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Spencer Li

Why Paper Trading is a Waste of Time (And What are Better Alternatives?)

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Paper Trading: Is It Worth It, and What Are the Better Alternatives?

Last updated: 3 July 2026 · By Spencer Li, CFTe

Paper trading (also called demo trading or virtual trading, where you trade with fake money to simulate the experience without real risk) is worth it for your first 10 to 20 trades, and not much beyond that. It is good for one job: learning to execute and manage trades without paying for your beginner mistakes. It is bad at the job most people hope it will do, which is teaching trading psychology, because there is no real money on the line. The two better tools for what people usually want from paper trading are backtesting (to check if a strategy works) and a small real-money account (to train your psychology). The flow I recommend is simple: backtest the strategy, paper trade to learn the process, then switch to a small real-money account as fast as you reasonably can.

Here is what paper trading does well, where it fails, how to do it correctly, and the alternatives that do each job better.

What is paper trading?

Paper trading, demo trading, and virtual trading are the same thing: trading with fake money on a simulated account, so you get the experience of trading without the risk of losing any.

You use a virtual or demo account, place buys and sells, and watch how the trades play out, but no real money ever changes hands. So you cannot lose anything.

The logic for a beginner is sound. Most of your worst mistakes happen at the very start. Paper trading lets you make those mistakes for free. You start with fake capital, focus on honing the mechanics, and scale up to real money as your skill improves.

That works for the first 10 to 20 trades, where you just want to learn how to fire off an order and manage it. After that, paper trading hits its ceiling, for one reason: you cannot learn real trading psychology from it.

Why paper trading cannot teach you trading psychology

Mindset is a major factor in trading success, arguably the deciding one. And mindset only switches on when something is at stake.

Imagine playing poker with fake money. Is it the same experience? Definitely not.

Trading, like poker, tests your ability to make sound decisions under the stress of having money on the line. Take the money away and you take the stress away, and the stress is the whole point. Without skin in the game, the experience is just not the same.

This is not a small caveat. It is the single biggest reason not to overstay in the demo phase.

How to paper trade correctly (the 3 rules most people skip)

Most people paper trade wrongly, and hence it ends up being a waste of time. If you want to get real value out of it, three things matter.

1. Have a trading plan first. Before you place any trade, on a real or demo account, plan it fully: what strategy, what time frame, what product, where you enter, where you exit. If you go into paper trading and just randomly buy and sell, there is no learning at all, because whether you win or lose, you have no idea whether what you did was right or wrong. (More on this in How to Craft a Winning Trading Plan.)

2. Keep a trading journal. Record the whole decision-making process: what you bought and sold, the emotions involved, and why you made each call. That data, from your plan and your journal together, is what lets you improve the strategy before you risk real money. (See How to Create a Trading Journal.)

3. Treat the demo account as if it were real. This is the most important one. It is the closest you can get to simulating real psychology. If you treat fake money like real money, you will actually apply your money-management and risk-management rules, instead of doing reckless things you would never do with your own cash.

Ways to paper trade

There are two easy ways, and you do not need anything fancy.

The manual way is pen and paper, or a spreadsheet. You spot a setup, note “buy X lots at this price,” and as price moves you record your exit and the result. It is slow, but it forces you to write down your thinking.

The software way is a demo account. TradingView and most brokerage platforms give you a virtual account where you can buy and sell the real products on the platform, and every transaction is logged for you to review later. If your demo platform matches the live platform you will eventually trade on, even better.

Paper trading vs backtesting vs a small real-money account

Here is the part the original slug points at: the alternatives. Paper trading is not the only tool, and for two of the three jobs beginners care about, it is not even the best one. This table is the whole post in one view.

ToolWhat it isBest forWeakness
BacktestingRunning a strategy against historical data, ideally automatedChecking if a strategy actually works, fastPast results do not guarantee future ones; no execution practice
Paper tradingTrading fake money on a demo account in real timeLearning to execute and manage trades for free; forward-testingTeaches no real psychology; can hide slippage and commissions; breeds overconfidence
Small real-money accountLive trading with a small amount you can afford to loseTraining trading psychology under real stressReal losses; needs discipline and strict sizing

The point of the table: if all you want is to know whether a strategy works, backtesting does that far better than paper trading. You can test 10 to 20 strategies by computerizing it, all at once, before you ever place a trade. And if you want to learn psychology, only real money does that. Paper trading sits in the middle, doing one narrow job (process and execution) well.

