A trader\'s money management system

P1:a/b P2:c/d QC:e/f T1:g
appC JWBK182-McDowell April 25, 2008 16:30 Printer: Yet to come

170 APPENDIX C

c.Change time frames until you find the time frame that is working

the best.

PAPER TRADING IS FOR SISSIES!

Getting back to the traders who feel paper trading is not beneficial—it

seems valuable at this time to address the most common objections to a

paper trading approach. Here are the ones I hear the most:

1. Paper trading doesn’t subject you to the same emotions.You
   know, that may be true to a point, yet it doesn’t seem intelligent to
   use that as an argument. In medical school, would it make sense for
   surgeons to operate on live patients before they really know what they
   are doing? Don’t think so. Trading is a life and death situation—your
   financial life and death, that is. Treat it with the respect it deserves and
   paper trade until you know what you are doing.


2. You’ll get addicted to paper trading.I guess there are people who
   feel they’ll be afraid to pull the trigger if they paper trade too long.
   Here’s the thing: If you know that your plan says you will have three
   sets of consecutive trades (25 in each set) that are profitable sets be-
   fore you go live with real money, why be afraid to pull the trigger?
   If you prove to yourself you can be profitable, there is no problem.
   Then if you prove to yourself you can’t be profitable, you better fix
   the problem.


3. Back testing is the only way to test a system.There are lots of
   ways to back test. In essence, paper trading is one of the ways you can
   back test. eSignal has a great playback feature where you can take data
   from the day (or week or month or year) and play it back. You can, in a
   sense, paper trade a live market. Granted, technically it is not live, but
   if you play it forward one price bar at a time, you will feel as if you are
   trading it live. The value of testing your system in this way is that you
   are not only testing your system rules, you are testing your emotions
   and ability to follow those rules.


4. It’s too much work.Yes, it requires dedication and work to complete
   three sets of 25 profitable trades. But then again, anything of real value
   usually requires some work. The value acquired from this type of paper
   trading produces results. I’ve seen it time and again. The question is,
   are you under the illusion that trading profits will be quick and easy?
   And, if you enjoy the actual process of your trading, it won’t seem like
   work since every step of progress will give you great satisfaction.