Whether it actually takes 10,000 hours to learn a skill is up for debate, but the old adage: “practice makes perfect” remains true, especially for new futures traders. But for some traders tempted by the prospect of making a profit, jumping right into the trading without practicing first makes more sense. How can you really figure things out without having some skin in the game, right? Wrong.
That's why Senior Performance Coach John Hoagland even goes so far as to say that simulated trading is the key to trading success. Hoag should know. He has more than 30 years of experience in the futures industry, working his way up from being a runner to a broker at the Chicago Mercantile Exchange and Board of Trade. At TopstepTrader, Hoag works with many traders (new and experienced alike), some of whom mistakenly believe that they’ll do better once they trade with real cash.
Here’s why they're wrong.
Want to begin your path to trading live? Start with TopstepTrader.
Learn the Basics
Simulated accounts, also known as virtual trading accounts, enable you to figure out the trading landscape, Hoagland says. With a simulated account, you can learn how to use a trading platform, buy and sell stocks, place different orders, check out various markets, and experiment with multiple products or commodities.
“You want to play with different products— Crude Oil, Gold, the S&P 500,” he says. “They’re all markets, but they all have their own personality and the way that they move. So, you need to learn what markets speak to you.”
Find Your Style
Once you’ve become acquainted with multiple markets, a simulated account allows you to hone in on your trading style. One of the keys to becoming a successful trader is establishing a consistent trading style for weathering the market highs and lows, Hoagland says. Practicing in a simulated account lets traders to learn from their mistakes and tailor their trading approach.
“The simulated account is important to begin the discovery of who you want to become as a futures trader,” he says. “Once you’ve established, ‘Okay, I like this chart, and I like these tools and these products,’ then it’s time to focus on the performance and the consistency.”
Lose and Learn Without Risk
With trading comes financial risk. Not only can you lose what’s in your account, but you can actually lose more – as Linda Raschke did when she started. And with significant financial risks comes a rush of emotions. Nobody likes to lose money, and yet many traders try their hand at trading with more confidence than they should have, leading to some pretty steep consequences.
“I’ve talked to traders who have put $100,000 into a trading account and blown through it in three to six months,” he says. “And when I ask, ‘How did you educate yourself on how to trade?’ they say, ‘Well, I didn’t really. I just assumed I would be able to pick this up quickly and I would be profitable right away.’”
It’s not the fault of traders’ though. Generally speaking, people are not well-equipped to handle significant losses or leave the market before losses become too great. Trading in a simulated account enables you to practice making hard choices without the pain of losing real funds. Aside from the monthly subscription fees paid for the simulated account, traders can experience the ebbs and flows of the market without getting too wrapped up in their feelings, training them to be even-keeled while making tough choices.
“It’s more important to know yourself than market knowledge if you’re going to be a successful trader,” he says. “There’s really high highs here and there’s really low lows and I’ve been to both.”
Of course, once you build your strategy, you can recover.
You can read “What These Traders Wish They Knew Before They Lost Huge” for wisdom from successful traders.
Ready to take your trading to the next level?