One of my favorite movie quotes comes from an obscure comedy film from 1996 called “Down Periscope,” featuring Kelsey Grammer and Rob Schneider, among others. In limited space, I cannot summarize the movie, except to say that they are a group of misfits on a submarine...
One scene in particular features the incompetent captain, who was something of a savant, being challenged by his female “dive officer.” When questioned about her abilities to dive the boat, she noted that her scores on the simulator at the Naval Academy exceeded the captains.
At that moment, the captain made the quick-witted response: “a simulator is not a boat; you never hear of brave men and their proud simulators.”
Those who are new to trading are highly encouraged to first begin on a simulator. Of course, “a simulator is not a boat,” however, for new traders, or even experienced traders attempting to do new things, the simulator provides the initial testing ground.
It’s An Emotional Rollercoaster
Many have experienced the disappointment of simulated success and then failure trading live. As many benefits as there are for simulated trading, in most cases it cannot replicate the greed and fear of having real money at stake, but it can serve as an early warning system of the psychological effects of trading.
What the simulator can do is similar to the trials of any number of products. Before a company launches a product, it goes through at least two phases of testing.
The first phase, in this case, is the trading simulator. One cannot definitively say that simulated success equivocates to live success. However, it is overwhelmingly likely that simulated failure does more than suggest failure when implementing strategies in a live circumstance.
So, how does one filter simulated results and know when the time is right to go live? Below are some psychological trading characteristics to consider when making this determination.
The first is emotion. You might have heard it said that you should never trade based on emotion, and rightly so. The challenge being that humans are inherently emotional beings. At times, some traders think that to trade without emotion means to ignore feelings, yet, I’m not sure that’s helpful either.
One way that simulated trading helps filter those who are ready to trade live is in the emotional aspect. If you find yourself being too emotionally absorbed in the outcome of your trades on a simulator, there is a fair chance that you may not be prepared for live trading.
This type of reaction can be mere anticipation of results, it could also be a feeling of joy, or something of a “high” when trading. Chances are, if you’re getting an adrenaline rush on a simulator, then you’re heading for disaster in a live account.
Alternatively, the stress of a simulator may cause you to lose patience with your trades, yourself and other people. Once you trade live, this intensity will be magnified. The fundamental purpose of simulated trading is to identify these emotional tendencies early so that you can acknowledge them, then overcome them.
Adjust But Don’t Compromise
Another crucial determining factor is your ability to measure how well you stick to your plan. Are you constantly changing your entry and exit points? Or even more severe, are you continually negotiating your entry and exit qualifications? In other words, are you compromising your trading plan because you feel that you cannot miss an opportunity, or that a trade setup is too good to pass by even though it doesn’t fit into your risk parameters?
If this is the case, then trading discipline is something you will need to focus on. Sure, adjusting your trading plan on the fly is a trait that very experienced and successful traders learn to implement over time. However, this is not something that one does when directly going from a simulator to live trading.
The question then becomes, if you negotiate your qualifications now, how much more so might you do this when live money is on the line? Furthermore, when you compromise your risk parameters, you no longer have a basis for determining your success.
Keep Your Expectations Realistic
Lastly, we are all prone to the belief that because something looks good on paper, or simulated results, that it will automatically work in an altered environment. In trading, this is not so. Market behaviours are constantly changing; volatility can increase or decrease; every market continually undergoes re-evaluation.
Successful simulated trading can lead one to assume they will be successful in a live account. This realization can be one of the most terrible disappointments of trading. I have observed traders who went straight from the simulator to a live account trading larger sizes than they should have been, all the while believing they will be wealthy in no time.
Once you have proved to be disciplined and thriving on a simulator, the next step is to go through a beta test phase. When you begin to trade live, it is recommended to do so with small size. Smaller risk allows you to become aware of any emotion, discipline, or system weaknesses you may have with less risk than going “all in.”
Remember, if your system is going to be successful, then you can afford to be patient and implement it the right way. Simulated trading is beneficial and should not be overlooked.
A Viable Solution
At Topstep, we recognizes that the vast majority of aspiring traders are not fully prepared to address a lot of the psychological setbacks they will no doubt encounter on their trading journey. That’s why we created the Trading Combine®.
What the Topstep Trading Combine® does is give traders access to the tools they need to improve on their weaknesses in a safe trading environment. The rules we apply to the Trading Combine are there to reinforce the idea that discipline and proper risk management are two key components to a successful trading career.
We also have a dedicated team of performance coaches available to assist you in building a solid path to progress through daily, weekly and private one-on-one coaching sessions.
The Trading Combine® is there to help traders develop their skills and prepare them for the real life ups and downs that come with being a professional trader. The $240K that our traders withdrew from their accounts in April speaks volumes to the benefits of this program. If you’re truly interested in professionalizing your passion for trading, then you’ve come to the right place.