#166 - Practice Paper Trading Like Scotty Roberts Plays Basketball
Hey everyone, Kirk here again and welcome back to the daily call from Option Alpha. In today's call, we are going to be talking about why you should practice paper trading like Scotty Roberts plays basketball. And so, you’re probably first wondering to yourself, “Who in the world is Scotty Roberts?” Well, that’s not his real name. I changed his name to protect his identity and just changed his last name. His first name was Scotty, but he was a guy that went to high school with us. He was a couple of years younger than me, but was a ridiculously good basketball player. Since this kid ever came into high school, he started playing basically varsity basketball as a freshmen and played all the way through his senior year and then went on to actually get a full ride scholarship and play for Division One school. He was really, really good. Now, he was not the tallest kid which was actually kind of interesting, but he was a great shooter. I mean, like really good shooter. I think in high school, I don't know what his actual stats are because I actually tried to look them up on the old high school website from a long time ago, but couldn't find anything on him. But I think his high school free-throw percentage was record-breaking. It broke records not only for our school, but also for the entire district and the region. The guy was automatic when he got to the free-throw line basically. Why I think that this is interesting and why I bring this up is because I remember coming into school all the time in the morning and I would come in early. I’m just a natural early-riser. I’ve been from day one. I’ve been up always early and trying to get things done early in the morning. That’s just the best time for me. I remember coming into school because I used to live just very not too far away from our high school, so I used to walk in some cases or drive over and I would come into school and it’d be early in the morning and Scotty would be in the gym, shooting free-throws. This kid would be in the gym literally for hours, shooting free-throws in the morning, two hours before school, an hour before school every single day like clockwork. I thought that was interesting because I saw nobody else in the gym ever. And so, those of you who… Anybody who’s listening to this podcast that goes to high school, I actually do know that some people from high school still listen to this podcast and trade actually in the Option Alpha community which is cool. But if you guys remember, Scotty would be in there every single day. What was cool about Scotty is that nobody else was in there. It was literally him and then you wonder why he's the best player on the team, why he got the full ride scholarship and nobody else did because he put in the time and put in the effort to practice. Now, here’s how this applies to options trading. In options trading, especially in paper trading, whenever you get started, people try to use paper trading like it's the real account. But it’s not. There's certain things that are going to change when you start real live money trading that you cannot simulate in paper trading. You can simulate a lot of things, but you can’t simulate emotion, you can’t simulate the real feeling of making money or losing money, you can’t simulate real market environments. It’s really hard to do. It’s very similar in basketball or in any sport. You can simulate what a game is like, but game speed and practice speed are two completely different things. What Scotty knew is that he knew that he had to take a lot of shots in practice, so that when it came time to take shots in the game, he was automatic. He would take in the morning, thousands of free-throws or hundreds of thousands maybe over the course of a couple of months or a year, so that when he actually played a real game, when it actually came down to the wire and he needed to make just two shots or just four shots at the end of the game that he could be able to make those shots. I think it’s really interesting. I always remember this. Literally, I've always thought about this in the back of my mind, is that paper trading for me should be just lots and lots of shots. When you start paper trading, instead of not taking as many trades and not doing as many trades because you want to simulate what it’s going to be like in the real world, why not go into a paper trading account and make 100 iron condor trades? Now, I’m not going to say that you’re going to make 100 iron condor trades in the real world because you’re not. But in a paper trading account, you have unlimited capacity to do anything you want, so why not use that paper trading account to make 100 iron condor trades over the course of a month and then you really get a feel for iron condor trades, how to get into them, what good pricing looks like, what a good fill looks like, how to manage them. If you've got 100 iron condor trades in one single month and that’s probably overkill, but it proves the point of saying that you probably have a good portion of those that you’re going to have to adjust. What do you do in that case? How do you adjust those? Now, you’ve got to make adjustments on say 30 trades. Well, now, you get really good at making adjustments. This self-fulfilling prophecy when you start using your paper trading account like you're shooting free-throws or practicing basketball, so that you learn how to do it, so that when the time comes that you need to make just one adjustment, that you have the capacity and the knowledge to do it because you’ve already done it 30 or 40 or 50 times. It becomes so mechanical that you don't even think about it. That’s how I think you should use paper trading. Hopefully this helps out. Like I said, I think it was an interesting concept and hopefully it relates it to options trading because it can sometimes be vague how you can use paper trading or a practice account, but I think it can be sometimes like I said, vague in how you can use paper trading or a practice trading account and how you should really use it. Like I said, I think you should use it for the sake of making lots of attempts really, like throw up a lot of stuff on there, so you see how everything works really, really quickly and then when you get into the real market and you only need to use a trade one or two times, you have the ability to do it and you’ve got this whole back history of being able to do it which helps out. As always, hopefully this helps. Until next time, happy trading!
