Rohit Musale, CFA
The 5 Reasons to Avoid Paper Trading
Here are 5 reasons to avoid paper trading:
1) It does not factor in trading psychology.
Paper trading looks good on paper.
However, when you enter the live markets, you start to experience emotions, because now, you have real money at stake.
In paper trading, you don't have any money at stake.
And the market is all about trading your emotions, not trading the price.
2) It ignores brokerages or commissions and transaction taxes.
Usually, in paper trading we only look at how much gain we have made by subtracting the cost price from the selling price.
However, in real life, you have to pay transaction taxes, brokerage, and other small miscellaneous charges.
This does not happen in paper trading.
3) It does not factor in time value.
What do I mean by time value?
Say for example: you take a paper trade on a stock.
You buy the stock, and you decide that you will exit the stock only after it closes below the middle Bollinger band.
You are expecting an uptrend.
You expect the price to remain between the middle band and the upper band.
You will exit only when it closes below the middle band.
Now, it might take the next three months for the price to close below the middle band.
On a paper trade you will remain invested in the stock for three months, but in real life, three months is an extremely long time for a trader.
Imagine buying a stock and doing nothing for three months, even while you are making money in that trade.
That's a very difficult thing to do for most traders, especially those who do not have the mental discipline to hold on to the stock, till it closes below the middle band.
4) It does not factor in the capital gains tax.
In paper trading, you are looking at how much gain you made.
You want to know whether your strategy has worked or not.
But in real life, at the end of a financial year, you have to calculate how much gain you have made, and how much capital gains tax are you liable to pay on that gain, if you made a gain at all.
This is the short term capital gains tax.
So your real result is not your profit, minus your brokerages and transaction taxes.
You also have to reduce the profit by the amount of capital gains tax.
5) It does not factor in capital and time commitment.
See, when we come to the market, we are not only investing our money, but we are also investing our time.
And both of these resources are scare.
In paper trading, you can put a $100,000 trade.
Can you do that in real life?
Also, in paper trading, you can find out that you made money on your strategy on a particular day.
However, in real life, what if you had to spend your entire day in front of the chart, to make that money?
Is that good for your health, soul, and your psychology?
Think about it.
So, those were the five points I wanted to highlight.
I strongly discourage you from getting into paper trading.
It will not help you.
By the way, if you are new to my content, I encourage you to have a look at my detailed video training program on trading.
It’s called the Japanese Candlesticks Trading Mastery Program.
Thousands of men and women from more than 163 countries have already enrolled into the program.
They have lifetime access and are currently learning from it on a daily basis.
If you want to become a professional trader, this program will help you.
It has got multiple levels of video training.
As of this writing, it has got 10 different levels.
Each level is of multiple hours.
And you will learn from more than 1,000 chart examples, if you go through all of these levels.
By the way, I continue to add more levels to the program.
The program continues to evolve.
I encourage you to start from level one and then proceed to the future levels.
Have a look.
Here is the link:
The Japanese Candlesticks Trading Mastery Program
Rohit Musale, CFA
30 January 2023