TPS E14: Why you should Paper Trade?

My good friend gave me this little tip a short time ago, and I think every trader can learn from it. He is a successful trader. One of the main reasons he is successful (when others are not) is because he uses some excellent techniques to keep him disciplined with his trading. I’m going to tell you about one of those excellent techniques that you can easily incorporate into your own trading.

Here’s the problem I see with many traders: Whenever they have a losing trade (whether it’s a 300 losing trade or a 3,000 losing trade), they tend to want to get the money back right away (preferably in the very next trade). But what this does is put you in a very poor frame of mind.

Think about it for a second, whenever we lose something (especially money), we want it back immediately. On a subconscious level, we are almost “desperate” to get the money back as soon as possible. As I’m sure you realize, this kind of thinking will usually prevent you from being successful on your next trade. And then if you end up making a poor decision on your next trade, you’ll have two losing trades in a row, and the cycle will most likely continue until you can get yourself in the right frame of mind.

That is why I’m going to suggest you try something new. I think it may help you a lot. After your next losing trade, here’s what you should do: PAPERTRADE! That’s right, have your next trade be a paper trade. Do the trade as you normally would. The next opportunity that comes up, don’t really do the trade, just do it on paper.

But you must make it as real as possible. Write it down like you would a normal trade. Then follow the trade as you normally would. Remember to put your stop order in and (hypothetically) trail your stop order if the market does move in your direction. If you’re going to do this, it’s important that you take it seriously. If you’re just going to look at the market and say I would have done this or that, you’re just wasting your time.

I Repeat

If you’re going to do this, it’s important that you take it seriously. If you’re just going to look at the market and say I would have done this or that, you’re just wasting your time.

It must be real, whether it takes five minutes and then you get out of the paper trade, or it takes two hours as you continue to trail your hypothetical stop as the market moves in your direction. You must take it seriously for it to help you.

This will do two positive things for your trading: 1) It will help your discipline as you learn you don’t need to get back that losing trade immediately to be successful. 2) More importantly, this will give your subconscious some time to “let go” of the losing trade. In other words, you feel the most (emotional) pain right after the losing trade. But as time passes, the emotional pain goes away and then it’s easier to find successful trades.

So doing this paper trade will give you some time to forget about the losing trade. And again, if you give yourself some time, you won’t be as anxious to chase the market and have two bad trades in a row. It works. Give it a try!