Monday, November 20, 2017

6 Tips to Move from Sim to Live Trading | Trading Psychology

Today’s Trading Psychology question of the day…

“I’ve struggled to move from sim trading to live trading.  I can easily make money on a simulator, but the moment I move to live trading is when I fall apart and start losing money again.  Do you have any tricks for moving from sim to live trading?”

Great question, and I’m sure almost every single trader has struggled with some variation of this over the years, so let’s talk strategy…

Here are six (6) tips to move from Sim to Live Trading:

(1)   Trade a strategy that has been proven for over 100 trades

This is by far the most important tip of them all, and it’s the one mistake that I made as a rookie, and I see most new traders making this same mistake today.

If you take this business seriously (assuming you’re not here to gamble), and you value the money in your trade account, you won’t risk your capital until you have developed a strategy that has shown you positive results, including slippage and commission, for over 100 trades.

I’m not talking about back-testing here, looking back in time doesn’t work because you have the benefit of hindsight, and most indicators (such as a moving-average) look good in hindsight, but not as good in real-time.

I’m talking about trading on a simulator (or you insist, use a small live position), adding 1-tick of slippage, with broker commissions included… and seeing how your strategy performed over 100+ trades.

When I was a new trader, I would learn a new strategy, I would test it for two or three days looking at what happened in the past, and then immediately go “live” the following day…

…and like many of you have experienced before… the fourth day is the day the strategy no longer works, and you lose a lot of money.

The reason why this doesn’t work is because you didn’t give yourself enough time in the testing phase of your strategy.

For example, the market may have been range-bound for a few days when you developed your new strategy, and then the market starts trending the day you go live.  Woops!  Didn’t take the time to test far enough.

Or perhaps you developed your strategy during a strong week of trends, only to find the market go sideways the following week.  You lose all your confidence and you lose a lot of money in the process.

If you are trying to develop your own trading strategy, you need to remember that your goal is to find the most reliable way to trade the market over the long-term.

There will be times when the market has a strong trend, and there will be times when the market goes sideways.  There will be times when the market doesn’t move at all, and there will be times when it moves too much.

There will be news events, natural disasters, acts of terrorism, etc, and you need to make sure that your trading strategy (and your mindset) are prepared to handle those situations without blowing your account.

If you aren’t testing your strategy over at least 100 trades, you’re asking to blow your account and be forced to go back to start again at zero… in fact, less than zero, because not only do you lose money, but you lost confidence, and for some of us trying to avoid a day job, and our spouses, we lose valuable time.

(2)   Use a Similar Position Size

While you’re testing your strategy, make sure you’re using the same position size that you would when you go live.

I see far too many rookies practicing with a 10-contract position “just for fun” on a simulator, and then they wonder why they struggle to make money when they transition to live trading with 1-contract.

Think about the psychology of this… if you’re testing on 10-contracts, the first target on Crude Oil is $1000 profit, which is great, but when you move to live trading on 1-contract, the first target is only $100.

What will that do to your psychology? 

For me, it would make me over-trade, try to hold my trades too long, and ultimately sabotage my strategy because I wouldn’t get excited about making $100 on the trade when I was previous exposed to earning $1000.

If you’re starting with a small account, its critical that you practice with the same position size that you would use when you go live.

This sounds like common sense, but for some reason, I meet way too many traders that make this mistake.

(3)   All-In and All-Out Trade-Management

You might disagree with me on this, but my personal opinion is that you should start in simulation by using 1 stop-loss and 1-target.  Keep it simple, no scaling-in or scaling-out of trades.

When I’m practicing, I want the fewest moving pieces as possible, which will make it easier for me to transition to live trading.

I recommend this for three reasons:

One, it puts the focus on your winning percentages, rather than your total profits.  In my experience, getting my winning ratios above 75% made a HUGE difference in my ability to earn consistent profit because my confidence levels were high.

Two, it forces you to use responsible risk-management.  It puts a spotlight on a bad trade-management strategy.  Simply put, you don’t want to risk more than you get as a reward, and a lot of new traders overcomplicate the trade-management process to the point where they can’t really tell what their average winning trade looks like.  This makes it easier.

Three, psychologically it’s easier to recover from a loss when you know that 1 winner is equal-to or greater-than 1 loss.  I know everyone wants to make a lot of money trading, but when you’re testing your strategy, I want to focus on the basics, and develop confidence to keep trading thru adversity.

