Trade Stocks for Real

I read a comment by a forum member on another site earlier today that suggested that every investor should back test their system for at least twenty years. I disagree and will now tell you why. Back testing and paper trading seem to be the most over emphasized techniques offered by market theorists, educational elite, market novices and/or market fakes. While learning the pure basics, I can see why a novice investor may want to paper trade; to see the results of the developing system but I will warn that these results are completely false. The results will not contain the emotional decisions that go along with risking your own cash. Anyone and I mean anyone can paper trade successfully. It's simple, place a trade and hope it goes up and if it doesn't, you have no worries because you can't lose. The emotional imbalance that occurs when you really start to lose money is not present. Don't fool yourself by believing the results of your paper trading or virtual simulation portfolio. These things may give you some confidence in your system but they don't prove a damn thing in the real world. The real world, specifically the stock market, is run by emotional human beings. People make decisions that are irrational and base their trading decisions on fear and greed. Paper trading lacks fear and greed because there is no gain and no loss; therefore there is no consequence to deal with.

Don't worry about back testing for 20 years because historical back testing is never very accurate. The most accurate testing is real time. If you can back test real trades (actual trades that you have made in the past), then this would be just as good as real time testing (or forward testing). Back testing can get you somewhat of an idea of how your system will perform but there is no emotional attachments to this type of testing so it is not realistically accurate. We all know emotions are tied to our decisions in the markets so we can only get accurate results through real testing. Learn to ignore the talking heads and the people on TV and that internet chat room that claim they are up over 1000% trading a fake account. What really makes me laugh is the person that sets up a virtual trading scenario and then allows each participant to trade $500,000 or more in their account. If you are going to trade a fake account, at least keep it real so you try to learn something, maybe money management.

I setup one virtual trading competition a few years back and I only allowed each participant to start with $10,000, a reasonable amount, an amount that most people start trading with. The competition was fun but it was not real for me or the others. I didn't care what risks I took and I never had a problem pulling the trigger which does happen in real life. I did try to keep my trades in line with my real life account but it varied slightly. I witnessed other traders making 20 trades per day or 20-50 trades per week. This is not real because the commissions alone, even with a discount broker will wipe you out. I did allow margin because I use margin in my account but I saw other investors abusing the fake power of margin in their virtual account, again, playing the game for fun instead of learning something valuable. As a fellow investor, keep testing your system in real time and you will know what works and what doesn't based on real trades, not simulations. Professors and the like teach theories while investors actually do the trading! Back testing may convince some people but I am only convinced with what works now, in real time. Besides, why would I waste my time playing for fake money when I can learn and do for real? Back testing may be good for some people but I have been testing my systems in real time since the day I started investing seriously. Currently, I am testing the $60-$100 theory using options in my newest account. I will not have concrete data on this system for another year or two, most likely two years down the road. I could back test the system but how will that help me realistically going forward? It won't, it may show me some probabilities and the possible expectancy of the system but it won't guarantee anything until I place a position for real.

If you want to test a system, open an account with real money, even a minimal amount and give it a try. Make sure you use enough money to allow emotions to be attached to your decisions. Without the emotional attachment, you are cheating yourself and your potential system.

Chris Perruna - http://www.marketstockwatch.com

Chris is the founder and president of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don't stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.

---

Mutual Fund Honor Roll ? Buy High, Sell Low by Chasing Performance

Buy high and sell low -- It's not a typo.Millions... Read More

Buy and Hold: How to Perpetuate Your Investment Losses

A recent cartoon in my daily newspaper showed two guys... Read More

Investing in the Stock Market - When To!

Is really not as important as to how you invest... Read More

Alfred E. Newman

What! Me worry?Many of you remember the cover of MAD... Read More

Why This Bear?

People are constantly asking me why is the stock market... Read More

Online Trading Strategy: Collecting Cash when Stocks Go UP - It PAYS to Know More than Others

When it comes to stock market trading it PAYS to... Read More

Kick The Tires

Before you buy another car you walk around the lot,... Read More

Peer Groups

Whenever I see mutual fund comparisons in the trade publications... Read More

The Next Bull Market

We are already in it, but you can't see it.... Read More

How (NOT) to Buy Mutual Funds

When it comes to mutual funds, there is a lot... Read More

How Covered Calls Turned a Trader Around

Sidney felt sick as she looked at her latest OptionsXpress... Read More

The POWER of a Proven Stock Investment Plan

When you invest in the stock market for ever-increasing cash... Read More

Price to Earnings Ratio - P/E

After finding the price of a particular stock, usually the... Read More

Catnip of the Stock Market

I have watched my cat play with a bag of... Read More

What Are You Waiting For?

Do you own any mutual funds? In an IRA or... Read More

What is the Most Important Indicator of All?

Most stock market traders have a favorite technical indicator.The one... Read More

How To Buy And Hold

One of the most believed bits of conventional wisdom from... Read More

Are You A Stockaholic?

Today's society gives special recognition to alcoholics, sexaholics, binge-aholics, shopaholics,... Read More

Trading For A Living - Part 1

There can't be many traders who haven't at least considered... Read More

The Shadow

The Shadow knows. There used to be a radio program... Read More

Why Buy and Hold?

Since I can remember, and that's a long time ago,... Read More

Time Out

Are you paying any attention to your retirement savings? Do... Read More

Starbucks Stock is Up

Starbucks earnings are up again and so is their stock... Read More

Performance Funds

Mutual funds are doing more and more to discourage investors... Read More

Is Active Trading The Answer?

One of the main reasons many of us get into... Read More

Size Counts!

What the heck am I talking about?It is often said... Read More

Online Investing & Stock & Share Trading: 4 Reasons Why Most Online Investors & Traders Go Broke

Are you attracted to the idea of being in control... Read More

Exchange Traded Funds Primer

Exchange Traded Funds (ETFs) are a group of passive index... Read More

Stock Market Investing: Knowing When (and when not) to Sell

One of the greatest challenges of investing in stocks is... Read More

Smart Day Trading Strategies to Help You Make Money in the Stock Market

Stock trading can be a very profitable activity. You can... Read More

Seecrets on Investment: Tired of Making Huge Losses in the Stock Market ? Part 2

Fundamental analysis.Fundamentals analysis says the best way to predict the... Read More

The 401(K): How The Insider Has Stolen Your Retirement!

Mutual funds were moderately successful in creating a presence in... Read More

401K-itis

Are you one of those many people who dread reading... Read More