Wednesday, 9 March 2011

Paper Trading

Some good news at last. The Total Charges are at 20.07%, so no Premium Charge this week at least. Now if only I can keep the losers coming!

Mark commented on my list of reading material:

Thanks for posting this information up. I have read some of the books on your list and have now added the rest to my Amazon wish list. One other book that is popular and recommended by quite a few other bloggers is ‘Trading the Zone’ by Mark Douglas.

I believe that you are quite correct about there being no substitute for experience. I would also like to add my own personal view (that I will probably get shot down for) that paper trading is of little value as a learning tool.

I believe that there is no real benefit to be gained from paper trading, apart from showing the very basic mechanics of how a method works. I for one prefer not to paper trade but to use minimum stakes.

The reason for my aversion to paper trading is that it does not affect our emotional state. I could paper trade and loose half my virtual bank of one million pounds and I would not be affected at all by the experience, but if I had a bank of just ten pounds sterling and lost half of it during my testing, I would be exposed to mild versions of the emotions that go along with the trading for more substantial sums.

Also when trading using minimum stakes we have to physically put trades on and lay them off, which can highlight potential problems with trading software etc that virtual trading can not.
My personal opinion of paper trading is similar to Mark - it's useless. It's like writing a computer program and testing it by printing the code out and reviewing it. Or playing poker with matchsticks.

Yes, when you're working out the idea initially, paper may have limited value, but the only way to really test a system is in practice, and cost isn't an issue. On Betfair you don't even have to bet the official minimum stake. If you want to bet with 10p then you can. if it starts to look good, up the stakes.

Like running a computer program for the first time, operating a system 'live' can uncover all kinds of problems. (I'm speaking for most programmers here, not myself of course - all my programs from my developer days ran perfectly first time. I think.) With betting systems, you can run into the logistical problem of not being able to get the price on paper. For systems where the stake varies depending on previous results, you find outcomes not determined before the next bet is due. Your life gets in the way and you can't place the bet. And more, and as Mark says, if your system uses a progressive staking system, even playing with small amounts can soon make you realise that theoretical bets are one thing, but putting larger bets down after losing soon becomes a show-stopper. What's the worst that can happen with trading for real? You lose a few (less than) minimum stakes. That's a small price to pay to learn that your system is flawed.


Mug said...

related to paper trading Mark Douglas has a great idea about paper trading and its advatage.(at the very end of video)
here is the video interview, probably you've seen it but others not

Me? paper trading is for time wasters but the idea of Mark makes sense anyway and it is a good video even though he talks about forex

Mark said...

Hi Mug

Thanks for the link I have sat and watched all 60 minutes and can honestly say that it was the best two hours of training I have recieved for a long time;except for that maths course I went on last week ;-)

Seriously though I for one really appreciate you posting this video link as I believe that there is so much information that is really applicable making money from the markets.

I still have not been convinced that paper trading is better than trading very small stakes, for the reasons that I outlined earlier, but I have taken a huge amount from the video and can say that it has definitely convinced me to read his books.

Thanks again