Paper Trading Platforms – 1 Gigantic Myth

Jan 25, 2022

Written by:
John McDowell

Why do paper trading platforms get a bad rap? Is it because the money isn’t real? The emotions aren’t the same? Is it really just a “game”?

As we’ve covered before in our platform review, not all paper trading platforms are the same. But the real problem is the purpose of paper trading. It is often misunderstood.


The myth is very simple, that paper trading does not prepare you for real-world trading. Let’s be clear, this is a complete lie, and here is why.

Paper trading’s purpose isn’t meant to be a game. It is meant to be a preparation tool for the real world of trading. Don’t take our world for it, take the words of the most prolific trading psychologist of all time, Dr. Brett Steenbarger.

Dr. Brett Steenbarger interview on the importance of paper trading
Interview with Dr. Steenbarger

Think about every performance field:  athletics, acting, music.  In none of those do we start out by following people online, doing some reading, and then trying to make a living from our performance.  Rather, we recognize that it takes years of practice and mentoring to become a professional athlete, movie star, or recording artist. 

When we take shortcuts in the development process, our unrealistic expectations set us up for disappointment, frustration, and pain.

Many, many times the answer to emotional disruptions in trading is to work on our trading.

As I recently emphasized in an online post, the only losing trade is one that we don’t learn from.  Our job is to keep our capital intact while we’re learning new things, and often that means starting out in simulation mode.  Only once we gain successful experience in practice are we ready for prime time. 

All the work in the world on our mindset is not going to provide us with the skills we need to succeed in a competitive marketplace!

Dr. Brett Steenbarger, Ph.D.

How Paper Trading Creates a Stronger Mindset than Real Trading

Let’s focus on the last thing Dr. Steenbarger mentioned above: “All the work in the world on our mindset is not going to provide us with the skills we need to succeed in a competive marketplace.” Let that sink in for just a moment.

The majority of traders are wont to jump into trading by simply by following some advice they’ve received. The barrier to entry is incredibly low. Put money in a brokerage, sign up for a really convincing guru, and then start pushing buttons. Millions will simply flow into your account, right?

The truth is that successful traders work at their craft for hours and hours outside of normal market hours. Listen to what Karan Khanna has to say about his process:

As you can see, backtesting and pattern recognition is the key to unlocking a confident trading mindset. Not everyone is going to enjoy doing these things. To that point, we’d say you’re probably not cut out for a career in trading if you don’t like putting in the work outside the arena.

It’s All a Matter of How You Use It

Paper trading platforms are only useful if you use them constructively. It isn’t about “training your emotions” for drawdowns. It is about discovering an edge in the markets.

Simulation and replay give you the ability to expedite the time it takes to discover patterns in the market. For example, multi-millionaire trader, Kristjan Qullamaggie found confidence by uncovering thousands of examples of gappers. Here’s what he has to say about backtesting and paper trading.

Most traders haven no idea what they are doing. Many of them may think they do, but they don’t. They are trading blind, essentially gambling. I was like that many years ago jumping from alert service to alert service, setup to setup, and almost no one does a deep dive into market structure and find setups that actually work.

Most trading problems like issues with deciding and obeying to a stop without hesitation, entries, profit taking, discipline (whatever this overused word means) and overall lack of profitability and consistency stem from not having mastered any specific setup.

Once you understand a setup in depth you will never have these issues again. Throw away all your trading psychology books. Psychology was never the problem to begin with.

Once you master a setup, where you know dozens of variations by heart and in which market conditions the setup works well and when it doesn’t and having conviction holding through drawdowns, you will reach any financial goals you may have. 

Kristjan Qullamaggie

How to Master an Edge or Setup Using Paper Trading

Qullamaggie goes on to say that he flipped through 10s of thousands of charts, looking at the same type of setup/event – gap up days. He then looked at the intraday charts of all of those to find similarities. Once he’d found a pattern, he was able to exploit it.

Why is this important? Because unless you actually study your own strategies, instead of taking a guru’s word for it, you will not know what to do. You will not know when to stop out, when to enter, when to exit.

This is the very crux of confidence in trading. NFL quarterbacks are confident in games when they have studied the films of the defense they are playing against. They become intimately acquainted with the defensive strategies and the subtle nuances of players on the other side.

So it is with trading. Until you spend time in a simulator or paper trading, you will not “understand a setup in depth” enough to master it, as Qullamaggie says.

Trading is pain, so get into a paper trading platform!
Trading is pain, so get into a paper trading platform!

Spending time in a simulator or paper trading should be done for one reason, to master a setup. And for that reason, it is a huge myth that paper trading doesn’t prepare you mentally for real trading. In fact, the opposite is true.

The less time you spend in a simulator, the more pain you will experience in real trading.

Why Simulated Trading Increases Your Odds of Success

Successful trading is a game of probabilities. This is what it all boils down to. If you take enough trades with a risk of x amount to a reward of y amount, over time you expect to come out on top.

The late Mark Douglas was a master of explaining this. In his seminal book, Trading in the Zone, he makes it very clear that systematically taking a setup in which you understand the probabilities ahead of time is the fastest way to consistency.

“When you really believe that trading is simply a probability game, concepts like right or wrong or win or lose no longer have the same significance.” Mark Douglas

Therein lies the secret to paper trading – discovering your probability for success on specific strategy. Without this knowledge, you will always succumb to being right or wrong, winning or losing. Likewise, your frustration will continue.

Who It Takes to Get Into a Simulator

This may ruffle some feathers, but it takes someone who isn’t lazy. Most traders are lazy.

You might be thinking, “how dare you!” Well, prove me wrong.

Sure, you may have worked hard your whole life and have come to this point with a nice little nest egg of cash just waiting to be deployed in the market. But your unrealistic expectation of what it takes to succeed will chip away that hard-earned cash faster than you think.

Along those lines, you must ask yourself this:

“If you were willing to put in the time and effort working for someone else, why not put in the needed effort to succeed for yourself?”

It takes a disciplined, measured, and hungry person to spend time in a paper trading platform until the time is right to put real money to work.

Why Simulation and Market Replay Isn’t Just for Beginners

With all that is being said about paper trading, is also important to note that it isn’t just for beginners.

Often we hear of seasoned traders who spend time recording their screens or backtesting new strategies. Just as Tom Brady doesn’t take anything for granted with a team he has played before, so seasoned traders stay on top of their own games.

Markets never stay the same week in and week out. Yes, there are similarities and patterns, but markets shift continually. What was working as a setup last month, may not be working this month.

The ability to adapt quickly is what separates the haves from the have nots.

Over time, the goal is to create a repertoire of strategies that you can employ and tweak as the market shifts. Paper Trading Platforms allow you to do this by quickly referencing the price action of recent days and weeks to find ways to exploit the new changes.


While this may not seem like earth shattering news, we hope it dispels some really harmful stereotypes about paper trading platforms. You are not a “sissy” if you paper trade. In fact, like the tortoise who eventually beats the hair, you’ll likely end up crossing the finish line of profitable trading long before your “fast profits” colleagues do.

Take the time to check out TradingSim, our content, and reach out if we can help you.

Tags: Day Trading, Paper Trading

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