I could not wait until next week to write about this exciting new series I have planned. I want to cover new traders’ most burning questions on how to get your hands dirty!
You may now expect me to get straight to the nitty-gritty of trading and how to make hundreds or thousands of dollars in one single trade like I did last week right?
Unfortunately, I have to disappoint you. We have to start with dry runs first to get you prepared.
This is what this new series is all about: Preparing you for your first successful trade
But does anyone really like dry runs?
When I look at questions I get from new traders DM’ing me, most often they are about getting your hands dirty fast and tackling tasks head-on.
To be honest: Most of us would fail miserably if we adopted this primary strategy of getting fast into markets and trading with real money.
In this series, I will show you how important it is to set up a demo account and work through some trading scenarios.
You wouldn't jump into a deep lake without being able to swim (although the market is more like a raging river).
You want to practice your skills by performing paper trading on demo accounts. This will surely save you from expensive lessons. Over time you will find a trading style that matches your strengths and personality1.
Content:
Working with demo accounts
Getting started with paper trading to develop your strategies
TLDR:
Trading is a complex and challenging activity that involves both understanding the market and having practical experience.
By using a demo account or paper trading, traders can practice their skills without risking real money.
Through paper trading, traders can try out different strategies, learn about market dynamics, and find the best trading style for themselves.
It is important to have discipline, perseverance, and self-awareness to succeed in trading.
Working with demo accounts
Trading is a complex activity and most new traders likely underestimate the cognitive and emotional challenges they face.
Only theoretical knowledge is not enough to survive the markets because markets work differently from the way most people expect them to work. One needs to practice.
A demo account makes it easier for you to step into the world of trading while saving you a lot of money.
You risk no money and you can try out your strategies in simulation mode.
Most brokers will happily offer you a demo account for free. I prefer to use the paper trading account of tradingview.com. TradingView is the best trader platform I know and it’s best you get familiar with the best software in the space.
Please note:
The entry barriers are low, so you can open a trading account in no time. This means your access to the market is also quickly established.
I STRONGLY recommend, if you are a new trader, that you reign in your greed and resist the temptation to immediately get started using your won money.
Without practice and planning, you’ll have beginner’s luck at best; the worst-case scenario involves you losing all your money.
Patently develop your abilities and take all the time you need.
Getting started with paper trading
Paper trading is the technical term for trading without real capital on a demo account.
The expression stems from a time when there was no Internet and when every step of the simulations has to be written down on paper.
Paper trading allows you to try out your heart’s content, all possible strategies, markets, and trade instruments.
Be creative and play with the markets. Go on a journey of discovery. Become familiar with market dynamics. That way, you get a much better sense of your strengths and weaknesses.
Many traders I know take advantage of this opportunity regularly to find out which strategies work best.
Each trading strategy undergoes a two-level phase before it’s used:
Backtest: How successful would the strategy have been in the past?
Real-time test: Is the strategy in the simulation profitable under real-life market conditions?
Paper trading on a demo account offers a rich learning environment. You can:
Test different trading instruments and markets at different seasons and times
Train the implementation of your trading ideas and methods
Test and develop your trading criteria (when to enter/leave a trade)
Test the different types of limit orders (variations of stop loss and take profit—> Very Important!)
You’ll gain lots of knowledge, focused on the benefits:
You get a feel for the market dynamics and volatilities
You learn about your own strengths and weaknesses
You find out which trading style suits you bests (e.g swing trading, day trading, scalping)
You learn about the different timeframes you can trade on
This list can go on. You should practice under the most realistic conditions possible.
Remember: You need discipline and perseverance and I can assure you the effort is worth it. You are best suited if you know your trading processes and criteria as well as your strengths and weaknesses.
Some may say that paper trading doesn’t give you the real emotions of trading because you have no “skin in the game”.
If you feel like that here is my tip:
You could take part in public stock market games.
The competition puts you under pressure.
Or you can make public whatever trades and share them on Twitter.
In my next newsletter, I will cover:
Finding your personal trading style
Developing your personal strengths and accepting your weaknesses
I started adapting the concepts of a YouTuber called “The Inner Circle Trader”. After I have gone through is 2022 Mentorship I opened up a demo account and backtest and paper trades the shown methods for over 6 months before I started to trade with real money. This disciplined practice has helped me to become a funded trader in a very short time.
This is exactly what I need.
I’m completely new to trading. Once I set up a trading view account what is the step to take after that.
Should I just look at BTC place a trade and see what happens.
Looking forward to the next one in this series 👍👍
Great advice as always, Mr. Meme!
One thing I would add is that as people become more advanced with their trading strategies, sometimes a paper trading account can get unrealistic with the fills on orders for certain options. For instance, when I would use various butterflies in the paper trading account they would always fill, but if I tried to use that same strategy with the identical legs the order might not fill.
But I realize that is WAY down the road for most...keep up the great work and sharing valuable insights and advice, my friend!