Beginner’s Guide to Paper Trading

Beginner’s Guide to Paper Trading

Introduction

If you are a new entrant into the stock market and are looking to practise your trading skills, then paper trading might just be the thing for you. When the question of ‘What is paper trading?’ comes to the fore, it is important to think of paper trading as the practice ground for traders can buy and sell stocks in real-time.

Paper trading is a simulated trading platform that lets traders analyze how effective their trading strategy might be without putting real money at risk. Paper trading lets traders observe a stock’s price movement, helps them apply trading tactics and lets them evaluate the results of the trade. Any gains or losses incurred in paper trading are of virtual money. 

How to Start Paper Trading

Here’s a step-by-step breakdown of how you can start paper trading. The process is more or less the same as when trading in the actual market. 

  1. Open a Paper Trading Account

  • The very first thing you need to do when you want to indulge in paper trading is to open a paper trading account.

  • Choose a stock-trading platform or stockbroker who you trust and you can open your paper trading account with them itself.  

  • If they do not offer this provision to you then there are many other paper trading platforms online too. 

  • This can usually also be done with ease through your computer or even your mobile phone. 

  • Make sure you opt for an account that provides good resources that help you learn in the process. 

  1. Choose Stocks to Trade

  • Once you have opened a paper trading account, you need to pick the stocks that you think have the potential to produce high returns.

  • This can be done by carrying out technical analysis of stocks. 

  • These provisions are also available with the paper trading account that you open.

  • Once you have done the analysis, it is time to pick your stock.

  1. Choose Your Strategy

  • There are many trading strategies that you will come across online. You can always take your pick from them.

  • You can also develop your own trading strategy if you do not think any of the ones available are helping.

  • If initially, your trading strategies do not seem to work well, do not be disheartened. You can always experiment with different strategies and see what works best for you in different market situations.  

  1. Place Your Orders

  • Once you have followed all the steps above and are happy with the results, you need to place your order.

  • The paper trading platform will let you easily place orders and help you see how to do it. 

  1. Analyse Your Trade

  • As important as the pre-trade analysis is, the post-trade analysis is equally important.

  • Analyse the profits or losses you incurred on a particular practice trade.

  • Have a look at what strategies work for which type of market condition.

  • Tools like charts, indicators, etc are available to you on these platforms to help you understand how your trades are being carried out.

  • As a result, you will be able to understand what is working the best for you and what tools are helping provide you with the best information

  1. Start Live Trading

  • Once you are well-versed in the practice arena, you are ready to enter the market to trade live.

  • However, you must remember the lessons you picked up while engaging in paper trading. 

  • Stay patient and keep practising even when you are trading live. 

Conclusion

We understand that the question “What is paper trading?” can be confusing initially. However, once you have explored the world of paper trading, you will understand why it can be a great way to help traders practice and perfect their trading methods to produce higher returns in the real market with fewer potential losses.   

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