Pros and cons of paper trading

The pros:

  • No risk. You can key in the wrong order or press the wrong button, reset the account, and try again. It is a cost-free way to make beginner mistakes.
  • Confidence. As you get familiar with the platform and your execution, you build confidence in your strategy and test whether it holds up. This works best when the demo platform matches your future live platform.
  • Forward-testing. Unlike backtesting (which looks at the past), paper trading tests your strategy forward, in live conditions, in real time.

The cons:

  • No skin in the game. The big one. Hard to learn psychology when no real money is involved.
  • Overconfidence. You can crush it on paper and then fall apart with real money. I saw this constantly when I traded professionally at hedge funds: people who did beautifully on the demo account lost their nerve, or got too cocky, the moment real money was on the line, and blew up.
  • Slippage and commissions. Demo accounts often do not reflect real transaction costs accurately. If your strategy trades a lot, those costs add up and your demo results will flatter you.
  • Backtesting does the strategy-check job better. If “does my strategy work” is the only question, reach for backtesting, not paper trading.

The part the demo account cannot give you

A backtest will tell you if the edge exists. A demo account will teach your fingers where the buttons are. Neither one will teach you what your stomach does when a real position goes against you and your own money is bleeding in real time. That is psychology, and it is one of the Five Edges no simulator can hand you. It only switches on when the loss is real. Hence, the goal is not to stay in the demo forever, it is to graduate out of it on purpose, as soon as you have the mechanics down.

Summary: the right progression

My advice to new traders is to paper trade for about 10 to 20 trades, then move to a small real-money account. It does not matter how small you start, as long as it is real money, because that is the only way to see what your psychology actually does under stress. From there you scale up slowly as you gain confidence.

The full flow, in order:

  1. Backtest your strategies. Once you have one that works, you
  2. Paper trade it to get familiar with the process and execution, and once you are comfortable, you
  3. Move to real money (start small) to train your trading psychology.

That is the whole progression. Backtest to validate, paper trade to practice, real money to grow up. Skip the middle if you must, but do not skip the last one, and do not live there forever.

So, now that you know the correct way to paper trade and the better alternatives for each job, do you still think paper trading is useful, and have you tried it yourself?

FAQ

Is paper trading worth it?
For your first 10 to 20 trades, yes. It is a cost-free way to learn how to execute and manage trades. Beyond that it has limited value, because it cannot teach you trading psychology when no real money is at stake.

What is the difference between paper trading and backtesting?
Backtesting runs a strategy against historical data to check if it works, and it is faster and more thorough for that. Paper trading tests a strategy forward in live conditions and lets you practice execution, but it does not prove an edge as efficiently as backtesting.

Why does paper trading fail to teach trading psychology?
Because there is no skin in the game. Trading, like poker, tests your decisions under the stress of real money on the line. Remove the money and you remove the stress, which is the very thing you need to learn to handle.

How do I paper trade correctly?
Three rules: plan every trade fully before you take it, keep a trading journal of your decisions and emotions, and treat the demo account exactly as if it were real money so you apply proper risk management.

How long should I paper trade before going live?
About 10 to 20 trades, just long enough to learn the mechanics. Then move to a small real-money account you can afford to lose, because real money is the only way to train your psychology.

Now that you have the progression, where are you in it: backtesting, paper trading, or live? Let me know in the comments.

And if you want the full starting roadmap, read the pillar: The Beginner’s Guide to Trading and Technical Analysis.

Want a system you can actually paper trade and then take live? Grab the free 15-Minute Swing Trading Starter Kit. It is the exact routine I use to scan once a day and trade any market in 15 minutes.

About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe) with 15 years of trading across stocks, forex, crypto, commodities, and bonds. His trade log is public, 404 trades, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.

Education, not financial advice. Synapse Trading is not licensed by MAS to advise on investment products. Trading carries risk of loss; past performance is not indicative of future results.

