Paper Trading your system- Is it needed?

#1
Hi all,

I had recently joined this forum and had a chance to scan through some of the best threads and posts. During this process of going through these posts, I noticed some members having conflicting views about Paper Trading that it is no good, waste of time etc. etc. as things are altogether different trading Real Money. I do agree that things are tough while trading Real money but we need to rethink about Paper Trading... whether is it worth enough to spend time upon? So here's my 2 cent's on My Belief on Paper Trading.

Most of the traders in here might have gone through a situation wherein, they paper traded their system, achieved great results in doing so at the end of the period. But when the time comes to go live with the system, the end results are quite conflicting with the results achieved by paper trading the same system.

Most of them think that the system is no good and move on in the search of their so called Holy Grail System. The cycle keeps on repeating on and on and on!

But Hey! Hang on! How many to them ever had a thought that if the system was the same, rules were the same then why did the system failed to perform when it was taken live? Quite a handful right?

The image attached reflects quite a reality between the Expected Results and Actual Results trading a particular system. A big GAP between Expectation and Outcome. So has the system failed to perform or the problem something else? :D


This GAP between Expected outcome and Actual outcome various from trader to trader. So ain't it important for every trader to analyse this GAP and the work needed(psychological improvement) to fill it? And i believe that Paper Trading makes it possible to make one aware of this GAP.

I also see that most of the members in here are on look out for perfect system(does not exist), their next holy grail setup and indicators etc. etc. instead of concentrating in filling this GAP(emotions).

Time to rethink, is it not?:)

Thanks.
Phantom.
 

Mr.G

Well-Known Member
#2
This is pretty simple. You can take an example from the military. First they train on flight simulators (paper trading) then they move on to practice in real fighters (trading with real token money) and then they are considered combat pilots(professional trading).

This is a very valid example as fighter pilots and traders experience the same things. EMOTIONS. Fighter pilots train their emotions with war games and practice so that in battle they are in familiar environment.

You can't expect fighter pilots straight out of flights school and virtual simulations to be an ace right? Same way a novice trader just out of paper trading cant be a professional.

If you learn to control your emotions with rs.10 then move into rs.100 then rs.1000 then.... After that it is just a matter of how many 000 you place after 1, it will all be the same to you.

This is the only way to fill the gap. This even works for investing, and i'm talking from experience.
 

Trader_PK

Well-Known Member
#3
This is pretty simple. You can take an example from the military. First they train on flight simulators (paper trading) then they move on to practice in real fighters (trading with real token money) and then they are considered combat pilots(professional trading).

This is a very valid example as fighter pilots and traders experience the same things. EMOTIONS. Fighter pilots train their emotions with war games and practice so that in battle they are in familiar environment.

You can't expect fighter pilots straight out of flights school and virtual simulations to be an ace right? Same way a novice trader just out of paper trading cant be a professional.

If you learn to control your emotions with rs.10 then move into rs.100 then rs.1000 then.... After that it is just a matter of how many 000 you place after 1, it will all be the same to you.

This is the only way to fill the gap. This even works for investing, and i'm talking from experience.
Mr. G spot came back with bang :p ...those who don't do trading please need not suggest someone else please :)
 
#4
Right Mr. G,

Most of us fail to see Paper Trading in the way i mentioned in post #1 and blame that system is no good and fail to take the responsibility. The above technique helps us to quantify the amount of work we need to put into and focus on our weak areas with an intention to reduce that Gap between Expected results and Actual results, instead of blaming the system etc. and moving onto finding the next Holy Grail! With what little experience i have, believe me, we can win big inspite of being wrong most of the time. I am wrong 70% of the times yet in green at the end.:rofl:
 
#5
BTW glad to see someone of my age group here on TJ Mr. G

PS: Got to know about your age while going through one of the thread. I dont remember the name of thread though.
 

smartcat

Active Member
#6
When it comes to trading, there are two things that I do NOT believe in -

1) Paper Trading.
2) Back Testing.

