You Won't Learn Much from Simulation Trading

Simulation trading, or virtual trading (paper trading before online simulation trading software) is supposed to help you learn to make money without risking capital. It won't.

It's easy to trade virtual money that you don't have because you are not risking anything, not even your reputation. But when you invest your hard-earned cash you are risking a lot, even if it's a small amount. Risk triggers basic human emotions - fear, greed, doubt and hope - that are dormant when you are "simulating."

Human emotions drive most investor decisions. The most elaborate schemes and long term plans go out the window when fear takes over. Experienced traders know that their worst enemy is their own emotions. Learn to control them and your performance will materially improve. So learning how to trade is not about placing orders or reading charts (although those are important too); it's about learning how to control emotions. Well, better yet: it's easier to learn how to place orders or read charts than how to control emotions. And you certainly can't do that with a simulator. You can't simulate emotions. You can rack up spectacular returns on paper but not know how you will feel and act in real life when you put money on the line.

Trading decisions are never clear-cut because you have to act without complete information. Simulation software can flash all the "buy" signals it wants but in real life you will still have doubt and contradictory signals or opinions.

It's a Catch-22: you don't want to risk your money if you don't know what you are doing but the only way to learn is by actually doing it, so at some point you'll just have to take the plunge and start trading. You can start small with an amount you can afford to lose. Chalk it up to tuition. It's better to lose $2,000 in the market learning how to trade than to spend it on a fancy software package that promises to make you rich. Increase your exposure as your confidence (and your profit) grows.

Don't get me wrong: simulation trading may be the best tool to learn the basics-how to place orders, read charts--just don't expect the same returns that you rack up in simulated profits in real life.