Related

Beginner’s Guide to Trading and Technical Analysis (pillar) · How to Craft a Winning Trading Plan · How to Create a Trading Journal · Backtesting a trading strategy

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Spencer Li

How to Create a Trading Journal (And Discover Your Edge in the Markets)

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Have you ever wondered why you keep making the same trading mistakes over and over again?

As you start your trading journey, one very important habit to cultivate is to have a good trading journal, which is why in this blog post, I’m going to share with you how you can start a trading journal and use it to effectively improve your trading results.

If you would like to learn all the essential elements to kickstart your trading journey, also check out: The Beginner’s Guide to Trading & Technical Analysis

 

How to Create a Trading Journal

 

Trading Journal #1 Plan New Trade

The first thing to record is the planning of your new trade.

You should already have a trading plan before you even start trading, but before you actually execute the trade, it is good to record down the trade in your trading journal.

  • Why are you taking this trade?
  • Why is this a good trade?
  • What is the strategy behind it?
  • What is the reason or the rationale for you wanting to take this trade?
  • What are the pro factors? The negative factors?

Everything should be recorded down, basically your whole thought process of your decision-making of how you come about to decide whether you want to take this trade or you want to pass on this trade.

So all that should be recorded down in your trading journal for future reference.

 

Trading Journal #2 Execute Your Trade

Next is the execution of the trade.

  • What was the reason and analysis of each decision point during the trade?
  • For example, when you’re making the entry, why are you entering at this price?
  • Why not wait a little bit later?
  • Why not enter at a better price or when you are going to exit the trade,
  • Why do you want to take profits?
  • Why not let the trade run further?

All these things should be recorded down in your trading journal.

Basically, why you make every decision along the way.

 

Trading Journal #3 Record Your Trade

Next, you’re going to record the trade itself in your journal, meaning all the trade parameters.

You’re going to record:

  • What type of trading style was it?
    Was it a long-term trade? A medium-term trade, a short-term trade?
    So that will correspond to whether it’s position trading, swing, trading, or day trading.
  • And what was the product that you traded?
    Was it forex, a stock, an option or a derivative?
  • Next, what was the timeframe?
    Was it on a 5-minute chart, a 1-hour chart, a daily chart, a monthly chart?

These are all the standard perimeters that should be recorded down in your trading journal.

Next up, you should also record down your entry price, stoploss price, and target price. These are the bare minimum parameters that you need to have for each trade.

  • The entry price (EP) is the price that you entered the trade.
  • The stoploss price (SL) is the price that you get stopped out.
    So if it’s a losing trade, and you got stopped out, then you record the price which you got out or if you didn’t get stopped out, you also record down the stoploss price, because that is the price that intended for it to be the stoploss.
  • And lastly, the target price (TP) will be the price that you choose to take profit at.
    If you actually stagger your trade, for example, you take half profits at certain price or decide to trail, and shift your stoploss or different variations of position management.

All this is useful information to see whether the position management strategy that you’re using is actually effective, or maybe it might be too complicated and decreasing the optimal returns that you should be getting.

Next, you should also attach a chart of your entry and exit in your trading journal.

Ideally the chart should be labeled with as many things as possible. Other than your entry and exit, you can label where you shift your stoploss or scale in or out of positions.

You can also choose to label your thought process directly on your chart.

So for example, if you choose to make your journal soft chart-based, then you could also record down most of the information directly on your chart, and then you’ll save a screenshot of it.

It might be easier for you to reference. All you have to do is just look through all the different charts, compilations. All the information is already on the chart.

However, it will not allow you to effectively analyze the data.

If you record it on a spreadsheet instead, then it’s easier if you want to do analytics to review the numbers and your profits.

This is a trade-off. Or you can do both if you have the time.

But the bare minimum you should have is to at least have an attached chart so that when you look at the chart, you can remember what this trade was about.

 

Trading Journal #4 Record Your Emotions

Lastly, the most important thing is to record down in your trading journal is your emotions throughout the trade.

Many traders tend to neglect this aspect because they think that they just want to record the hard data, so they don’t really record down how they were feeling or why they made this decision.

But trading is an emotional activity.

