So you have devised a unique trading strategy for yourself and are excited to try it. However, you hold back for the fear of losing your money. Well, it’s only rational to think this way.
Before you actually go live with your trading strategy, it is important to test your strategy. One way to do so is in a virtual environment through a process known as “paper trading”.
Paper trading is essentially a practice of trading in a completely virtual or simulated environment.
The term “paper trading” came into being from the time when traders would mark their strategies on paper and compare it manually with the movement in stock prices to examine their robustness.
With paper trading, you do not need to actually invest your money as the entire trading environment is simulated.
So, anything that happens within paper trading will not affect your trading account or the stock market. Paper trading simulates real-time values of the markets and allows you to test your trading strategies and test them.
Paper trading is a must, especially if you are a beginner considering that it is your hard earned money that you deploy in the markets. In fact, it is advised not just for new traders but also for experienced traders to test novel strategies and ideas.
Here’s why you must paper-test your strategy before deployment
1. No risk involved
When you paper-test your strategy, it essentially costs you nothing. So, if you make a terrible trade, you cannot lose money. You can use the trade to identify flaws in your strategy and ensure that you do not repeat them during live trading, which further reduces your risk.
This can help you gain valuable initial experience as a beginner, and your hard-earned money stays with you while you practice your strategies.
2. No stress or emotions involved
Emotions are a large part of trading, especially for beginners. A lot of times, it is your impulses that cause a poor trade and not your strategy. Paper-testing your strategy does not allow your emotions like greed, fear, and panic take over. This allows you to stick to your strategy.
With enough paper trading, you may in fact gain control over your emotions and be able to keep them in check during actual trading. Thus, paper trading serves like mind training!
3. Gives you adequate practice and confidence before deployment
Paper trading gives you the much-needed experience you need before you actually start trading with your hard-earned money.
This prepares you thoroughly before you deploy your strategies. It also gives you enough room to make mistakes and helps develop confidence to trade in the live markets.
4. Boosts creativity to try out new strategies
You may have come up with an experimental strategy that may be hard to implement considering that you have never tried it before.
However, with paper trading, you can literally simulate any strategy under your belt. This particularly helps when you do not have any statistics on the strategy’s performance.
Paper trading is not just for beginners but also for experienced traders who have lost touch with the market. Every trader goes through periods of losses, which can affect their confidence. Paper-testing can be a lot of help with regaining your control on emotions and your confidence before you dive back into action.
While earlier, traders would test strategies on an actual paper, today, a lot of platforms offer simulated trading. PHI 1 offers a superior simulation experience that can help you paper-test your strategies before you get into the real deal.
All you need to do is create and save your strategy on PHI 1, enter the strategy you want to use for paper trading, choose an instrument, set testing parameters and amount, and add risk controls. You’re all set to drive a trading simulation using PHI 1.
Also, PHI 1 enables limitless creation of strategies with its form-based and multi-symbol strategy creator, and standard as well as calendar risk controls, taking your algo trading to the next level.
PHI 1 aims to set the trader free from the daily mundane tasks by automating them, so traders can focus on exploring opportunities in the stock market.
Whether you’re a beginner or experienced trader, paper-testing refines your trading game. With PHI1, you can paper-test your strategies with ease.