Practice Trading Stocks

This page will show you how to practice trading stocks and the benefit of doing this before you start using real money.

A BIG mistake that many new day traders make is opening their account and using real money to start day trading before they're ready to do so. This is just a quick formula for losing a lot of money. I know it looks easy. I know you're anxious to start making money. Maybe you even need to make some money. But, put a slight damper on your emotions and practice trading stocks before you start using real money. The equity you save will be better leveraged once you've gained both knowledge and experience.

One of my biggest mistakes as a new trader was that I did not practice trading stocks. I opened an account and just started day trading. I knew just enough to be dangerous. But here's the good news: you can practice trading stocks and learn the craft of day trading without spending a dime of your own money.

There are several areas of day trading that you can master before you start using real money.

Practice Execution

If you will practice trading stocks, then you'll get comfortable with executing the trade. It is one thing to look at a chart and think to yourself that the price might go up. When you press the "buy" button, however, a whole different set of emotions becomes involved. Now, when you practice trading stocks, you won't get the same emotions stirred up as you would using $10,000 of your own money. Nontheless, it's a start. And that's what we're after - a beginning.

When you practice executing the trade, you are deciding when to enter and exit the trade. Both sides of the trade are critical. So, don't just say "Oh, I would have bought that one". Write down the entry. Write down the exit. More about this in a minute.



After searching for quite some time, I finally found a company that allows you to practice trading in real-time. It's called Wall Street Survivor. There is a small monthly fee to access the real-time data and trading. But $10 a month is well worth it in order to be able to trade a new strategy, or learn how to trade if you're a newbie. Other trading simulations do not allow real-time trading. So this is a huge learning opportunity.



Practice Strategy

When you practice trading stocks, you have the opportunity to try out a variety of day trading strategies. My recommendation is that you master a new strategy in your practice sessions before you start using real money.

Even if you are experienced in day trading, you will want to expand your list of plays and strategies. You can do this when you practice trading stocks. You don't have to use your real trading account for these new ideas.

For example, you may learn to play gap down trades - a great strategy for the early hours of the market. But, if you want to trade after lunch, you'll need to add some new ideas to the playbook. These practice sessions will allow you to do this, without jeopardizing the profits you've made in the morning.

Practice Money Management

You can learn about day trading and have a great strategy. But, if you're a poor manager of money, then you will loose your shirt. You can learn more about money management here. But, one of my recommendations is to use the same amount of equity on every trade. This means you have to figure the number of shares you'll purchase before executing the trade. When you practice in this way, you can learn vital lessons about managing your equity but also about your own personality. How risk averse are you? Do you have an "all or nothing" gambler mentality? Do you hold onto a profitable trade too long? Do you exit the trade too quickly because you fear losing money? By paying attention to yourself in these practice sessions, you can learn about day trading without losing any money.

Methods for Practice

There are several methods you can use to practice trading stocks. The method that's been around forever is called paper trading. With paper trading, you create a notebook. In this notebook you can place charts you've printed at the time of your entry and exit. So, the act of printing your charts can be your buy and sell executions. Then you can print an end-of-day chart and see how you performed.

Add a journal entry for the number of shares traded, price at time of execution, etc. These journals and charts become your primary teachers, if you'll take the time to analyze the charts and your trades. (I've included a worksheet that will help you with this analysis. There's a link to it in the free report I've offered.)

Virtual trading allows you to trade stocks using a virtual trading platform. More information is available here.

You can also practice trading stocks by simply printing intraday charts at the end of the day and then placing a piece of cardboard over the chart. Slowly move the cardboard to the right, revealing the next candle and indicators. Then write down on an index card your entry and exit decisions, calculate your results, and keep up with your wins and losses.

So, when do you stop practicing and start using real money? I'll give you my recommendation, but first answer these questions.

1) Are you executing more winning trades than losing trades?

2) Is your average win bigger than your average loss?

3) Do you feel comfortable executing your chosen strategy?

When you can say "yes" to all three questions and you can back up the answers with proof from your trading notebook, then you may be ready. But start slowly, using small amounts of equity at first. Your emotions will play a larger role once you're using real money.

And remember this...if you get in a day trading slump, or you want to experiment with a new strategy, then you can always step back and practice trading stocks again.

No one is perfect at day trading. So don't expect it of yourself. But, if you will practice trading stocks with monopoly money first, you'll make more real money later.