The Road to Successful Trading

 
The Importance of Paper Trading 
As you will see, deciding on what filters to use is the end result of study and trial applications. One 
of the most important phases of developing the trading paradigm is paper trading.
Paper trading does several very important things. First, it allows the trader to simulate trades 
without the emotional fear (and reality) of losing money. This allows the trader to experiment with 
new and different filters until the trader sees consistent results in excess of chance. Picking the best 
filters and selecting good trades is a very important part of becoming a successful trader. But it’s 
not everything.
How to Design and Construct An Effective Trading Plan 
41
Hammer 

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Paper trading and experimentation with filters should take place for however long it takes to have a 
significant number of trials to determine with some statistical significance that the filters are correct 
in picking winning trades. No less than 100 trades should be used to test the validity of a filter set 
that will be part of your trading paradigm. In other words, if you have found a set of indicators that 
will give you at least a 65% win-loss ratio over 100 paper trades, you should be successful in 
making a profit if the trades are executed properly. My friends, remember that paper trading is not 
real trading.
When something as emotionally loaded as money comes into play, picking a high probability trade 
is only one of the requirements to becoming a successful trader. Proper trade execution, money 
management and proper trading psychology (see 
www.thedisciplinedtrader.com
) must be 
maintained in a consistent and disciplined manner. 
Small, frequent gains and limited losses is the basic philosophy of becoming a successful trader . 
And it all begins with choosing high probability trading opportunities and this is why it is well 
worth the time to experiment and find a mix of effective indicators to make up a filter that will have 
the ability to generate a correct determination of price direction at least 65% of the time.
If a trader follows the total trading system with discipline and consistency, there is no real reason 
why filters will need to be changed very often.
In most cases, when the trading system is no longer providing the results expected, it is usually the 
trader who has strayed from the trading paradigm and trading rules that are established in the