It’s largely psychological, but your emotions still do play a big role.

A large part of trading is how well you can effectively manage this emotion.

So the first step to understanding or managing the emotions, is to be able to record it down.

For example, when you were taking this trade,

  • Were you feeling fear?
  • Were you afraid that you might miss out the trade or feeling greedy?
  • Or were you feeling hopeful or hesitant because maybe you were previously been burned in your last trade?

All these emotions are very important because subconsciously, they may affect your decision-making.

 

Trading Journal #5 Review Your Trades

The next segment is how to use these data that you have collected from your trading journal to improve your trading results.

The frequency at which you do your review will depend on your trading style.

If you are doing swing trading, then maybe you can do a review at the end of every week; if you are day trading, then you could do it at the end of every day.

The main point of this review is to look for areas of improvement.

What are some of the things that you should be looking out for?

  • Did you follow your trading plan?
    You should have a trading plan before you even start trading, so you can compare the before and after, (your trading plan versus your trading journal), how closely do they match up?
  • If you deviated from your trading plan, why did it happen?
    Was it because of certain emotions or was it some impulse?
  • So with that, then you need to decide whether it is the plan needs to be improved or whether it is you who needs to improve so that you can be more disciplined to follow the trading plan.

The next level is to go down to each individual trade, for example, for every trade:

  • Why was it a winning trade?
  • Why was it a losing trade?

Just because a trade is a winning trade doesn’t necessarily mean that it was a perfect trade or you did everything correctly because there’s an element of chance.

Even if you broke all your trading rules and you traded horribly, there’s still a chance that you might end up with a winning trade, but that doesn’t necessarily reflect your ability to trade.

And it definitely doesn’t mean that you should replicate this behavior in the future.

It’s important to not just see the trade as winning trade equals good trade and losing trade equals bad trade, but to understand the underlying reasons for why it was a winning trade and why it was a losing trade.

For losing trades, was it due to poor execution or was it due to market conditions?

So similar to the idea put forth earlier, just because a trade was a losing trade doesn’t necessarily mean that it was a bad trade because you can do everything perfectly and executed everything according to plan and it could still turn out to be a losing trade simply because no trading strategy is 100%.

Even if your trading strategy is 70%, there is still a 30% chance that the trade will be a losing trade, even if you did everything correctly.

The key thing is to see how closely you follow your plan, whether you execute everything according to your plan.

As I said earlier, it’s a matter of reviewing everything and seeing whether the plan needs to be improved and changed, or whether it is you who needs to improve your discipline, such that you can be less emotional and be able to execute the plan which you have come up with.

And that is the key to being a good trader.

 

Summary of Trading Journal

So to sum up, I’ve shared with you 2 main segments of the trading journal.

The first was all the things that you need to record in your trading journal. (Parts 1 to 4).

That’s how you can create a good trading journal.

The second part is how you actually use this information to improve your trading results. (Part 5).

So remember that all successful traders, even professionals, they keep a trading journal.

And in fact, this is quite a standard practice for many of the funds and financial institutions, especially for some that I used to work at.

It was common practice that they want all the traders to have a trading journal so that when you are reviewing it with your manager or your bosses, there’s a record and it actually helps them understand your trading style and your trading decisions on a day-to-day basis.

Even if you are trading on your own, it’s actually very important to have this trading journal because you will be able to better understand yourself as well.

Only you will be able to figure out your strengths and your weaknesses.

So having this trading journal gives you a window into your own trading psyche and allow you to fine tune your trading strategies and thus, improve your trading results.

For all new traders out there, do you currently have a trading journal and for seasoned traders, how useful is a trading journal when you were starting your trading journey?

Let me know in the comments below!

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Spencer Li

How to Craft a Winning Trading Plan (The 7 Key Ingredients)

How to Craft a Winning Trading Plan 1

How to Write a Trading Plan: The 7 Ingredients (With Template)

Last updated: 3 July 2026 · By Spencer Li, CFTe

A trading plan is a written rulebook that decides, in advance, exactly what you will trade and how, so that when the market opens you only have to execute, not strategize. A complete plan has seven ingredients: your trading style, your timeframe, the product you trade, your risk management rules, your type of analysis, your type of strategy, and your trade-execution rules (entry, stop loss, target). Two bonus ingredients are worth adding once the core is in place: evaluation metrics and a short list of trading-psychology rules. The point of all of this is one thing. It separates the planning phase from the execution phase, so you are not trying to think and trade at the same time.

