Stock trading is complex and risky. There is much information to digest. Sometimes the information can present conflicting conclusions. There is much need to make the right decisions.

It is a daunting task to wade through the myriad of strategies and methods associated with stock trading. There is fundamental and technical analysis to consider. There is much to research in terms of company news and performance. There is a variety of technical trading techniques to investigate.

There are various timeframes for stock trading. Some employ a buy-and-hold strategy spanning years. Some engage in day-trading. And there are many who select trading timeframes between those two options.

Why do people participate in such a challenging endeavor with such high risks? One answer may be that the rewards can be high. With the appropriate level of research along with practice and experience over time, stock trading can be rewarding. However, each person has to evaluate the risk level to achieve a particular reward, commonly referred to as the risk-reward ratio.

How do people proceed to be successful with stock trading? The basic prescription for success involves preparation, practice and execution along with management of risks and expectations. Consult the wealth of information that is available on the web and in printed material.

Let's consider a technical analysis technique as guidance for trading decisions. With no intention to trivialize the complexities of trading, it can seen that if a trader gets the direction of the stock right, the trade will be successful in yielding a profit.

Candlestick technical analysis provides a good method for following the trend. If the trend or direction of the stock movement can be followed, then that should lead to profit producing trades.

Whether you are a beginner in stock trading or an experienced trader, engaged in short-term or longer-term trading, StockTradersPlace provides a trend following method based on candlestick technical analysis to provide you with a powerful tool to make the correct decisions to execute winning trades on a consistent basis.

How can the stock trader capitalize on the movement of stocks to gain trading profits? Getting the right reading on the direction of the stock is obviously very important. Determining the entry point (when to buy) and the exit point (when to sell) are equally important in addition to challenging. Related to the entry/exit points, the question of how long a stock should be held is also an important decision.

As with most stock trading topics, there are numerous approaches to the decision making process in terms of when to buy (where is the low point), when to sell (where is the high point), when to hold, or when to be out of the stock altogether.

There are various technical analysis techniques as well as charting systems that identify the up/down direction of a stock, trend lines, low/high price points and other factors important to the stock trader. I think of candlestick technical analysis as a particular expression or representation of a stock's price movement. Furthermore, candlestick charting provides a visual cue for the trader to identify low and high points, whether the stock is trending up or down, and trend reversal points.

More important than the type of technical analysis, the stock trader requires a trend following method with which to guide the buy/sell decisions. If the stock trader can ride the trend, the trade will yield a profit. A good trend following system yields the appropriate buy/sell signals for the stock trader to gain profits on a consistent basis. Such a system takes the guess work out of stock trading.

Candlestick technical analysis provides a good basis to formulate a trend following method. Candlestick charting provides a good visual for the stock trader to easily see the direction, trend and buy/sell signals.

StockTradersPlace provides a trend following method based on the use of candlestick technical analysis, presented through candlestick charting. You may find this to be a good complement to your trading tools and resources for consistently successful trades.

As the author and developer of StockTradersPlace Ctabs, in my early days of learning the stock market, I came across expert advice from various sources that said "you cannot time the market" and "it is best to buy-and-hold for the long term". I researched and consulted expert commentary to understand the fundamentals of companies whose stocks I would be investing in.

It was a ton of preparation followed by a buy action on the stock. Then it was time to sit back and wait for weeks (that was my time horizon). This exercise was repeated with different stocks from different sectors (e.g. technology, medical, mining). I monitored my holdings and as often is the case, I was in the red with my positions.

To make a long story short, I did not have success with the longer-term buy-and-hold strategy. Perhaps I did not pick the right stocks, but I did listen to expert analysts. Perhaps I did not buy the stocks at the right price (which means it was not the right time to buy), but again it was based on listening to expert recommendations. Perhaps I did not hold the stocks long enough.

I then embarked on learning about technical analysis and started getting into the mindset of trading the stocks and capitalizing on the rise and drop of the stock price, which most certainly happens all the time. The only other thing a stock price can do is to remain unchanged, but an examination of stocks will quickly reveal that few stocks stay fixed at the same price point over days, weeks or months. And if the stock price does stagnate, the worst outcome is you make no money, nor do you lose.

After examining various technical analysis techniques, I began to formulate some basic questions. What is the direction of the stock price? Is it trending up or down? Where is the top of this current run-up of the stock price? Where is the bottom of this current run-down of the stock price?

