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I'm delighted that I stirred up so much controversy when I advised Kaye not
to paper trade! This is the kind of material that I hoped to find on this
list. We all are intently focused on improving our trading skills. When
we make a trade we have a vested interest in the decision we have made. It
is important to us that we have made a correct decision.
When the market appears to be proving us wrong there is a great temptation
to hang in a little longer because we are right and the market is only
temporarily wrong. By the time we are willing to give up and agree with
the market that we were wrong, we may have lost more than sound money
managment would permit. This kind of ego-based denial of reality rarely
exists with the same emotional involvement when paper trading.
On the other hand, I'll admit that paper trading can be instructive. For a
newcomer to trading, however, the danger of ego-influence accounts for much
of the early fallout of new traders, The benefit of paper trading can be
that it provides the opportunity to organize and experience a trading
approach, to develop a system, discretionary or mechanical, and to learn
how to establish one's personal rules for entering and exiting trades.
A new trader should realize, however, that actual trading can be very
different from paper trading for the reason stated above and also because
the pressures of actual trading (from fear and greed) make for a very
different emotional and, therefore, financial, experience.
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