Here is each ingredient, in the order I would build them, with the numbers and rules that matter most.

What is a trading plan, and why do you need one?

If you have ever tried to start a business, you know you need a business plan: the A to Z of what you will do, the steps, the strategy, all of it on paper before you spend a dollar. Trading is no different. The plan is what you write before the money is on the line, so the decisions are made when you are calm rather than when price is moving and your heart rate is up.

The whole purpose is to separate the execution phase from the planning phase. The moment the market opens, you should be focused on executing a plan you already wrote, not building one on the fly. Try to do both at once and you will not do either one well.

The 7 ingredients at a glance

#IngredientThe question it answersQuick rule of thumb
1Trading styleHow much time can I give this?Lots → day trading · 1-2 hrs/day → swing trading · very little → position trading
2TimeframeWhich chart do I watch?Day → 5m/15m/1h · Swing → 1h/4h/daily · Position → daily/weekly/monthly
3ProductWhat do I trade?Pick one that fits your style and personality (forex, stocks, bonds, commodities, crypto, options)
4Risk managementHow much do I put at risk?~1-2% per trade · keep total open risk under 5% · cap monthly drawdown
5Type of analysisHow do I read the chart?Price action, classical charting, technical indicators (learn all three, combine them)
6Type of strategyWhat kind of setup is this?Breakout, trend-following, counter-trend, or market reversal
7Trade executionWhere exactly do I act?Entry, stop loss, target price (set all three before you click buy)

Ingredient #1: Trading style

The first thing to settle is your preferred trading style, and the main deciding factor is honest: how much time can you actually give this?

There are three main styles. Day trading means going in and out of the market within the day. It suits you if you trade full-time or have plenty of time, and if you genuinely like a fast-paced environment and quick decisions. Swing trading means holding for the medium term, days to weeks, and it fits a part-time trader with an hour or two a day. Position trading means long-term holds that last weeks or months, and it is the most effective choice if you have very little time, because it does not ask you to read charts day to day.

Personally, I teach swing trading, because most people are not full-time and an hour a day is realistic. Pick the style that fits your real schedule, not the one that sounds most exciting.

Ingredient #2: Trading timeframe

Your timeframe (the chart interval you make decisions on) follows directly from your style.

  • Day trading → an intraday timeframe: the 5-minute, 15-minute, or 1-hour chart.
  • Swing trading → the hourly, 4-hour, or daily chart.
  • Position trading → the daily, weekly, or even monthly chart.

Get the pairing right and the rest of the plan gets easier. A swing trader staring at a 5-minute chart all day has effectively become a day trader by accident.

Ingredient #3: Product selection

The third ingredient is the product: the market you choose to specialize in. It could be forex, stocks, bonds, commodities, derivatives, cryptocurrencies, or options, among others.

There are many products, so the job is to find one that suits your trading style, suits your personality, and is something you will genuinely get familiar with. Spreading yourself across everything at once is how you end up knowing none of them well.

Ingredient #4: Risk management

This is the part that decides how you allocate your resources, and it is the ingredient most beginners underbuild.

Start with your starting capital, the amount you begin with, because it sets your trade size and the risk per trade. A common rule is to risk 1 to 2% of your capital per trade. If you start with $10,000 and risk 2%, that is about $200 per trade.

Then there is open risk, which is the part people forget. Open risk is the total you would lose if every position you have open right now got stopped out at the same time. If you risk 1% per trade and hold five trades that all go sour together, you lose 5%. That 5% is your open risk.

Worked example. Risk per trade: 1%. Open positions: 5. If all five stop out at once → 5% gone. Keep open risk under 5% so a single bad day cannot take a large chunk of your capital.

Finally, cap your monthly drawdown. You do not want to lose a big slice of capital in one period, because if this month wipes you out, there is nothing left to trade next month. If a month is going badly, the sensible move is often to step away from the screen and come back to fight the next month.

