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Ask Al: Paper trading a simulated account

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BPA trading room Q&A: May 15, 2015

Al, what do you think about paper trading in a simulated account? Once a trader knows how to use the platform, is it a help or a hindrance to become a profitable trader? I sim trade a lot, and I’m not sure if it has a positive effect.
Audio duration: 2min 54sec

 

Audio transcript

Paper trading vs live trading

paper-trading or live money trading

I don’t have any problem with sim trading. I’ve done it; everybody has done it. I personally don’t like it because I cheat, I lie. Not in general; when I’m talking to people, I don’t cheat and lie, but if I’m sim trading, I’m talking to myself and I lie. I lie all the time. So it’s easy to tell myself, “Oh, I would take that,” or “I would not take that,” or “Oh, I took a bad trade and I lost, and maybe I should delete that trade because it was really one I should not have taken.” And you end up erasing—or I end up coming up with reasons for why all my losing trades were trades I really wouldn’t have taken if I were paying more attention or if I really was concentrating on it.

And all my winners, I look at them and say “Oh, yeah… I was also trading in my real accounts, and therefore, I couldn’t focus on my simulated account, and I took profits earlier than I normally would have taken”, and it’s just all lying to myself. For me, that’s my problem with simulated trading: it’s just really easy to lie to yourself all the time, and make yourself believe that the way you’re trading it is not the way you would trade it if it was real money.

Forex accounts — low cost trading tution

I think one of the nice things about Forex markets is that you get to trade a very small account with very little risk, and I think trading real money is always better than trading pretend money because it’s just harder to lie. The dollars are truth.

And for Forex accounts, you can trade 10,000 units and you can say, “Well, Al, if I make 10 pips on 10,000 units, I only make $10.” That’s right, you only make $10. On the other hand, you’re not going to go broke doing it, so to me, it greatly reduces the cost of tuition as you learn to become a trader, so I think that is a big advantage to Forex accounts. And there’s enough movement during the day in the different markets, especially if you stick with the major markets, like the Euro versus the Dollar, the Euro versus the Yen, the Dollar versus the Yen. Those are probably the big three. I also trade the Dollar versus the Canadian, the Australian dollar versus the Dollar, the British pound, the Swiss franc.

But there are enough choices and there’s enough movement so that if you’re starting out, my thought is if I were in that position, I would rather trade real money in a Forex account trading 10,000 units than paper trading—anything else because of that lie factor. I think it becomes more important if you have real money at risk, even if the real money is very small.

So to me, my thought is I would rather have a trader trade a Forex account with a very small position size than a simulated account, just so that they get comfortable with real money. The emotions are different if it’s real money. Even if it’s small real money, I think the emotions are different if you have real money at risk.

Al Brooks

Information on Al’s Online day trading room

  • another option for small amounts is the M6E. I’ve not actually traded it but it is “micro”. and thanks to the other posters for ideas.

  • Hi, Dr Al Brooks.

    This might not be related to the subject here, but I’ve been looking to thank you for your course I purchased last year, 2014. Haven gone through the course, I have really been transformed, regarding the way I view the charts and trading in general.

    This is what your course has done for me:
    70% Returns in 4months of trading

    https://moorekapital-gmail.tinytake.com/sf/MjA4MDYxXzEzMDg2MzU

    I’m grateful!

    Keep up the good work.
    May you enjoy terrific health to keep up the good works

    Tim Moore
    South Africa

  • In Forex it is possible to trade 1000 units as well .(Micro lots).
    A trader also can trade S&P500 emini futures with small size positions using CFD contracts.
    My question is for small size accounts :Which one is better :Trading S&P Emini using CFD or trading Forex?
    Best Regards

    • The problem with CFD contracts is the bid-ask spread. It is too big for daytraders. However, if a trader is interested in specializing in index futures and he wants the smallest possible risk, or if he is only going to trade daily charts, then CFD contracts are a good alternative.

      I have never traded Forex micro lots, but I always assume that any advantage that a small trader gets comes at a high price. This means that the bid-ask spreads probably get relatively big.

      I still think that trading real money is much better than paper trading, even if a trader has to pay a wide spread. I believe that most traders starting out can trade 10,000 Forex units, and I think that the bid-ask spread is the same for more standard size positions (multiples of 100,000 units). Without ever trading CFDs (much more popular in the UK than in the US), I cannot be certain, but I would be surprised if they are good for daytraders or if they were as good as Forex markets.

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