After experimenting with interpreting various technical indicators, both in the context of paper-trading as well as actual trading, I came to some basic conclusions. The trend is my friend. If I get the price movement direction correct, my trade will profit. If I buy and sell at the right times, my trade will succeed. Timing is everything. Holding for the longer-term, or for whatever pre-determined period makes no sense - I will hold the stock for only as long as necessary to make my profit - It is the trend from trough to peak that dictates how long to hold the stock.

I do acknowledge that what I am saying about following the trend also applies to longer-term trend lines. I happen to have a trading style to pursue the shorter-term trend lines i.e. on the order of days, rather than months or years.

I have found candlestick technical analysis to be a good foundation for a trend following system. Your style and time horizon for trading may be different but you may want to investigate and consider the approach.

There are trading strategies where a time horizon is established and a profit target is set. The analysis, both fundamental and technical, will indicate the right conditions and the recommendation will proceed to tell you that it is a good investment with a stated profit target expectation. If this sounds familiar, you may have read similar stock trading reports as we have.

If that kind of trading strategy is not working for you or you are looking for higher profits, an alternative approach is to follow the rise and drop cycles in the price of the stock, and capitalize on trading profits that the market will give you.

Let us illustrate with an example using RIM (Research in Motion) on the TSX (Toronto Stock Exchange). On November 18, 2008 the low was $51.95 and the high was $59.40. On December 24, 2008 the low was $49.51 and the high was $51.19.

A long position held for that period would have yielded a loss of $0.76 per share on the assumption that the buy was at the low and the sell was at the high.

A short position held for that period would have yielded a gain of $9.89 per share on the assumption that the sell was at the high and the buy was at the low.

So, if the crystal ball guided you to a long position, you would have incurred a loss; a short position would have yielded a gain.

In contrast, based on StockTradersPlace analysis, executing 5 trades in that period by reacting to technical analysis indicators, you would have yielded a gain of $19.87 per share, with $9.21 per share gain for 2 long positions and $10.66 per share gain for 3 short positions.

Choosing that period was not intended to favor the results of the short-term trading cycles. It was merely for illustration purpose where technical analysis and trend following indicated the success of the 5 trades.

It should be pointed out that a long-stretch run-up of a stock will typically favor the long-term buy-and-hold strategy. However, clairvoyance or a magical crystal ball would be needed to tell you ahead of time if there will be a long-stretch run-up. In a choppy market, the short-term trading strategy can be shown to be more effective and profitable by watching the technical indicators and reacting to the rise and drop of the stock price. Furthermore, a reactive technical trading method will yield gains in the case of a long-stretch run-up.

You can verify your own numbers with your own stocks to see if the approach works for you. Generally speaking, the approach described in this article is applicable regardless of the technical analysis indicators that are used. Some technical analysis indicators are better than others in certain market conditions or for different stocks. There is no single answer. You may look at a variety of techniques.

StockTradersPlace provides a trend following system that allows the trader to react to candlestick technical analysis indicators. The information is presented through candlestick charting to allow the trader to examine and visualize the trend following method in order to understand how it works and how it can be applied to successfully achieve winning trades on a consistent basis.

The price of gold and the trading of gold stocks are hot topics in recent times. The price of gold is a well-studied area with plenty of information and opinions on the secular bull trend in gold. The correlation of gold stocks to the price of gold is a topic of interest for people trading gold stocks. An item of importance is the HUI Gold Bugs index on the AMEX (American Stock Exchange).

If you tried to buy gold stocks in August or September of 2008, you undoubtedly would have found yourself being stopped out as gold stocks were on a decline searching for a bottom. The HUI was around 300 in September and bottomed around 150 at the end of October. Near the end of January/2009, the HUI was back up to 300.

Supposing you did your due diligence and managed to buy gold stocks in the October/2008 timeframe and held it, you would be confronted with an interesting situation in February/2009. Having seen your investment double, what should you do? Should you take profit on your investment now and wait on the sidelines in anticipation of a correction in the price of gold and gold stocks? Should you continue to hold in anticipation of a further rise in gold? The $1000/ounce mark is on the horizon for gold with predictions abound on how high gold will reach, and when.

Let’s take a particular gold stock as an example for further discussion. Kinross Gold, KGC on the NYSE (New York Stock Exchange) and K on the TSX (Toronto Stock Exchange), is a HUI component. K on the TSX was at a low of $8.96 on October 24, 2008 and a high of $24.66 on January 20, 2009. Taking profit would yield $15.70 per share. An investor may choose not to take profit and continue to hold for long-term investment.