Ingredient #5: Type of analysis

The next category is the type of analysis you will use. There are three main types: price action, classical charting, and technical indicators.

Each is a deep topic on its own (I have separate tutorials on all three). You should decide which one you will specialize in, but most of the time the right answer is to learn and master all three, because in practice you combine them. That combination is what leads you into your strategies, which is ingredient #6.

Ingredient #6: Type of strategy

Personally, I find that most trading strategies fall under four main categories. Knowing which one a setup belongs to tells you its strengths and weaknesses before you take it.

  • Breakouts are when price breaks to new highs or new lows.
  • Trend-following is finding a way to ride a strong trending market, usually by entering on pullbacks.
  • Counter-trend is targeting extremes, where the market has gone too overbought or too oversold. Pinpointing those is the essence of counter-trend trading.
  • Market reversals are the big turns. They do not happen often, but when one does, you want to catch it, because it changes the major trend.

Every setup you take should map cleanly onto one of these four. If you cannot name which category a trade belongs to, you do not yet understand the trade.

Ingredient #7: Trade execution

The final ingredient is execution, and it comes down to three parameters you must set before you enter: the entry, the stop loss, and the target price.

The trade entry is the price you get in at, decided by the strategy and setup you are using. The stop loss is the price you get out at to protect and limit your loss; decide in advance whether you are using a fixed stop, a trailing stop, or another type, and write it into the plan. The target price is where you take profit if the trade goes your way. Have preset rules for it: how you project a target, and where you scale out or exit fully.

If any of these three is undecided when you click buy, you are not executing a plan. You are improvising.

Bonus ingredients: metrics and psychology rules

Once the seven core ingredients are in place, two extras are worth adding.

Evaluation metrics, so you can measure and improve your trading over time rather than guessing whether you are getting better. And trading-psychology rules, a short list of guardrails to stop the cognitive biases and tilt-driven mistakes that wreck otherwise-good plans.

Where the human edge comes in

Here is the quiet point underneath all seven ingredients. A tool can scan markets, flag setups, and even draft an entry, stop, and target for you. What it cannot do is the thing the plan exists for: make you actually follow the plan when the market is moving and the temptation is to override it. The plan is the easy part to write. Executing it without re-strategizing mid-trade is discipline, and discipline is one of the Five Edges no tool will trade for you.

FAQ

What should a trading plan include?
At minimum, seven ingredients: your trading style, your timeframe, the product you trade, your risk-management rules, your type of analysis, your type of strategy, and your execution rules (entry, stop loss, target). Add evaluation metrics and psychology rules once the core is set.

How much should I risk per trade?
A common rule is 1 to 2% of your capital per trade. Just as important, keep your total open risk (everything you would lose if all open trades stopped out at once) under 5%, and cap your monthly drawdown so one bad month does not end your trading.

What is open risk in trading?
Open risk is the combined loss you would take if every position you currently hold got stopped out at the same time. If you risk 1% per trade across five open trades, your open risk is 5%.

What are the four types of trading strategy?
Breakouts, trend-following, counter-trend, and market reversals. Naming which category a setup falls under tells you its strengths and weaknesses before you take it.

Do I really need a written trading plan?
Yes. The plan’s whole job is to separate planning from execution, so that once the market opens you are only executing decisions you already made calmly, not strategizing under pressure.

Now that you have the seven ingredients, which one is weakest in your current plan? Most traders find it is #4, risk management. Let me know in the comments.

And if you want the full method behind these ingredients, read the pillar: The Definitive Guide to Swing Trading.

Want a plan you can actually run in 15 minutes a day? Grab the free 15-Minute Swing Trading Starter Kit. It is the exact routine I use to scan once a day and trade any market in 15 minutes, with the risk rules already built in.

About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe) with 15 years of trading across stocks, forex, crypto, commodities, and bonds. His trade log is public, 404 trades, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.

Education, not financial advice. Synapse Trading is not licensed by MAS to advise on investment products. Trading carries risk of loss; past performance is not indicative of future results.

Related

Definitive Guide to Swing Trading (pillar) · How to manage risk in trading · Price action vs indicators · Trading psychology rules

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