Graduating To Real Money From Paper
Trading - Controlling Our Emotions
Injecting A Little Common Sense
In the previous article we spoke about how the
transition from paper to ‘real money’ trading can be
much more difficult than you may imagine. Now we can aim at reducing
these problems and increasing your chances of success first time
around. To do this we need to inject a little common sense.
On paper it is pretty
likely that you will have built yourself up so that you are executing
fairly large ‘paper’ orders. This will boost your confidence
as you see just how much money you can make once you move to real
money. Once again you may be setting yourself up for disaster by
jumping straight in with large orders as soon as you switch to
your live account. After all you were making two thousand dollars
a week with paper so you will take that in real money thank-you
very much! Rather than taking this route and potentially exposing
yourself to a large amount of emotional stress we are going to
use our patients (lets face it, if you are successful on paper
then it’s highly likely that you posses enough patients to
be profitable with real money – you just have to remember
it) and start off by executing the smallest order size possible.
Why would we do this? After all it is possible that we may incur
a small loss due to the costs of trading (exchange fees, commissions
etc) even if we follow our trading strategy perfectly. The reason
for doing this is to expose ourselves to the emotions of trading
with real money as gently as possible. Think of it in another context;
you don’t just wake up one morning, 70lbs overweight and
run a marathon. Well you could but there is a good chance that
it may kill you! It takes a dedicated and progressive training
regime to adapt your body to the challenges it needs to meet. This
is the philosophy we are going to implement in our trading.
Building Up
Just as someone training for a marathon would be able to gradually
increase the distance they run week by week, we will be able to
increase our order size but only if we are trading successfully.
A runner who breaks down in a puddle of sweat after 2 miles is
unlikely to attempt to run 5 miles the very next day. However if
he/ she is able to run 2 miles, three times a week for two weeks
then they may very well increase the distance they run by an extra
mile. If the distance becomes too difficult then they will drop
down a level or so.
Traders can make similar incremental steps; starting on 100 shares
a trader may wish to increase their order size to 300 shares the
following week, then 500, then 1000. At each stage the trader must
record their success rate. Not in terms of dollar profit but their
ability to follow their strategy, how nervous do they feel, are their
palms sweaty, sweaty brow, becoming frustrated and angry etc. By
keeping tabs at each stage a trader can make a natural transition
into ‘real money’ trading rather than forcing an unnatural
one.
Each Of Us Are Unique
You must have heard the phrase ‘each human being is unique’,
or something very similar, several million times and surprise surprise,
trading is no different. Each trader is likely to progress at a different
pace through paper trading and on to using a real account. The important
thing is that he/ she must move at their own pace and don’t
be afraid to take a step back rather than feeling the heat and making
mistakes. If you ever feel yourself falling into any part of the
vicious circle we spoke about in the previous article it can be extremely
costly if your pride or inpatients is too strong so as to prevent
yourself from taking a step back and recomposing yourself. You should
never be afraid of reducing the number of shares you trade or increasing
you order size at a slow rate. Listening to and controlling your
emotions is a strong sign of future success.
Click to return to Part
1: Graduating to Real Money From Paper Trading - The Problems We
Face - Back To Trading Psychology
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