What if the predictions on the price of gold do not turn out? What if there is a correction in the price of gold? What if Kinross Gold diverges from its correlation with the price of gold, and suffers a pullback on its own? Do you take profits now, wait for the correction and then buy back later?

As an alternative, trading K on the basis of stock price trends (rise and drop cycles) can be equally profitable and allows for profits to be realized in real terms with continuing ability to react to the price movement of the stock. It is vitally important to use a good technical analysis method with the capability to react to price trends. Buy at the “valleys” and sell at the “peaks” in the stock chart.

StockTradersPlace analysis indicates a profit of $17.43 per share of K would be possible based on long and short positions traded during the period from October 24, 2008 to January 20, 2009.

Would it not be nice to find the ultimate trading method and system where profits are guaranteed and one never has to consider the notion of taking a loss, or when to take the loss? I submit that is more a dream than reality. In practice, stock traders will encounter losing trades – it becomes a question of how often these losses are encountered and the amount of loss on each occasion.

I would say a good trading method or system is one in which losses occur infrequently and that the system provides you good exit points thus establishing a clear price at which to take the loss. Even if you use a good trading system, by the measure just stated, it becomes a task for the trader to follow through with the action of taking the loss. It is as much a fight against one’s own emotions and psychology as it is anything else.

Also bear in mind that while your capital is tied up in a losing trade, you are not able to utilize that capital to make further trading gains. This is a double whammy in that you are losing to time as well as money (if the trend continues to go down, you lose even more money). I like to think that by taking the loss, I am freeing up my capital which can be used to tackle another trade.

The underlying premise is that you are using a good trading method (e.g. strategy plus discipline) and/or system (e.g. technical analysis with good trend following results) without which you will be faced with more stop-loss situations than you would like, which means your net trading result will likely be negative overall.

There are some general “rules” that I try to apply to my trading discipline. These tips have been established through my personal trading experience. If I can ever apply these without emotion and without exception, I may well proceed to even more successful trading. Well, perhaps I can’t conquer the emotion part as there will always be some level of fear, however, I should turn my tips into rules and apply them stringently without exception. A little fear is not necessarily a bad thing as it is protection mechanism against taking overly aggressive and risky actions.

1. Make the trade based on fundamental and technical analysis. Be confident and committed with the decision. If it turns out to be wrong, get out of the position.
2. Take what the markets will give you. Don’t be greedy. Taking the profit to protect against losing that profit is better than a lost opportunity (the opportunity is what you are hoping for by holding out for more profit).
3. Take the loss when it is due. Don’t take more loss by holding the stock as it drops further. Unless you stop trading, this won’t be the last trading loss you will take.
4. Don’t hold a position past earnings announcement. Quite often, a stock climbs on its way towards earnings announcement only to deflate after the earnings announcement, especially if the outcome is below expectations. Contrarians may do the opposite and buy the position to profit from an anticipated rise in the stock after earnings announcement. The risk is not worth it for me.

What is support and resistance? I’m not going to get into the technical definition of what these are and how they are determined. I am going to say that support and resistance represent levels or areas where the price is stabilizing in terms of its current direction of move.

• As the price of a stock rises, it will reach a point where it will encounter resistance to go higher. Often times, the resistance point or the upper bound will be tested a number of times, eventually leading to a breach of that price level. Alternatively, the breach attempt fails and the stock begins to move in the other direction by dropping in price.
• Conversely, as the price of a stock drops, it will reach a point where it will encounter support which prevents the price from dropping below that point. And again, there may be a number of attempts to break below support, failing which the stock begins to move in the other direction by rising in price.

Support and resistance levels do not have to be at the historical low and high points. For example, within the low and high points in a 2-year period, there are support and resistance levels that are not at those historical low and high points.

Within a pair of support and resistance points, there will be a number of up and down movements of the stock price. I consider such up and down movements as trends. And where the stock price movements change direction, I consider those the trend reversals.

As the stock price cycles through a series of up and down trends, going through trend reversals, the successive support points will form a trendline. If that trendline is trending upwards (i.e. successive support points are rising), then that represents a broader up-trend. But remember, smaller trend cycles occur within that broader up-trend. Conversely, there is a broader down-trend if the trendline is declining.

To further illustrate the point that smaller trend cycles exist within the broader trendline, money can be made trading long positions in a stock even in a broader down-trend (but a good trend following system is needed). This is a hard way to trade but it illustrates my point.

Trading the trend cycles can be profitable, as evidenced by StockTradersPlace Ctabs. Further confidence can be gained by using the broader trendline to know if the stock is in an overall up-trend or down-trend.

