For beginner and experienced day traders seeking to sharpen their skills, a day trading simulator can be an invaluable tool. Trading simulators allow traders to practice trading using virtual currency.
This allows you to gain experience without risking your hard-earned cash while also learning to minimize losses.
This guide focuses on trading simulators. It looks at how simulators work, the benefits of paper trading, and what to look for in a day trading simulator.
What is a trading simulator?
A trading simulator is a computer-based application that allows users to carry out trading activities. It is training program for traders.
These simulators closely resemble the stock market and give traders a demo brokerage account with an initial sum of virtual money to practice with.
Simulators allow users to trade risk-free with the demo account without putting any real money at risk. With a simulator, one can build a portfolio, trade stocks in near real-time, and gain or lose the simulated funds over time for practice purposes.
By spending more time trading virtual stocks on a simulator, you earn several benefits that include:
- Familiarizing yourself with the technical aspects of trading platforms
- Practice executing trades
- Access to market news, charts, trading signals, and more
- Testing different trading strategies without financial concerns
Keep in mind that a day trader is like a sports athlete. Just like professional athletes practice before the games, day traders also need to keep practicing and learning the skills needed to succeed.
How trading simulators work
As we said before, simulators allow novice traders to simulate the stock market experience by buying stocks and other securities using pretend capital.
Brokerages fund these platforms with paper/dummy money, allowing traders to gain trading experience without risking real money. This allows you to build confidence and craft strategies while familiarizing yourself with market conditions.
With $100,000 in fake money, you can test strategies and build a portfolio without taking on any real risk.
While you might be eager to learn how various day trading strategies work together, you may not be inclined to take the risk if your own money is a stake. But if it’s paper money, you’ll be more willing to take chances, explore and learn from mistakes if your trades blow up.
With simulators, your trading strategies will likely improve and you’ll learn to better identify trends and chart patterns.
Some trading simulators are offered by online brokerage firms, which means one has to have a real trading account to be able to practice with paper money. That said, most simulators can be downloaded instantly and funded with paper money for use whenever the market is open.
Benefits of using a trading simulator
Simulator trading is really cool. If properly done, it can help develop solid trading habits and skillsets.
By combining the internet with the idea of dummy trading, you have a really amazing package for online stock trading that helps you develop yourself as a day trader, without putting real money at stake.
You can also trade paper money without experiencing the kind of emotional trauma when you use real money.
The aim of simulator trading is to focus on identifying and responding to technical trade setups. When using a simulator, you should not measure your progress based on how much profit you make but on how well you are following your trading plan.
Consistency and accuracy are achieved through proper repetition of solid techniques through every stock market condition.
Simulator trading can help improve reaction speeds in real-time and train your eyes to spot setups quicker.
It also takes the fear and emotions of loss out of the equation, thus allowing you to concentrate solely on how the trade plays out. Most importantly, it trains you to manage the trades.
Paper trading also helps you to find gaps or holes in your trading strategy so that it can be tweaked or calibrated.
Lastly, it can help you adapt to trading new stocks that may have much different behavior and trading rhythm than other stocks.
For instance, Apple ($AAPL) trading at $250 moves at a much quicker pace with a bigger price range than a stock trading at $30.
However, traders must fully understand that the results of simulator trading should not be considered remotely near reality. It is simply a way to help you prepare for real money trading.
What to look for when choosing a trading simulator
There are many different types of trading simulators available all over the Internet. But the best ones will have all the features beginner and advanced day traders can ask for:
- Simulators should closely mimic the stock market
When searching for a simulator, you want a realistic stock trading experience. Therefore, simulators must feel like the real thing by allowing you to buy and sell stocks in real-time.
Additionally, they also need to give you access to more advanced order types and securities.
- Useful stock charts and research tools
A good simulator also ought to have multiple types of stock research tools at your disposal.
These tools are a necessity for any trading platform, and it would be great to have access to stock screeners, charting software, trading newsletters, expert analysis, educational content, and more.
Stock screeners scan the entire stock market and offer you information on price, chart patterns, average trading volume, etc.
Charting software, on the other hand, is the complete analysis of a stock and its performance. Trading simulators can show charts using candlesticks or lines.
Many day traders use charting software to know how a stock, index, or fund has performed over time. They take a time frame into account and all the movement of the stock on the frame is entered in chart-based software in the form of candlesticks or lines to reveal its performance during that period.
- They should have plenty of securities to paper trade
Buying and selling stocks is fun, but you might want to test some more conservative strategies such as buying and holding ETFs and mutual funds. A good stock market simulator will let you trade triple-leveraged ETNs and hold mutual funds for 40 years.
- Hotkeys
A simulator with hotkeys is a must for aspiring day traders so make sure the simulator you choose has this option with the ability to customize them.
Bottom line
When trading in a live account, your profits/losses are for real since you are trading with real money. A live account enables you to clearly see that it is important to be disciplined in order to manage risk.
On a trading simulator, discipline does not seem necessary and the placement of stop losses is often considered as something that deters you from earning profits.
A day trader using a live account knows that these two aspects are equally essential, if not more, than a strategy that shows exit and entry points.
However, even if a trading simulator doesn’t allow you to develop the psychological aspect of trading, they are crucial to learning day trading, how real trading platforms work and how to develop strategies for free and without risking real money.
We highly recommend new traders start in a simulator and if you’re are interested make sure to check out our state of the art day trading simulator!