I did some paper trading today using my account on the Virtual Stock Market at Marketwatch. I jumped in on the GGP bandwagon around 10am at .49 cents and sold my 5000 shares 45 minutes later for .54. I also meant to short HTP but accidentally put a buy order in, so instead of a profit, this was a loser. But most of all, two of my orders didn’t “execute” at all. This on top of the 20 minute delay in filling orders, made me feel like I was just wasting my time as the experience was turning out to be so far removed from a real trading environment. I know I can’t simulate it exactly, but I want some realism. So I started playing around with Think or Swim’s Paper Money system, and realized that if I funded my account, the demo trading model would give real time quotes instead of delayed ones. Also, it will reject orders if short borrows are not available, orders will be filled instantly, I can exit a position quickly if it goes against me, and I can use limit, trailing loss, and OCO orders – all things I could not do with my current system. So I’m starting over in terms of tracking my paper results and will use the following parameters with TOS’s paper money:

  • Starting balance of $10,000 (representing the real amount I have to trade with)
  • Make up to 15 day trades every 5 days (I have accounts open at five different brokers to give me 3 round-trips per account, but in the end in reality, I may actually go the route Steve at the Gutter is going – one large account with Interactive Brokers and less trading)
  • Position size for trades will be no more than 20% of my balance to practice risk management, and because my capital will be spread out across 5 accounts.

I do plan to practice both day and swing trades, but with the market so in flux, I think that holding positions overnight can be very risky right now. After two weeks, I have proved to myself that a buy and hold value investing approach (in a bear market like this) is not the way to go, and this virtual account proves it. There are lots of warnings out there that day and swing trading are high-risk activities, but I do believe it is less risky that sitting and waiting for things to go up. What little I know about the stock market – I do believe you have to be an active trader, buying in the dips and selling on the highs (or shorting on the inverse) to both protect and grow your money. My paper results so far have been inflated and deflated to a certain extent by the VSE system snags, my pretend account size ($30K to mimic a day trader account), position amounts ($19K in one paper trade – I don’t have that much money so there is no point in testing out a play like that), etc. So, I’m going to take a mulligan on the paper trading and start over – I’m down about $1K in my virtual swing account, but up $1K in my virtual day trading account, so it evens out anyway.