I was presented with the following question from a visitor to the StockTradersPlace site.

“I like to trade the overall market (QQQQ). Is there a rule of thumb on how much loss to take before I sell a losing position? I'm always scared if I pull the trigger and bite the bullet, as soon as I get out, the market will rally but if I don't, I'll sit on it until I have lost a few thousand dollars. It's frustrating at times.”

My conclusion statements follow.

This is not intended to be flippant, but the amount of loss to take is the amount of loss you should take according to your technical analysis system. The StockTradersPlace Ctabs method/system inherently provides you with loss guidelines through its exit points. And if you additionally use a 10% stop-loss (as a general rule of thumb, broadly speaking), then you should be sufficiently covered.

I know this may not sound entirely clear as to precisely how much loss to take. Perhaps the best notion to hang onto is the fact that if one stays on trend, follows the Ctabs buy/sell signals and has a stop-loss put in place to catch the big and sudden drop, trading success will improve which means there will be net gain.

If the markets are extremely volatile, then you will get caught in the volatility. However, trading an index such as QQQQ should make it less volatile relative to individual stocks.

A visitor to StockTradersPlace is learning about stock market trading and using a virtual stock exchange program called Stock Trak. She is excited about having the opportunity to take a $1300 profit on THI (Tim Hortons, Inc. listed on the TSX and NYSE). She asks me if she should sell. I looked up the reasons for why THI had taken a pop on February 20, 2009. As it turns out, it was the market’s reaction to the earnings announcement.

I looked at the technical analysis indicators and made the comment that she did not have to sell if she wants to ride the up-trend momentum. However, she had already sold (and then asked me for my opinion on whether or not to sell!).

That’s okay, answering for nothing. I then proceeded to comment that it was good to take the profit and to try to get back into THI on a dip as part of a day-trading action. She retorted “Why should I do that? Why should I buy back in after selling it? Why would I buy so high?”

On the surface, the questions are valid (I used to think that way in my early years of trading). However, looking deeper, I submit that it is not a question of how high a stock is but how high it will go. And if there are reasons supporting a rise in the stock, then that constitutes an up-trend. The reasons for THI to go higher are (1) the earnings announcement results and (2) the technical analysis shows an up-trend progression.

Even if one is not willing to risk buying back in at the perceived high level, that’s okay too. It’s the traders choice in risk-reward management. But then I asked “When will you buy back in?”. Her answer was a resounding “I don’t know”.

A trader needs a trend following system. Without it, there is little clue as to the entry and exit points which most likely means no trading profits.

Do you ever wonder about the trust worthiness of stock market information you read on the Internet? Do you wonder about the qualifications of the company, web site or people providing gratuitous advice on stocks? Do you wonder what their motives are? In basic terms, do you wonder about the integrity and quality of the information and offerings?

And then there is this other side of friends, co-workers and family members espousing the virtues of a company, its stock, and in general their opinions about everything stock market wise. And their zealous giving ways may not terminate at stock market talk. After all, everyone is entitled to their own opinion.

Furthermore, we are all enticed to read other people’s comments, peek into message board discussions, search for that yet another stock market site – hoping to glean the world of knowledge on the stock market.

Why do we do this? There are many reasons ranging from general interest and learning to the quest for successful trading. Unless you don’t intend to trade, at some point the action is to make trades based on all the information and wisdom that you have acquired.

To this end, here follow my thoughts or suggestions if you will. They are my opinions based on my experience for my particular trading style. You judge if this helps your stock trading, given your trading style.

Question not only the substance and content but also possible motives for why people say what they say. If they have a motive or agenda, that is not necessarily a bad thing as long as their information or offering helps your bottom-line which is to succeed in stock trading.

Test the statements and assertions with questions such as “Can that work?”, “Does it work for my situation?”, “How can I apply that?”. A blunt test is “Is it better than a coin flip?”. The ultimate test is “Can I achieve winning trades on a consistent basis?”.

You may have read the notion that personality plays a role in how a person views the world in the sense of the “glass half-full, glass half-empty” saying. A pessimistic person has a tendency to think the market is heading lower while an optimistic person has a tendency to think the market is heading higher.

Assuming a person knows one’s own personality traits, that person would be well advised to indulge in behavioural modification – in essence suppressing or controlling that which will be harmful to stock trading actions. This is where discipline is needed to keep psychological (emotional) influences in check. Furthermore, conducting research and analysis is not only good preparation but also beneficial to impose objectivity into stock trading activities.

