When first starting to trade, it is crucial to learn to trade in a paper trading account, or stock simulator, to develop your trading strategy so you don’t run the risk of losing your capital and end up going broke before you can really start. I wish I had taken this advice when I started as it would have saved me thousands of dollars in losing trades learning through trial and error. But like most people, the thrill of making money in the market and what seemed to be easy and fast money led me to jump right in risking my own capital. I thought all I needed was to watch a few YouTube videos, learn some simple chart patterns and I would be on my way. Boy was I wrong. I ended up losing lots of money throughout the learning process. I eventually realized that the cost of me trying to teach myself using real money was getting too much out of hand.
So I started paper trading for a while practicing different strategies that I had came across until I started being consistently profitable month after month. My results in the simulated account were good so it was time for me to start using real money again. But once I started using real money I was right back to taking losing trade after losing trade. But this time I knew what the problem was. It wasn’t the strategy I was using. It was my inability to execute the strategy under certain emotional conditions.
While a simulator is a protected way to learn and develop a new strategy, it eliminates the most important aspect of trading and that is your personal battle with your emotions. There are lots of technical strategies out there that work. But for some reason, people just can’t seem to actually follow the rules of the strategy. It’s because they have not mastered the art of recognizing and controlling their emotions. The most important element of trading that determines if you will be successful or not is how well you handle your emotions and how to learn not to be your own worst enemy. Some people are terrible at being disciplined enough to control their emotions which is why day trading is not for them. Everyday the market produces some opportunity that you missed out on because it didn’t meet the guidelines of your strategy. And it can be painful not capturing that opportunity. So next time, it’s easy to not give any rational thought about a particular trade so you don’t miss out on an opportunity like that again. “Fear of missing out” or FOMO is the emotion I’m are talking about here and it’s the #1 emotion that causes us to make impulsive decisions. I’ve learned to tame this emotion as the more experience I gain but that emotion is still there and it always will be. The trick is to recognize the feeling and say to yourself “nope not giving in. If it doesn’t fit the plan don’t make the trade.” That’s a phrase I’m constantly saying to myself throughout my trading session.
You won’t have FOMO inside a simulated account because you’re not going to be rewarded with real money if you are right, and you won’t experience extreme anxiety from a major loss because you are not risking any of your hard earned money. Taking real losses using my own money has shaped me to become a more disciplined trader and discipline is one of the characteristics of successful traders. Some of my biggest breakthroughs in the strategy I use today have stemmed from major losses. If I were to have never experienced those losses with my own hard earned money I may have never developed the strategy and mental mindset I use to reduce my risk as much as possible.
While emotions are left out in a simulated environment, it doesn’t mean you shouldn’t a simulator. The simulator should be the first step in your trading career as it’s best for technical strategy development such as learning to place trades reading charts. A simulator I’d recommend comes from a broker called Webull. It’s free to sign up and easy to access the paper trading feature inside their platform. Once you’ve mastered trading inside the simulator, it’s now time to take the second step and make the switch to a live account. But, you’re still not done developing the skills you need. You’re only half way there. Now you have to face the emotional battle and try to stay disciplined to your strategy using real money. Everyone is different when it comes to self discipline while under pressure. Some people are great at it which they can master quickly and others may struggle with it which will take months to master. I was one of those people that took a long time to get the hang of just sticking to the plan. I realized that most of my decisions under pressure were made through emotion and learning to not think with emotion under pressure was probably the most difficult tasks I have ever done. When it comes to live trading using real money, slowly ease yourself into it because you have not yet developed the emotional discipline that’s needed to stay consistent for many years of successful trading.