Trading without stabilisers

Making the move from demo trading…

PLUS: how to tell when you’re ready to increase your size…

It was a big day for Evie, my 4 year old…

After 12 months of frustration, watching her older brothers go whizzing past, she was finally ready to move up into the big leagues herself. Yes, it was time to take the stabilisers off her bike!

Of course, there was no way she wanted to take things slowly. No, she was a big girl now. So she set off wheeling her bike to the top of our sloping driveway, swung her leg over the seat and gritted her teeth ready for action.

‘Hmm, okay,’ I thought. ‘It’s probably best she gets a feel for how different this is going to be herself.’

So off she rolled, with me scuttling along behind, hunched over and arms flapping ready to catch her.

It only took one big wobble before she soon changed her mind: “I don’t like it here Daddy, can we go on the lawn?”

Much better – at least she can take the odd tumble on the grass now without scuffing her knees – and I can remove the images of stitched-up heads, and knocked-out teeth, from my mind!

So we spent a happy afternoon wobbling and laughing our way around the garden. It’ll take a few more sessions before she finally gets the hang of it, but she’s keen and determined, so she’ll make the transition in no time I’m sure.

Now I can’t really remember the sensation of NOT being able to ride. I’ve been into cycling – off and on – for most of my life, so it’s just such a natural thing to do.

But when you’re learning there must be that magic moment when you finally overcome your natural fear of being able to balance without help, throw caution to the wind, and just go. It must feel like being able to fly when you’re 4 years old!

But… you do need to go through that spell of uncertainty first, where it all feels that bit different (and there may even be the odd outburst of frustration, until you get the hang of it).

There’s a bit of a learning curve with most skills worth learning. And trading is no different.

A typical experience might be for a newbie trader to learn a trading strategy, apply it to a demo account (or paper trade it), and then take it live once he’s seen his virtual profits rack-up over a week or two.

And that’s a perfectly sensible way to go about things. Problems can arise though, as soon as REAL MONEY appears in the equation.

It’s a strange phenomenon because, in theory, nothing has really changed – the markets still behave the same, the execution of trades is still carried out in the same way on the broker’s software, the strategy rules are still valid…

So why don’t all traders make the move from demo trading to live trading and enjoy spectacular results?

It’s the mind-bending effect of having hard cash on the line. It’s money they’ve worked hard for, become mentally attached to, and if they are honest with themselves – it’s money they probably aren’t really ready to risk in the markets.

Their self-preservation instincts sabotage their successful methodology, trades are missed or taken without discipline, and they can become disheartened with their real-world results pretty quickly.

But I think it’s only because so many miss going through an appropriate transition period. Many traders try to go straight from using a demo account to a fully funded real money account.

The pressure to perform they exert on themselves is too great – it’s like going straight from riding with stabilisers to lining up with the Tour de France riders. Their expectations are too high…

But accept you’re still fresh-faced and learning and be prepared to take the odd little tumble in a safe environment, and your path to the big time can be so much smoother.

Instead of this: Demo trading > Virtual Profits > Fund full size account > PRESSURE TO PERFORM…

…why not try this: Demo trading > Virtual Profits > Fund small real money account > Consistent Profits > Increase account size > Consistent Profits > Increase account size > CONSISTENT FULL SIZE PROFITS.

I suppose it’s the natural human desire to make big money quickly that gets in the way. But scale into your full-sized account incrementally and you’re protecting your trading bankroll while you harden yourself to real world conditions.

There is so much to be said for trading with real money – it’s a completely different world to demo trading, purely because of the mental aspect of willingly embracing risk – but expose yourself to it in a SMALL way. Especially since it’s so easy to trade from 10p per pip with most brokers these days (see reviews on this very website).

Build up your resistance to performance-pressure gently and your probability of successfully transitioning into full-sized, real money trading increases exponentially.

But how do you know when you’re ready to move things up a notch?


Ask yourself these five questions whenever you consider increasing your trading account size…

1) Am I sticking to my strategy rules without fail? Be honest; if you’re flying by the seat of your pants, trading without a clear plan, sod’s law says the markets will bite at the worst possible moment – right when you’ve risked more money than usual. But it’s easily remedied – just make sure you have a clear strategy in place.

You need to know exactly what to do next at all times and a good strategy plan falls under these five main headings: what to trade; how much to buy/sell; when to enter a trade; when to exit a losing trade; when to exit a winning trade. Make sure you’ve got all those points covered before taking on more risk.

2) Is my strategy delivering consistent profits? If your strategy is unproven, or is going through a prolonged period of drawdown, throwing more money at it is not the answer. Back-test, tweak, go back to demo trading until you get it delivering consistent profits, and keep your powder dry until the that time.

3) Am in control of my emotions when trading at my current size? Any feelings of panic, extreme fear, aggression, loss of temper etc, will be amplified manifold when more money is dropped into the mix. Instead of increasing your trading size, you should work on desensitising yourself to trading results at your current level.

4) Are trading results affecting my life outside the markets? Are you taking your trades away from the screen with you? Is it affecting your mood, your relationships, and your sleep patterns? If so, go smaller instead of larger. Scale your trading size down a level – until it doesn’t affect you – and then work on sizing up again from there.

5) Am I totally confident in my broker, the trading software I use, and any other tools of the trade? Make sure you’ve got all other bases covered before risking more money. Make sure you can completely trust your broker and you’re happy with the charting software and trading software you currently use. Do a little audit of the tools of your trade and make sure there’s nothing that needs optimising or improving before injecting more bankroll into your trading campaign.

Once you’ve worked your way through that little checklist, congratulations are in order. You’re treating your trading like a business and respecting your trading funds appropriately. You DESERVE to be trading at larger size!

Be Prepared: Market Moving Data Coming This Week (London Time)

Wednesday 15th April 2015:
12:45    EUR    Interest Rate Decision
13:30    EUR    ECB Press Conference

Thursday 16th April 2015:
13:30    USD    Building permits
15:00    USD    Philly Fed

Friday 17th April 2015:
09:30    GBP    Average earnings Index
09:30    GBP    Claimant count change
10:00    EUR    CPI
13:30    USD    CPI

Monday 20th April 2015:
– no big trades

Tuesday 21st April 2015:
10:00    EUR    German ZEW economic sentiment

I hope you enjoyed this week’s eletter. Don’t forget to nip over to the TN Facebook page here. Hit ‘like’ and leave a quick comment if you can – let me know what you’re getting up to with your own trading.

Until next time, happy trading!

This article first appeared on Trader's Nest » Articles. Read more and comment here