Paper trading is a value tool for Forex traders who are learning the ropes but we all want to move on to live trading as quickly as we can and put our paper trading days behind us. You might be surprised to learn therefore that more and more successful traders today are making very profitable use of paper trading.
When you open your first mini Forex trading account and start foreign exchange trading your first few trades will be purely paper trades while you find your way around and learn how the market works and how to use the various trading tools on offer. Sooner or later however you'll be ready to move on and to put your paper trading days behind you. But is this really a good idea?
Some of the most successful Forex traders, many of whom have been trading for years, have discovered that continuing to trade on paper from time to time can be extremely helpful and, more importantly, very profitable.
The problem comes whenever you find yourself in a losing trade. Despite the fact that losing trades are simply part and parcel of trading life, no matter how hard you try you're always going to be affected by a losing trade and there is often a strong, if subconscious, urge to get back the money you've just lost as quickly as possible. As a result, you invariably get right back into the market with a further trade to recoup your losses but, because you're not really in the right frame of mind, this trade often results in a further loss or a less than spectacular gain.
One answer to this problem which an increasing number of foreign currency traders are now using is to follow a losing trade with a paper trade.
In this case you trade seriously and just as you would normally but simply run the trade on paper. You study the market indicators, open your position, set your stop loss order and then track your trade, moving your stop loss as you go, before closing the position when your market indicators tell you the time has come.
You may make money or lose money on this paper trade but, since the trade is only on paper, this doesn't matter one way or the other. What is important here is that it has cleared your mind and allowed you to put your previous losing trade behind you. Indeed, even if this paper trade also produces a loss the affect is positive because you are happy in the knowledge that you haven't actually lost any money.
Now however you are ready to get back into live trading again and can open a fresh trading position and track your trade in just the right winning frame of mind.
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