A person may not be able to change one’s personality and outlook, and a person is not able to control the stock market, but a person is able to control one’s reaction to the vagaries of stock market movements. For a long position, if the trader observes an up-trend, continue holding the position; for a down-trend, continue to be out of the stock; for a trend reversal, open or close the position as the case may be. By observe, I mean through the use of a trend following system.

Those that can control the stock market can skip the next sentence but do so at your own risk. For the rest of us, we must recognize our own personality traits, impose a methodology and system of trading, do our homework and preparation, acquire tools and resources, and proceed with objectivity and confidence.

Where do you lose in stock trading? I have asked myself that very question more than once. Looking through my Excel spreadsheet where I keep track of my trades and looking through my trading journal where I capture significant points and lessons, I would say the broad answer for me is "eating the big loss" because I don’t follow my own trading rules which are superseded by emotion.

How does the big loss manifest itself? Well, it could be from entering a position with considerable risk such as holding past an earnings announcement where I assess that the earnings outcome should be good but alas it was not good enough so the stock gets punished by investors/traders.

Rule: Don’t hold a stock past earnings announcement.
Emotion: But they could have a really good earnings announcement.
You tell me which path should be followed without exception.

Once a paper loss is encountered, emotion army #2 appears (the first mistake induced by emotion was to hold a stock past earnings announcement). Well, I can’t possibly sell at this loss. Now we are in territory of "once wrong", "twice wrong". But if at first I don’t succeed, try and try again – this should not apply to repeating wrong decisions based on emotion.

I decide to supersede the rule to take the loss. Emotion army #3 kicks in. I come up with rationalizations to will the stock into rising. I must say that I don’t have any evidence of a proven correlation between my will and the stock price direction. I may claim that stocks rise on my will but I don’t admit to the cases where it doesn’t happen.

Well, look at the gap down open on the stock chart after earnings announcement. We know the gap has to be filled according to technical analysis. That is a true statement but the real question is how long will it take to fill the gap!

At this point, I’ve lost count of the armies of emotion attacking my thoughts from every conceivable angle. I make an entry in my trading journal to capture this event and the lessons learned. As I write "don’t take the trade that is known to be risky but if I have to, take the loss at the first point of incidence; don’t let the losses mount", I face déjà vu all over again!

I won’t make those mistakes again. No, I shall not make those mistakes again. I’ve traded my emotions in exchange for candlestick technical analysis.

As I busy myself with all the post-mortem analysis, I continue to hold onto my losing position …

RIMM (Research in Motion on the Nasdaq) had a StockTradersPlace sell action on February 11, 2009. As of March 3, 2009, RIMM had a StockTradersPlace buy commentary. In the period from February 11 to March 3, according to StockTradersPlace candlestick technical analysis, there were a number of candlestick signals for a buy action if the closing price on the next trading day confirms the buy signal.

The choice of RIMM is purely for illustrative purposes only. Any stock could have been chosen to make the points that follow.

So, following the trend using a good technical analysis system would keep the trader in good standing to reap profits from the momentum that is building which appears to be forming an up-trend in RIMM as of March 4 where March 3 in hindsight represents the trend reversal from down to up.

Now, a trader in contact with me said she is selling her RIMM position on the strength of today’s rise (March 4) because it brings the position to be slightly positive. She had apparently bought RIMM a few days ago and had seen her stock position in negative territory. I recall doing the same thing before I started relying on a good technical analysis system that can show me the trends.

This is a good lesson and point of observation. If a trader enters into a position without the guidance of trend indication, then it is understandable that the position may enter into negative territory. Then on a good day such as today (March 4) and yesterday, where there is building momentum for the stock, the trader takes the first opportunity to get out of the position because it relieves the pain (emotions) of the paper loss in prior days.

I would not necessarily say this is a wrong move because it goes to the risk-reward assessment. If the trader is feeling uncomfortable (emotions tugging at the senses), then the trader may conclude that the reward is not worth the risk, hence get out of the stock position.

Well, okay, that was an acceptable decision. But now what? Do you stop trading RIMM altogether? Do you trade another stock? Unless you stop trading altogether, you will be confronted with the exact same question time and time again. Where do you buy to enter a position? Where do you sell to exit a position?

My provoking comment to my contact was "If StockTradersPlace has a buy action on RIMM today because it confirmed the buy signal of yesterday, then you must go with the technical analysis guidance and be in the stock, not out. Why would you sell the stock today?". Her answer was "I don’t know.".

