Demo account or paper trading helps, but not real

I had been “god like” in trading using demo account, but when I started trading for real, everything changes. Mistakes I never ever thought of start popping up left and right. I learnt a few lessons:

  1. Losing real money will make you feel a pain that paper trading can’t. Losing $1000 on paper is quickly shaken off; when it is real money, it can be emotionally guy-wrenching and depressing, and when it happens on Friday, it ruins the whole weekend.
  2. No one gets a margin call when paper trading and has to liquidate positions, and everyone gets the best prices on every trade. When real money is on the line, risk aversion levels change, profits are taken too quickly, losses are allowed to grow too big, and slippage and commissions become a major factor.

Above are just a few things that paper trading can’t simulate.

Although it is important to risk real money, it is wise to start on demo account or paper until you get a feel for the markets. The best way to avoid making mistakes is to make them, lose money, realize they were mistakes, and consciously be aware of them the next time the same situations arise. I also recommend voraciously reading everything one can get one’s hands on.

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