What is paper trading, and why test a strategy there first?

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How it differs from a backtestWhat paper trading can tell youWhat it can't tell youHow long to paper tradeHow Ascent Trading Systems uses it

Paper trading means running a trading strategy with virtual money against live market prices. Orders are simulated, so nothing you do can lose real money. Many brokers offer a free paper account; Alpaca's is the one Ascent Trading Systems uses by default.

How it differs from a backtest

A backtest replays a strategy over past prices. It's fast and covers years of history, but it only knows what you told it about costs, fills and timing. Paper trading runs forward in time, on prices nobody has seen yet. It can't be tuned to fit the past, and it surfaces the practical problems a backtest skips: data that arrives late, orders that wait, holidays and half-days, a computer that restarts at the wrong moment.

What paper trading can tell you

• Does the strategy behave like its backtest? Compare the average trade, how often it trades, the win rate and the size of its drops with what the backtest predicted.
• Do the mechanics work? Orders, position sizes, stops and daily routines either run reliably or they don't.
• Can you live with it? Watching a strategy lose for three weeks in a row feels different from reading it in a table.

What it can't tell you

• Real fills. Paper fills are simulated. Real orders can fill at worse prices, partly, or not at all, especially in small or fast-moving stocks.
• The future. A strategy that did well on paper for a few months can still fail. A short paper record says very little; slow strategies may need many months before their numbers mean anything.
• Your own reactions with real money. Fear and impatience don't show up with virtual money.

How long to paper trade

Long enough to collect a meaningful number of trades, not a number of days. A strategy that trades daily may reach a few dozen trades in a couple of months; one that trades monthly needs far longer. Decide the yardstick before you start, so you don't stop the moment the numbers look good.

How Ascent Trading Systems uses it

Everything starts on paper. The Go-live Scorecard compares paper results with the backtest and answers PASS, WAIT or FAIL; live trading is designed to stay locked until a PASS, a pre-flight check and your written confirmation. A PASS only means paper trading has behaved like the backtest so far. It's not a prediction.

General education, not investment advice. Trading involves risk of loss; backtests and paper results are hypothetical and do not predict future results.

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