett worth of $500K and you trade $50k---its the equivelent of our undercapitilsed friend trading $500.Greed

(2) Dont trade excessive parcel sizes. If a move in one of your positions is enough to cause stress or an adverse move in your portfolio does the same chances are your trading to larger parcel sizes.Greed

(3) Understand Leverage and dont leverage beyond your means.10x CFD leverage means 10x potential loss.Greed

(4) Trade mechanically and understand what makes a trading method profitable.Understand its parameters and be sure your tested method stays within those tested.Fear

(5) Understand that standing aside from the market is in fact a position.Fear and Greed

(6) Profit is the greatest confidence booster and emotion leveller.Be quick to sell losers and slow to sell winners.Holding a portfolio of 10 stocks all 20 to 200% in profit eradicates the fear factor. Fear

Snake Pliskin said:

Dutchie,

Good thread!

With paper trading you cannot accurately mimick the correct purchase price or selling price of a stock.

Snake

Click to expand...

Why not?

Indeed the paper trading results may not be exactly the same as real trading entry and exit prices, but for the purposes of testing and if you are sensible and paper trade the worst case (buy high, sell low) you can only give the system some measure of worth

Kave.

Im afraid Paper trading cannot give enough data to be able to say a method has been tested thouroughly enough to have a confidence level.

For me I need 20000 portfolio tests of 10 stocks in each portfolio.
Hardly possible from paper trading.

I'm sure you can see the difference.

Smurf1976 said:

Why not?

Click to expand...

Because when you place an order you may not get your chosen price even when buying at market - the same goes for selling. With paper trading how do you know what price you are going to get if it doesn't go throught the system?

Sorry, I think a bit too deeply about little things.

Snake

tech/a said:

Kave.

Im afraid Paper trading cannot give enough data to be able to say a method has been tested thouroughly enough to have a confidence level.

Click to expand...

I agree!

tech/a said:

Question/s

(1) If emotion werent a factor in trading would paper trading then be acceptable?

(2) If emotion werent a factor in trading would there be more people trading profitably?

(3) Is it better to eradicate the problem rather than fight it or pretend its not there?

Click to expand...

1. I'm not sure what you mean by acceptable. To whom or what? The propensity of fundamental investors to prophesise would be more commonplace I feel.

2. Yes.

3. Yes.

Excellent thread Dutchie, thanks for starting it, brings a lot of things together, I'm getting a fair bit out of it.

Snake Pliskin said:

Because when you place an order you may not get your chosen price even when buying at market - the same goes for selling. With paper trading how do you know what price you are going to get if it doesn't go throught the system?

Sorry, I think a bit too deeply about little things.

Snake

Click to expand...

I just use buy and sell on open. I figure it will even out over time. You probably wont get the open price very often in real life though.

Milk Man said:

I just use buy and sell on open. I figure it will even out over time. You probably wont get the open price very often in real life though.

Click to expand...

Just curious Milk Man

Is this your paper trading strategy or your real life trading one?

Cheers
Happytrader

happytrader said:

Just curious Milk Man

Is this your paper trading strategy or your real life trading one?

Cheers
Happytrader

Click to expand...

Just paper. Why, is there some flawed logic?

Milk Man said:

Just paper. Why, is there some flawed logic?

Click to expand...

No its not flawed logic if it is working for you with the stocks you trade.

As I trade the big institutional bluechips I wait for 'them' to make the moves.
Humans are creatures of habit and institutions are no different.

If you want to know when they make their moves look on 1/2 or hourly charts. Its terribly boring but very accurate. Save yourself time, effort, stress and money.

Cheers
Happytrader

With access to market depth

On 30 Nov 2005, at 10:25 you decide to enter AAWWPP ‘Flag Trade’

Refresh screen and there is AAWWPP for example Buy $2.86 Sell $2.87
You say to yourself yes I can buy 300 shares up to $3.00 (conditional order)

At 10:27 you refresh your market depth screen and there is Buy $2.87 Sell $2.88
You make a note: Got filled 300 shares at $2.88

Or
At 10:27 you refresh your market depth screen and there is Buy $3.02 Sell $3.05
You make a note missed the trade

And it’s all to it, if trade is missed more often, make wider limit, use slower moving stock

Or don’t paper trade. (This one sounds good!)

Happy said:

Or don’t paper trade. (This one sounds good!)

Click to expand...

So Happy are you saying you don't paper trade?

Milk Man said:

I just use buy and sell on open. I figure it will even out over time. You probably wont get the open price very often in real life though.

Click to expand...

Milkman,

Do you buy and sell in the first 30 minutes of the market - 10am onwards?

If so what is the rationale for that? (It's not flawed, I'm just curious)

I never buy in the first 30 minutes. 10.30 onwards if the opportunity is there. If not I wait for it. If it's not there I don't trade. (part of the plan)

Snake