Many trading industry authorities will suggest that a newbie trader attempts to trade the stocks/commodities via a simulated account first, before he or she takes a plunge in the real markets.
Papertrading is simply selecting a trade and writing it down on paper or any kind of an online log; but without actually committing your hard-earned funds to the battlefield.
Well, I do suggest this too. But with the same breath, I always add: this approach is fine, but has one serious deficiency.
It kind of doesn‘t work.
Now wait wait wait. I don‘t nay-say papertrading, okay?
I am just trying to give you a picture as clean as possible.
You will probably hear all your life the ceaseless battle of opinions. One side arguing that this technique allows a learning trader to discover the ropes while not risking any capital. Why would a newbie throw himself to the lions without finding out what they are eating these days, after all. Well, certainly makes sense, doesn‘t it?
While the other side will be yelling that they don‘t know what they‘re talking about and that papertrading is for losers, that it teaches you nothing but false confidence.
Now aren‘t you confused?
Well, let me say this straight; papertrading didn‘t work for me. Psychology of trading is still and always will be nuts and bolts.
When you don‘t have real jingle riding on your trading decisions, it is quite easy to ignore minor reversals in the market. But when you actually hold an open (real money) position, the fear and greed syndrome begins to operate and you are tempted to take quick profits, let losses accumulate, ask everyone for their opinion and make a host of other stupid mistakes.
For this reason it is certainly better to learn to play the markets through actual REAL participation.
Having said that, I still keep saying to my students: papertrade, papertrade, do it. Because you can‘t screw a thing up by doing so. But be aware of what you are doing and take it just for what it is worth.
And do not build all your hopes and dreams on your papertrading results. For it could be a pipedream.
Hope I didn‘t confuse you even more, new guys. All I wanted to do was to give you an honest word from a cowboy‘s heart.
For I believe, that honest is smart.
Good (paper)trades, and take care everyone.