How To: Overcome The Freak Out Moments When Going From Demo Trading To Live Trading

Trading is just like trying anything new, except for many traders, there is a transition time. This transition time is when you change from demo or paper trading, where you trade with “play” money, to trading live where you trade with real money.

The purpose of demo trading is to learn the rules and strategies without risking your real money. When you transition to live trading, you need to make sure you are trading with “disposable” money.

This is money that you don’t need for any other expense. If you use risk capital, it will make the transition much easier. In short, don’t trade with the rent money or credit card money or any other money that you need anytime in the near future.

What if when you make this transition, you FREAK OUT?

You have already put in the time demo trading. You have the rules and the systems down. You know the platform inside and out. Maybe you’ve even put in a little of your own style and you are consistently making good trades. So, you decide to go live.

If you’re like a lot of traders, you hesitate before you hit that button to make the trade. You over think the trade and miss your chance to get in or out and remain profitable. Or, you get the attitude that you know it all and are so good you can’t possibly fail.

Why do you FREAK OUT?

In demo, you did perfectly well! Maybe you traded another system before this and you lost a lot. Maybe it’s Murphy’s law that you know is out to get you. It lets you rock it in demo but when you go live, Bam! the markets change. Maybe you’ve chosen the wrong time without knowing it, such as just before a holiday or when there’s not much volume.

When you trade in demo, you are trading without fear. However, this does not mean that you should be trading without discipline. It is wise to add in some fear. For instance, you can’t trade until you follow your rules: For example, max loss per day, max profit per day, and stop, max risk on a trade, max drawdown, minimum profit, consistency day in and day out, consistently week in and week out, only trade sizes you will be trading when live.

Essentially, don’t treat demo like a game.

Once you get the platform down and you are mastering the system, that is when you're really in “scrimmage” mode. You should manage all positions as if they are live. When you go live, you have to do the same thing. You have to have risk management and be willing to lose a little, even if you are trading with a small account.

No matter what your account size, risk management is easy, if you follow the rules. Limit your risk and your rewards to 5% of your account size. If you’ve lost that much or gained that much, you are done for the day. This means that even if you’re sure that the next one is a “sure thing”, that just one more trade and its going to win back all you lost, you don’t take it!

Or, on the flip side, if you’ve already increased your account by 5%, you stop. Don’t place another trade thinking, “Well, I’ve done so great today. I’ll just continue to win.” This is a way to give it all back! Profit management is just as important as risk management. Unfortunately, so many traders have such horrible risk management, they never master the simplicity of profit management.

When going live, don’t increase your contract size until you have mastered limiting your risk to 5% in a day and can consistently make a profit over a month. In fact, the best way is to trade the minimum size and never increase your size, until you can risk no more than 5% of your account divided by 6 on a single trade.

There is a massive psychological benefit to this and that is allowing you to focus on the charts, and not on the P/L as you're not overtrading your account. Once you can trade at this risk level, then you can “consider” potentially moving up your contract size. Your goal should be to not risk more than 5% divided by 6. Many new traders can’t do this to begin with. The other side is that many think they should risk a whole lot more to get there; then they lose it all and have to fund their account over and over or just give up.

If you’re treating trading like a win or lose game, you’re not going to have the discipline to be successful. It’s not something to play at; it’s something you want to be successful at. In order to do that, you must follow the rules and have discipline. If you’re not willing to use this risk formula, you have to be okay with losing it all. And that may be okay. That may be what you have to do based on the risk capital you have. But you have to understand where you are and where you want to be and the risk in the position sizes you take. 

Be disciplined. Learn all you can and test it before you go live. Once you go live, don’t freak out. Follow the same rules you have learned and used in demo trading. Trade with discipline and without fear. If you are trading with fear you're risking too much and you're not following your rules and you're not doing what you did in demo. Go back to demo if you freak out for a day, a week, a month. Whatever it takes! Then, step back in at the minimum contract size and work your way up to that minimum risk level.

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