PAPER TRADING DOESNT REALLY HELP BEGINNERS LEARN ABOUT BUYING STOCKS
One thing that I often see recommended for new stock investors is that they paper trade first. That means actually taking a pencil and paper (or keeping an online spreadsheet) and pretending to buy stock at a certain price on a certain day. You then come back in a week, a month, a year, or however long you want to make it and see how you do.
The idea is that you can pretend to buy stocks and see how you would have done had you done it for real. There is a problem with that though and it is that doing it on paper can’t ever be repeated for real. That is because every day in the stock market is different from the last.
Just because you bought stock XYZ on paper and it went up doesn’t mean you can do it again. Whether you make money or lose money on your paper trial, doing it for real is much harder and will end with different results. It has to because there is no repeatable system that works for making money in the stock market.
Don’t get me wrong, becoming familiar with the stock market before you buy is a good thing. Everyone should do it as best they can. However, if you start out paper trading and beat the market, you shouldn’t feel like you now have a leg up on what it is like to do it for real. Because you don’t.
Buying Real Stocks Is Different Than On Paper
Buying stocks for the first time involves a lot of hand wringing for most any beginner. Initially there is the decision of what stock to buy and when to buy it which is more serious this time around because real money is involved. Then comes the daily watching to see what the stock does. If it immediately goes down, doubt will creep into any beginner’s mind. Should they sell?
When real money is on the line, especially for someone who has never experienced that feeling, there is anxiety. The stock market seems to be more volatile than it used to be and with that a beginner will have to determine their risk tolerance. Not everyone can handle losing money any day of the week while they are at work and the market goes down.
When to sell a stock in real life is also much more difficult than on paper. You can let your profits ride and not lose a minute of sleep when they are just a simulation. Likewise, losing money won’t cost you any sleep either. But when you have your hard earned savings on the line in your first stock(s), making those decisions becomes much harder. You might really want to take that small profit when your real cash is involved rather than hold on and hope the stock goes up even more.
Online Stock Market Simulations
Paper trading is something lots of high schools do and even college students do in some classes. Now days though, paper trading has graduated to online stock simulators such as Wall Street Survivor which is one of the best. At least with a site like this, the student can get a feel of what it is like to make a trade as the online simulator is very similar with what they would find with any one of the real online stock brokers.
You can learn an awful lot online now before you ever venture out to make your first trade with real money. But the one thing you can’t learn is how to make money every time. No matter what your success rate is with paper trading or with an online stock simulator, you SHOULD NEVER assume you will be able to repeat your performance for real.
