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Paper Trading Penny Stocks

What is Paper Trading?

Paper trading is to trade without investing any real money. You can paper trades by using a notebook to mark down your trades and track your results, or software to do it. Paper trading is a useful way for beginners to hone their craft without risking hard-earned money on penny stocks.

Why Should Beginners Paper Trade Penny Stocks?

Trading is a risky business, and penny stock trading is taking the risk to a new level. Beginners jump on board without realizing how hard it is to make money from penny stocks. Most people started trading penny stocks because they want to get rich quick or overnight. With this type of mentality, you might as well take your money to a casino where your odds are a little bit better than trading penny stocks.

In reality, many smart people trade the stock market and they fail and the main reason is they don't take trading seriously. On some level, they think trading is easy and depends on luck. You may have seen a news headline where a regular guy is making tons of money with penny stocks or a guru from Youtube showing a video on how to make quick money from trading. What the regular guy or the guru didn't show is how much effort they are putting into this trading game. They may have tried and failed and keep trying for many years to get to the level they are today. If you want to get good at something, you must dedicate your time to it. Trading is no different. To get good at trading, learn, and practice are the only keys and the best way to get started is through paper trading. There really is no shortcut.

How to Paper Trade Penny Stocks?

You don't need any fancy software or tools to get started. You can just use a pen and paper. Follow the market for a few months and pretend that you are actually trading with real money whenever you make a trade. You will take notes about entries, exits, and mistakes that you make along the way. More importantly, you have learned how to read stock charts and start collecting the charts of the big daily penny stock gainers and losers. Study the charts that you downloaded and try to find a winning pattern. You can use these top 5 penny stock patterns as a guideline.

After you collect a few months of data, I'm sure you can come up with some type of useful patterns. Incorporate the winning patterns in your paper trading routine. Remember, the market has been around for a hundred years, and it is not going anywhere. You can paper trade as long as you like and the market will still be there. Do not jump to real trading or rush to the stock market until you are ready.

Keep a Trading Journal

Keeping a trading journal might seem trivial for beginners. I know I didn't keep one when I first started. For most people, trading seems to be like an outside game where stock prices fluctuate and are out of anyone's control when in fact is in an inside game where one needs to be mentally strong to execute trades and follow his rules. Keeping a trading journal is one of the rules that every penny stock trader should have. Through trial and error, beginners are able to find flaws in their trades and correct the mistakes along the way and improve their trading results.

Track Your Results

Track your results go hand in hand with your trading journal. You can have an excel spreadsheet that keeps track of all your trades. Pay special attention to the ones that you think you've made mistake on and record them in your trading journal. Treat trading as a business. If you own a retail business, you track what you sell. If an item is selling well, you get more inventory of that item. You also discount the items that don't sell well so you have more space for the ones that do sell. Likewise, through tracking trades, you can optimize your trading strategy for better results. For instance, if you found yourself always jump on trade too early, then next time try to control yourself and wait a little longer. If you find yourself taking profits too soon, next time you can try to sell half of your positions when you have the urge to sell, and let the other half position ride with the trend. Trading is all about statistics, the more data you have about yourself and your trades, the better edge you have against all the other traders.

Paper Trading Simulator

There are many paper trading simulators online that you can use to assist your paper trading journal. One such simulator is the TD Ameritrade paperMoney platform that you can use for free. You do need to open a brokerage account with TD Ameritrade to use the tool. With the help of a trading simulator, you can test new strategies, track your progress and results, and automate the process instead of doing it manually. The paper trading simulator is not a requirement, I have never used one myself. However, some people find simulators helpful when paper trading.


One thing to note is that paper trading is different than live trading. When your money is on the line, it becomes a completely different game. When you paper trade, you make decisions logically. On the other hand, you may get emotional when you are trading with real money. The positive side is the winning patterns you found during paper trading won't change. If they work when you paper trade, they should continue to work now. Keep in mind, no pattern will work 100% of the time, so you need to cut losses when it doesn't work and move on quickly. Cutting loss is part of the game, and trading physiology is critical in your trading success.

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