AI Trading: Lesson Learned #111: Paper Trading Capital Must Be Realistic
Source: Dev.to
The Problem
Paper trading account was configured with a $100,000 starting balance while the real account target is $500 (growing to $5,000 by June 2026).
This 200× mismatch creates a fundamentally false simulation because:
- Strategy Mismatch – Paper tests AMD $200 CSPs (needs $20k collateral) – impossible with real capital.
- False Confidence – 80% win rate on $100k means nothing when testing impossible strategies.
- Diversification Illusion – Paper holds 4‑5 positions; real can hold 1‑2 max.
The Correct Approach
Paper trading capital should match the next realistic milestone, not current capital.
| Milestone | Target Date | Paper Capital | Valid Strategies |
|---|---|---|---|
| $500 | Feb 2026 | $500 | F/SOFI $5 CSPs only |
| $1,000 | Mar 2026 | $1,000 | INTC/BAC $10 CSPs |
| $5,000 | Jun 2026 | $5,000 | Quality stocks $50 CSPs |
| $50,000 | Future | $50,000 | Full strategy suite |
Recommended Paper Account: $5,000
Why $5,000 is the sweet spot
- Realistic 6‑month target – achievable with $10/day deposits + compounding.
- Tests real strategies – CSPs on quality stocks (≤ $50 strike).
- Forces discipline – 1‑2 positions max, proper sizing.
- North Star path – builds toward a $100/day goal (needs ≈ $50k).
What’s Wrong with Current $100k Paper
| What Paper Tests | Collateral Needed | When Realistic? |
|---|---|---|
| AMD $200 CSP | $20,000 | 2+ years away |
| SPY $660 CSP | $66,000 | Never (unrealistic) |
| INTC $35 CSP | $3,500 | ~6 months |
Action Items
- Reset Alpaca paper account to $5,000
- Close current paper positions
- Only test CSPs with strikes ≤ $50
- Limit to 1‑2 positions maximum
- Re‑run backtests with $5,000 starting capital
Key Insight
“Test strategies you’ll ACTUALLY USE when you reach the next milestone, not strategies that require 200× more capital than you’ll ever have.”
The goal isn’t to paper trade at current capital ($30) – that’s too restrictive to learn anything useful. The goal is to paper trade at the next achievable tier ($5,000) to validate strategies before deploying real capital.
Tags
paper-trading capital-alignment risk-management simulation-fidelity ceo-insight
This lesson was auto‑published from our AI Trading repository.
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