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What is papertrading?

Papertrading is a risk-free way of testing trading strategies and methods. It can also be used by novice investors to understand and learn the mechanics of day-to-day trading in securities without risking real money. Reliability of results from papertrading rest on one's resolve and honesty. Your resolve is required since if you're trading on paper, you must follow your investment just as you would if it were real. The honesty component is just as important and means that if you take a loss (on paper) in a given security or sell too early (or too late) you must enter your orders just as you would if you were using real money. For example, if a stock you just sold (or stopped out) rebounds later to a higher price, don't scratch your sell order. In real life, you can't call your broker and tell him that you really didn't want to sell your shares. Papertrading must be taken just as seriously, otherwise your results will not be reliable.

Here are a few helpful hints and guidelines for your reference:

  • Get a notebook or create an electronic document to keep track of your trading activity
  • Make a short list of securities that you want to trade from the list we send you every night. Remember that ultimately you are responsible for taking a position in any security, make sure you do your research; our list is meant to guide you and provide you with picks that are likely to move in the direction that we predicted based on technical indicators.
  • Next day, observe the market action and decide if you want to put the order or not. Trading action in early morning hours may be misleading; you may want to wait 30-60 mins before deciding that the pick is good and the stock will indeed move in the predicted direction. If you decide to enter, be honest with yourself and don't scratch the order if the stock turns around later in the day. Note that our daily list provides a suggested ENTRY price for each security listed.
  • at the close, assume your order is filled if:
    1. The stock's daily range (high-low) includes your bid/ask price,
    2. The size of your order is less than 2% of the daily volume of the stock
  • With every order, decide on a stop-loss price (for long positions) or a stop-buy price (for short positions) to protect yourself from reversals. These stops will be meaningful if you have a filled order. Note that our daily list provides a stop-loss/buy price for each security listed.
  • Keep regular account of your trades

If you choose to use a notebook, you may want to make a table similar to the one given below to keep track of your trades (assume you start with $15,000).

Date SymbolActionPrice
#shares Total
Apr 3, 2000NTXBuy85.00100-8,500296,471
Apr 5, 2000WINQBuy42.50100-4,250292,192
Apr 12, 2000NTXSell92.0050+4,600296,763
Apr 14, 2000NTXSell90.0050+4,5002911,234
Apr 20, 2000IWYBuy45.00200-9,000292,205
Apr 24, 2000CORYShort28.00300+8,4004510,560
May 3, 2000CORYCover24.00300-7,200453,315
May 8, 2000IWYSell42.00200+8,4002911,686
May 16, 2000WINQSell45.75100+4,5752916,232

Please note that all stock symbols and prices in the above table are hypothetical. Also note that in the trade where CORY was sold short on Apr 24, 2000, the proceeds from the sale (less the commission fee) will be credited to your "short account". Only when you cover the short position, the balance will be transfered to your "cash account". In the above case, after you covered your short on May 3, 2000, the net proceeds of $1,110 will be credited to your cash account. If you covered at a higher price, than the trade will result in a loss and it will be debited against your cash account. A definition of "short selling" may be found in the glossary page.

If you choose to create an electronic document to keep track of your trades, here is a site where you may open a free user account that'll help you track your papertrading activities:

Yahoo Finance

Please feel free to contact us if you have further questions.

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