Main issues with paper trading a trading system -

1) All trading systems will work well during certain market cycles and won't work well under certain conditions. You will most probably jettison a perfectly logical trading system because of poor results when you are paper trading. Or you could adopt a flawed trading system just because it did well during the 90 days you paper traded that system.

2) All great (and semi-great :) ) traders mention that success in trading comes from keeping emotions in check, position sizing, money management, risk management etc - which are all long term in nature. A trading system apparently contributes only 20% to your success.

I somewhat agree, because even a simple trading system -

View attachment 19234

BUY when Nifty crosses 20 SMA line
Square off long position & SELL when Nifty goes below 20 SMA line
Square off short positon & BUY when Nifty goes back above 20 SMA line
.
.
and so on will be profitable in the long run.

But execution of the strategy is the KEY, which your 30 or 90 day experiment in paper trading will not show.
 

Attachments

Giraffe

Well-Known Member
#7
When it comes to trading, there are two things that I do NOT believe in -

1) Paper Trading.
2) Back Testing.

Main issues with paper trading a trading system -

1) All trading systems will work well during certain market cycles and won't work well under certain conditions. You will most probably jettison a perfectly logical trading system because of poor results when you are paper trading. Or you could adopt a flawed trading system just because it did well during the 90 days you paper traded that system.

2) All great (and semi-great :) ) traders mention that success in trading comes from keeping emotions in check, position sizing, money management, risk management etc - which are all long term in nature. A trading system apparently contributes only 20% to your success.

I somewhat agree, because even a simple trading system -

View attachment 19234

BUY when Nifty crosses 20 SMA line
Square off long position & SELL when Nifty goes below 20 SMA line
Square off short positon & BUY when Nifty goes back above 20 SMA line
.
.
and so on will be profitable in the long run.

But execution of the strategy is the KEY, which your 30 or 90 day experiment in paper trading will not show.
Agree with smartcat......:thumb::thumb:
Emotional component and money management is the major decisive factor between success and failure.

Most trading system will work in trending market and fail miserably otherwise.
The "non-trending" or the "range bound" phase can last longer than one's account or pain threshold.....:rofl::rofl:
 

Mr.G

Well-Known Member
#8
Mr. G spot came back with bang :p ...those who don't do trading please need not suggest someone else please :)
This same thing applies to investing aswell man! Chill maar........

BTW glad to see someone of my age group here on TJ Mr. G

PS: Got to know about your age while going through one of the thread. I dont remember the name of thread though.
Your 19 too?!
 
#9
This is my personal view.

I have been intraday trading for almost 3 years and I have noticed that what ever orders you put or have in pending status, there is someone out there that knows your exact position in the market. They simply use the power of money to pull the market against you. Be it short time trading within 3 mins or long time trading like 2 to 3 hrs.

For example, consider the main owner of you brokerage house. They have several people trading in their provided software.

1] Who knows what logic their software runs on the inside?
2] Why would the owner of the brokerage firm not want to know your position in trade and profit from that?
3] What if the brokerage firm that you have is actually manipulating the share price in order to make profit for themselves. They have huge amount of money to move the market in which ever direction they please.
4] Loss is always possible in a side ways trend because they can exercise their power of money effectively at that particular time.
5] People are brilliant, but never have I seen anyone making consistent profit or any one boosting their kill in the market. Why? Is there some kind of internal sly game played with the common man?
6] Why is you broker always eager to give you tips?? Why does he always insist that you listen to his tips?


The possibilities of fraud are immense in stock trading. No one speaks about it as eveyone concentrates on finding a method that works in earning money. But yet they loose money. What should be the logical outcome of this?
 

onlinegtrash

Well-Known Member
#10
succeeding in paper trading/back tests ===> necessary conditions but NOT sufficient
to succeed in market.
i.e
If someone can't succeed in paper trading there is no hope for him
Even if he succeeds in paper trading doesn't guarantee a win in real markets.
 

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