P1:a/b P2:c/d QC:e/f T1:g
appC JWBK182-McDowell April 25, 2008 16:30 Printer: Yet to come
The Art of Paper Trading 169- Group in lots of 25 trades. Group your paper trades in lots of 25
trades each, and calculate your profit/loss, average win/loss, largest
win/loss, number of winning trades, number of losing trades, and num-
ber of consecutive winning and losing trades. A group of 25 consecu-
tive trades that has a profitable outcome is a profitable lot. - Practice until profitable. Analyze your trading results and make ad-
justments until you are profitable, and feel good about your trading. - Three consecutive profitable lots of 25 trades.Before trading with
real money, be sure you have a total of three profitable consecutive lots
of 25 trades each while paper trading. If you’re a day trader, be sure to
have spread your day trading over enough days, weeks, or months so
you experience up trending, down trending, and bracketed markets. - Keep trading in lots of 25 trades.When trading with real money,
keep using the 25 trade-lot size to analyze your profit/loss, and so on,
and see how you are doing. - Reevaluate your approach. If you are not profitable trading with real
money after trading one lot of 25 trades, stop trading and go back to
paper trading.
If you are then immediately profitable paper trading, then chances
are your psychology is the problem and you may need some additional
help from a trading coach to uncover your psychological sabotage
issues.
If your paper trading is not immediately profitable this time, then
you may have just been lucky the first time you paper traded and did
not do it long enough to experience the different types of market cy-
cles. Your trading approach needs to be adjusted.
Until you have a qualified trading approach as proven through how
you paper trade, then you will not know if you problem lies in your
trading approach or if your problem is with your psychology. - Experiencing losses.If you experience six consecutive losing trades
and/or a drawdown of more than 15 percent, the market cycle or
volatility on the market and time frame you are trading has probably
changed. You must adapt quickly and effectively to these changes. - During excessive drawdown, follow these steps.
a. Stop trading with real money. Keep trading the same market and
time frame and go back to paper trading. Wait until you have three
winning lots of 25 paper trades before trading with real money
again.
b.Make adjustments to your rules to see if that eliminates the losses
you incurred in your recent drawdown. If so, paper trade again to
validate your adjustments.