Paper Trading
Test strategies with real-time market data without risking real money.
What is Paper Trading?
Paper trading simulates live trading with fake money and real market data.
How It Works
Bot connects to live market data feeds
Signals trigger based on real-time price action
Orders execute using simulated capital
Track performance as if trading live
No real money at risk
Why Paper Trade?
Validate Backtests - Confirm backtest performance holds in live markets and catch any discrepancies between historical and real-time behavior.
Build Confidence - Experience your strategy in action and understand the emotional impact of watching trades unfold without financial risk.
Test Infrastructure - Verify API connections, order execution, and data feeds work properly before committing real capital.
Final Validation - Catch issues that backtesting missed before risking your actual money.
Setting Up Paper Trading
1. Access Paper Trading Mode
Navigate to: Strategy Lab → Your Bot → Paper Trade
2. Configure Settings
Starting Capital
Use planned live amount (e.g., $10,000)
Realistic sizing validates strategy
Trading Pair
Match bot config (e.g., BTC-USD)
Same pair as live trading
Risk Parameters
Same stop loss and position sizing as live
Realistic testing conditions
Duration
1-2 weeks minimum, 3-4 weeks recommended
Capture various market conditions
3. Start Paper Trading
Click "Start Paper Trading"
What happens: Bot monitors markets 24/7, executes simulated trades when signals trigger, tracks P&L in real-time, with no actual money involved.
Monitoring Performance
Real-Time Dashboard
Key metrics: Current P&L (profit/loss), open positions, win rate, number of trades, and daily performance.
What to Monitor
Trade Execution
Entries at expected prices, slippage, proper fills
Strategy Behavior
Signal frequency, risk management, stop losses triggering correctly
Performance
P&L vs backtest, acceptable drawdowns, similar win rate
Technical Issues
Connection problems, order failures, data feed interruptions
Evaluating Results
Success Indicators
Positive signs: Performance similar to backtest (within 20%), consistent execution without errors, risk management working properly, drawdowns within tolerance, reasonable win rate maintained
Warning signs: Much worse than backtest (50%+ worse), frequent execution errors, unexpected behavior, risk limits not working, excessive drawdowns
Performance Comparison
Backtest vs Paper Trading: Compare these metrics: Total return %, win rate, maximum drawdown, average trade profit, number of trades
Acceptable differences: 10-20% variance is normal due to live market conditions.
Concerning differences: 50%+ worse performance indicates serious issues.
Common Paper Trading Issues
No Trades: Market conditions don't match criteria, parameters too strict, wrong pair → Verify bot active, check parameters, review market conditions Worse Than Backtest: Over-optimized backtest, market regime changed, unrealistic assumptions → Review backtest, test different periods, adjust for slippage Unexpected Behavior: Strategy logic bugs, edge cases not handled, API issues → Review logs, test edge cases, verify connections
How Long to Paper Trade?
Fast (many trades/day): 1-2 weeks - Enough data, various conditions Medium (few trades/day): 2-4 weeks - Accumulate sufficient trades Slow (weekly trades): 4-8 weeks - Capture enough signals
Recommended Approach
Week 1-2: Active Monitoring - Watch closely for issues, verify execution working, fix problems immediately Week 3-4: Performance Validation - Let strategy run naturally, monitor less frequently, accumulate realistic data, build confidence After 4 Weeks: Comprehensive review, compare to backtest, decision: proceed to live or iterate
Paper Trading Best Practices
Treat It Like Real Trading
Monitor regularly: Check performance daily, review trade executions, watch for issues, don't ignore it Use realistic settings:
Same capital as planned live
Same risk parameters
Same position sizing
Same trading hours
Track Everything
Keep a journal: Date started, initial parameters, any changes made, issues encountered, lessons learned
Test Multiple Market Conditions
Test through: Trending markets, range-bound periods, high volatility, low volatility, different times of day Why: Strategy might work in trends but fail in ranges. Need to see both.
Moving to Live Trading
Ready Checklist
2+ weeks paper trading completed, performance acceptable vs backtest, no unexpected behavior or bugs, execution working smoothly, risk management functioning, comfortable with strategy behavior, understand drawdowns and volatility, capital ready and funded
Starting Small
Don't go full size immediately:
Week 1-2 Live
10-25% of planned
Verify real money execution
Week 3-4 Live
50% if performing well
Monitor closely, stay conservative
Month 2+
Scale to full size gradually
Based on continued performance
Expect Differences
Psychological:
Real money feels different
Losses hurt emotionally
Temptation to interfere
Need discipline
Execution:
Real slippage varies
Liquidity differences
Actual fees
Different fills
Expect: 5-10% performance degradation vs paper is normal.
If Paper Trading Fails
Don't Skip to Live
If paper results are bad:
Don't assume it will be better live
Don't blame "fake money"
Don't ignore warning signs
Paper trading is your safety net.
What to Do Instead
Iterate
Identify problems, adjust carefully, paper trade again
Different Strategy
Try different approach, new backtest → paper cycle
Different Market
Test on different pair, some strategies pair-specific
Pause and Learn
Study more, understand why it failed, develop new approach
Quick Reference
Paper Trading Workflow
Complete successful backtest
Set up paper trading (2-4 weeks)
Monitor actively first week
Let run and accumulate data
Evaluate performance vs backtest
If successful → small live test
If unsuccessful → iterate or change strategy
Red Flags
Performance 50%+ worse than backtest
Frequent execution errors
Risk limits not working
Unexpected trade behavior
Connection/data issues
Much higher drawdowns
Success Criteria
Performance within 20% of backtest
Risk management working correctly
No technical issues
Acceptable drawdowns
Comfortable with behavior
2+ weeks consistent operation
Paper trading is not optional. It's the critical bridge between backtest and live trading. Take it seriously, but remember: even successful paper trading doesn't guarantee live success. Start small when going live.
Related: Backtesting Guide | Live Trading Guide | Performance Analysis
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