Think of it this way…

Keep your trade-management as simple as possible, which makes it easy for you to see that you are making good decisions when you trade, make it easy to stay confident in the face of adversity, and make it easy to see that you can achieve a high winning %.

Once you finish testing and you move to “live” trading, it will be easy for you to transfer that confidence to your live account, then once you see consistency on your live account with this simple trade-management for a period of 180 days, then you can move to adding a runner and expanding from there.

(4)   Black & White Entry & Exit Rules

One of the biggest obstacles I had to overcome when I was developing my trading strategy, was the use of specific, black and white entry and exit rules.

While you’re testing your strategy over 100 trades, you need to be certain that you’re following rules, because if you don’t, you will never be able to rely on your results going forward.

It’s easy to get lazy with your rules when you’re practicing in simulation because there’s no real money at risk, but you need to “practice like you play”. 

In other words, you need to make sure that you’re practice results actually reflect what your strategy tells you to do.

The biggest reason you need to follow rules while developing your strategy is so that you can trust your strategy when you go “live”.

Remember, you can lie to yourself when you talk about the success of your testing, but if you didn’t follow specific black & white rules, you aren’t going to truly trust your strategy when you start putting real money at risk.

Every time you got in too early, or moved your stop back to avoid a loss, or let a winner run further than your strategy would have allowed… you’re making it that much harder for you to subconsciously trust your strategy when the time comes to go “live.”

The saying “you have to practice like you play” is a great way of describing that you must use those rules consistently when you practice, or else you won’t trust your strategy when you go live.

(5)   Track Your Practice Trading with a Journal

As you practice your trading strategy, using simple trade-management with specific entry and exit rules, you need to keep track of every trade you take because this is going to be your “backbone” when times get tough after you go “live”.

After you start risking real money, you’re going to have REAL emotions that will make it hard to keep following your strategy.  You’re going to doubt yourself, that little voice in your head is going to try and ruin your trading, and you need to have a way counter-balance that with your journal.

For example…what happens if you lose money two days in a row? 

When there’s REAL money at risk, you need to be able to go back and read your trading journal and see examples where you had a similar situation while you were practicing on your demo.

It’s easy to stay confident in your strategy when you’ve tested the strategy for over 100 trades, using black and white rules, and you have PROOF in your journal that you were able to overcome that challenge.

(6)   Morning Routine

Our brains love when we follow a routine, it helps the brain conserve energy, it removes emotion, and it just makes everything easier.

Trading is a performance skill, and just like the most successful performers have strict routines before they perform, traders should also use a routine as well.

One of the most important things that helped me transition from sim to live trading was keeping everything consistent during that transition.

While you’re testing your strategy, get into a daily routine that you can commit to every single morning when you go live

For example, I wake up every morning, I drink a green juice, do some yoga and meditation, then I open my trade room and begin my morning checklist with all of my clients.

After I finish trading, I document my work, write in my journal, prep for tomorrow, get some exercise, get to bed early, and go it all again the following morning.

I could do this routine in my sleep (and some mornings @ 4am PST it feels like I am!) … but the point I want to make is that your morning routine is going to get you into the groove each morning, which will make it easier to transition from sim to live trading.

Wrapping things up…

One of the most common challenges we face as traders is moving from simulated trading to live trading, and these six tips will make it easier.

1.      Practice for at least 100 trades, not back-testing, trading on a Simulator in real-time
2.      Use a Similar Position Size when your practicing as to when you will be trading live
3.      Use Simple Trade-management with 1-stop and 1-target
4.      Use Black & White Entry & Exit Rules, and always “practice like you play.”
5.      Track Your Trading with a Journal, this gives you data that will get you thru adversity when you go live
6.      Develop a Routine Before & After you Trade, so that when you transition, nothing changes.

What do you think about these tips on moving from sim to live trading?

Do you have any tricks that have worked for you?

Do you disagree with any of this strategy?

Drop me a comment below the video because I would love to share with everyone watching this video today.

And don’t forget, you can find me every morning @ 8:00am EST in my trade room with all of our members here at, I have a great free trial on the homepage of our website, I publish my Nightly Newsletter every evening on my blog before 8:00pm EST, and I’m excited to see you again soon on my next trading psychology lesson.

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1 comment:

  1. Great video JJ. I remember some of these tips while following you during my free trial. They have become part of my core as i progress toward becoming a daytrader. Looking forward to joining the trade room when i feel im ready. Please keep up with the great lessons, newsletters, and training videos.

    Dan Hulten


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