Do technical analysis methods work? Or perhaps more appropriately asked, how effective are technical analysis methods?

For those that simply believe that technical analysis does not work without having learned it, tried it and validated it, I submit they are missing an opportunity. For those that don’t have the time or energy to do it because of lifestyle constraints (e.g. they work long hours at a stressful job), it is perfectly understandable that they bypass do-it-yourself technical analysis. For this case, I would think stock trading is also out of the question because of the time and effort needed to prepare and execute winning trades. Here, it is understandable that people partake in long-term investments and listen strictly to their financial advisors/brokers. [Witness the debacle of long-term investors locked into their holdings now awaiting recovery through time.]

For stock traders wishing to leverage technical analysis, they have to find the right technical analysis system. And with so many technical analysis indicators, it can become quite confusing, perhaps even conflicting. For example, trying to apply Bollinger Bands, Moving Average Convergence/Divergence and various Moving Average crossing points, it can become very confusing to validate which ones are effective in yielding winning trades on a consistent basis. [If it works half the time, I suggest it is not effective, because the other half means you have losing positions.]

I have read comments and discussions that certain technical analysis indicators simply don’t work. I have personally performed analysis of certain technical analysis indicators and come to the same conclusion. For curiosity sake, learning about the mathematical theory behind a technical analysis indicator is an intellectually stimulating exercise, if you are so inclined. Beyond that, I think it is far more important to functionally validate the technical analysis indicators. i.e. Do they lead to consistently winning trades?

Leveraging technical analysis can be achieved in at least two ways:

1. Do-it-yourself technical analysis with charting software. You analyse the charts and make your trading decisions.
2. Subscribe to a service for buy/sell signals based on technical analysis. You treat the service as a black-box system and follow the buy/sell recommendations.

As long as the do-it-yourself technical analysis or the black-box technical analysis system (or a blend of the two) produces consistently winning trades, then you have validated the effectiveness of the approach and hence have found a winning formula. If you are making profits but wish for higher yields, then by all means, continue to seek and validate other technical analysis methods/systems. The fact that there are various software products available for the trader to devise their own trading system and back-test the method means people are ever seeking more. [Sometime the quest for more is simply an exercise in finding another way that may or may not yield more. But you don’t know until you try.]

To Conclude:

1. Evaluate technical analysis by validating against historical data. Look at the chart, make your trading decision and do the (retro) paper-trading exercise.
2. Validate against your stocks moving forward in the paper-trading exercise.
3. Answer the question: Does it consistently yield winning trades?

There are a number of Web sites out there that allow the prospective stock market trader to learn about stock trading through simulated transactions. Whether through the use of such Web services or simply by a person tracking "paper" buy/sell actions, this activity is generally referred to as paper trading.

I personally don't like paper trading platforms that are termed as "games" as that sets the wrong tone at the onset. Stock trading is serious business and traders should get off on the right foot at the get-go. Platforms that are termed as "contests" (also misrepresentative) sets up the atmosphere of competition to provide motivation and provides a means of measuring success. They also provide incentive to visit, use and stay at the Web site. However, stock trading is not a competition with other traders; it's an individual exercise to generate profits. Just because you are in the top-10 in the contest could still mean you have net negative loses. Be mindful of your objective which is to progress beyond the paper trading exercise and onto real trading. Stock trading game/contest Web sites can be so compelling and fun that you simply spend your available time staying there.

The paper trading exercise should be structured and carried out to replicate the real trading conditions and situations. You should practice on the stocks that you actually intend to trade. You should use representative capital so that you can get a true sense of your absolute gain/loss amounts (i.e. truly gauge risk-reward). You should use the actual methods that you will be using in real trading to determine trading decisions - fundamental analysis, technical analysis, trend following, entry/exit points, stop-loss points.

Another factor to keep in mind is the psychological element. In paper trading, you can turn out to be very successful because you are so rigorous in minimizing losses in losing positions. With nothing at stake, you terminate your losing positions early because you conclude that you made the wrong entry point decision. In other words, you are on the wrong side of the trend. In the extreme case, you can start over again with a fresh pot of capital. The important question to address is, will you be able to exercise the same level of rigor and sell losing positions early with real money?

If you cannot succeed in a paper trading exercise, it is likely that you will not succeed in real life trading. Therefore, as a first requisite step, find the proper methods to succeed in paper trading. If you succeed in a paper trading exercise, you may still struggle (i.e. lose) with real life trading due to the psychological factors associated with real money.