“We talking about practice,” Allen Iverson ripped in 2002 during arguably the most famous press conference in NBA history. “Not a game. Not a game. We talking about practice.” The sound byte was legendary, but the reasoning behind Iverson’s rant was solid.
As the Sixers franchise player, he felt it was better to preserve his body instead of wasting energy practicing when he wasn’t feeling 100%.
Practice might not matter when you’re a 26-year old NBA star coming off back-to-back scoring titles, but it certainly does when you’re just picking up a ball and learning the game for the first time.
Same rules apply to day trading – nobody just dumps money into a brokerage account and immediately starts picking winner after winner. Like basketball, day trading expertise requires repetition, patience, and determination.
And also like basketball, day traders can refine their game on a practice court before putting real capital at risk.
What You’ll Need Before Your First Trade
A day trading career isn’t something you can hit the ground running with. Opening a brokerage account and jumping headfirst into volatile markets is a good way to lose a ton of money. First impressions matter and overzealous traders who burn out early often swear off the markets entirely.
Before attempting any type of trade, you need to have a strong foundation of market and trading knowledge. Here’s where you want to learn the difference between technical and fundamental analysis, differences in day trading vs swing trading, and how to leverage trading strategies like momentum, bear and bull flags, and gap and go.
It takes money to make money and any prospective trader will need to have a decent capital base to begin a day trading operation. High-profile stocks like AAPL, TSLA, NFLX, and MSFT are a few hundred dollars per share each.
And that’s not counting giants like GOOG and AMZN with their four-digit price tags. Not having enough capital will severely limit the amount of trading you can do, so be sure to have enough funds for the type of trading you want to partake in.
Practice, Practice, Practice
Ignore Allen Iverson on this one – practice might not make perfect, but it’ll get you a lot closer than not practicing at all. Using a paper trading simulator will help you immensely, especially if the language of day trading currently looks like Greek to you.
Like taking three-point shots in the gym, paper trading will help you learn proper form and technique before the real games (or trading) start.
Why Use A Simulator?
What makes a day trading simulator useful? The reasons are almost innumerable! A simulator helps traders learn to think on their feet and make quick decisions. When real money is at stake, the goal is for these reactions to become instincts.
Here are a few things simulators help prospective traders with.
Attempt New Strategies
Are you a momentum trader or do you prefer the Gap and Go technique? Finding that answer out in the real markets could be an expensive lesson. With a simulator, you can test and retest different strategies until you find something you’re comfortable with.
No two traders will have the same mental makeup and style, so learning what works best for you (and you alone) is a real perk of simulations. And don’t give up on a strategy!
Make sure you make a few different trades that highlight each technique to get a full understanding of how day trading works. Maybe momentum wasn’t your thing the first time around, but success can be found on subsequent trades.
Learn New Asset Classes
Have you ever wanted to expand your investing prowess to include securities like futures or options? Again, learning to trade these on the fly could lead to some expensive mistakes.
By using a simulator, you’ll be able to learn by doing. You can see how options prices fluctuate in relation to stocks, or simply see how your new favorite trading style works with futures or currencies.
Freedom to Make Mistakes
This might be the biggest benefit of all. Having the freedom to make mistakes and lose money WITHOUT actually losing real cash will teach more valuable lessons than any class or lecture.
Day trading is an emotional struggle. You need to keep your wits and remain calm even while a trade is blowing up and profits are flying out the window. How will you react if your convictions are challenged?
Yes, there’s no substitute for the emotional grind of losing real cash in a trade, but a simulator allows you to gauge your reactions and learn from your own emotional miscues. As the wise Yoda once said, “the greatest teacher failure is”.
And of course, one of the benefits of using a simulator is you won’t rack up commission fees while learning how to day trade. There’s nothing worse than making a complex options or futures trade with a heavy commission load and seeing it blow up in your face.
When you make a mistake in a real brokerage account, it costs you both your capital and the fees you pay on commission – you don’t get your commission back just because a trade goes south.
But be cautious because trading commissions WILL make a dent in your profits when you move onto a real account. Most brokers have gone commission free for stocks and ETFs, but many still charge for options and futures trading.
Be sure to understand your broker’s commission schedule before executing your finely-tuned simulator strategies in real life.
A simulator is a great tool for learning different styles and techniques, but be careful. Sure, you can keep your emotions under control when paper money goes up in smoke in a bad trade.
But the real thing evokes real reactions and it’s important not to get overconfident in your abilities just because you master the simulator. No one knows how they’ll react to losing a lot of cash until it actually happens.
That being said, a simulator is a valuable tool if you’re new to day trading. It takes time to learn how to identify various chart patterns, memorize indicators, and locate proper entry and exit points.
You don’t need to be “shown the ropes” by sacrificing real money – use a simulator to hone your craft first.