Paper trading is one of the most important parts of stock market trading. There are many reasons why you would need to paper trade before you put any real money in the stock market.
1. It helps you test your system. Paper trading can help you test your system without risking money. You will be able to figure out if your system actually works or if it doesn’t, without losing money. We all want any system we make to make money but this is not always the case. If you are wrong you don’t want to lose money.
2. Paper trading helps you gain market experience. When you paper trade you can see what works and what doesn’t without having to risk your our money. This is especially important if you are new to the trading world. It is not hard for a new trader to lose all their money learning how the market works.
3. Helps you preserve capitol. If you lose all your money trading the market before you have a system that makes you money you might as well not have that system. In the stock market the old saying “you need money to make money” certainly holds true.
4. It helps to build your confident. When you are first getting into the stock market it could be scary putting real money in. You may not have the confidence that it will work. If you paper trade and find you are consistently making money time and time again you may build confidence in your system and follow it without worrying.
5. It helps you trade without emotions. Often people will trade with real money. When they start to lose they will get scared and pull out of the market. If you are paper trading that money does not actually affect you. You may be more willing to follow your system more closely. Only entering and exiting when it tells you to.