Many people who are fairly new to trading on the stock markets or the forex markets will, before they start putting any real money on the line, practice stock trading on paper first, to see if their trading strategies look like they will work or not. This is a very wise thing to do. If you just dive straight into the markets without any prior experience or knowledge or without practising first, you could end up getting burned very quickly!

However, do not think for a moment that if you can successfully trade on paper, it automatically means you are a natural trader and will make a fortune for real once you start investing real funds. Once you have skin in the game, things are suddenly very different!

It is often said that markets are driven mainly by fear and greed, and there is a great deal of truth in that. Only when you are trading with real money do you start to feel those emotions for real. And those emotions can seriously affect your trading decisions. It is actually very easy to be a disciplined trader when you are making all of your decisions on paper. But once you are actually in the market, it gets a whole lot harder. Discipline often goes out the window when the market is moving against you, you are losing more and more money and your fear is telling you to get out now but your system tells you to hold. Or when you are showing a nice fat profit and your greed wants those profits to grow and grow but your system says close the position.

Human emotions are extremely strong where money is involved. That is why the best traders always say the number one quality you need to be a successful trader is discipline.

So while we would always recommend testing out any new strategy on paper first, and while we agree it is always a good idea for novice traders to practise with a paper trading account before actually getting into the markets, we would also caution against relying too much on the results of  paper trading as an indicator of what will happen in the real world.