Simulated Stock Trading
Investing in the stock market can be a risky endeavor. There is not only the risk that stems from movement in the market, but also risk that comes from your actions as an investor. Not having a mapped out trading strategy, poor money management, and trading based on emotion can all add undue risk and result in the loss of your hard earned money. Fortunately, there are ways to manage all of these risks, and it can be a lot simpler than you may think.
It is no secret that many new traders end up losing money at first. One way to reduce this risk is to try a simulated stock trading account. Just as most things in life require practice to master, practicing stock trading can help you to master investing in stocks. A simulated stock trading account is an excellent way to practice your stock trading without having to risk any money.
Simulated stock trading has many names, commonly it is called paper trading, fantasy stock trading and virtual stock trading.
Get over the emotion barrier with virtual trading
I know when I first started trading stocks, I found it extremely difficult to overcome my emotions. I was constantly watching stock prices. I was getting excited one minute, then disappointed the next, along with all the price fluctuations.
This led me to make rash decisions. This ultimately had a dire effect on my trading account.
I know from reading trading forums such as elitetrader and onlinetradersforum that I was far from alone in making these elementary mistakes. In fact, far too many investors trade on emotion, too often with disastrous results.
Unfortunately many traders make these mistakes, lose some money and then think they can’t make money trading stocks and give up altogether. There are even some that view stock trading as a scam after they lose money. This is absolutely not the case.
Simulated stock trading is a fantastic way to help get over the emotion hurdle that plagues many investors. I know I certainly should have done a lot more virtual stock trading before I traded a real money account.
Testing Trading Systems
Whether you are a complete novice trader or a highly experienced trader, testing your trading strategy on a fantasy stock trading account prior to trading live can be very helpful.
Not only does it help you become familiar with trading a particular trading system, it also gives you the opportunity to see how it performs under real trading conditions. This exercise can give you valuable insight into what really works for you, and, even more importantly, what does not ultimately work for you.
When should I try a live trading account?
It is often a good idea for new traders to learn how to trade stocks using a virtual trading account. If you are a new trader, you are likely to make many mistakes. I made plenty of mistakes and many of them ended up costing me money.
By sticking with a simulated trading account initially, your mistakes will not cost you any real money.
I fully understand how you may be very eager to fund a real money account, but I would personally recommend you spend at least three months with virtual stock trading. Preferably 6-12 months.
You can use this time to learn the stock trading basics and to test different trading systems.