Many people suggest “test trading” to either try out a new system, or to make sure you’re comfortable investing in the stock market in general. It all seems sound, but it doesn’t work.
Think about it – in sports, players can practice all the time, but practice never simulates “game time” or “game speed”. A fastball in a batting cage is different from a Nolan Ryan fastball while in the batter’s box, even if the pitch speeds are the same. Why not? Simple – your mentality is different. You will approach the results of test trading or system analyses differently than you will treat actual gains or losses.
So, am I saying “don’t practice”? No, of course not. However, I am saying that your mindset won’t truly be on the market until you actually own a stock.
And with little or no-cost trading commissions, you can do just that. Buy just one or two shares of a stock, instead of deciding to “watch” it.
This has practical implications as well. Once the initial purchase has been made, even if it’s just a fraction of your intended final amount, the decision of when to make your initial purchase has already been made. You will watch the stock differently than if it’s just on your personal watch list. Also, if you’re doing this to determine if you have the mental fortitude to trade the market, or a stock in general, a very small position will give you insights into how you will react when larger numbers are on the table.
Yes, you can keep watch lists, and perhaps try out trading systems, but at the end of the day, making a small initial purchase will give you more insight.
DECADES to Wealth 