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Treat live as if it is SIM
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Treat live as if it is SIM

  #1 (permalink)
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Treat live as if it is SIM

The common advice when trading SIM is to treat it as if you're trading a live acount. Log every trade, follow your trading plan, analyze every win/loss, do whatever you can to replicate the feeling of trading a live account. No argument here. I agree completely that you should take SIM trading seriously or you're just wasting your time.

However when moving to trading real money, no matter how seriously you've taken SIM from a psychological point of view you're still going to encounter all of the mental challenges we all do when you start trading live. It doesn't matter if you trade a mechanical, distretionary or automated strategy. When you start trading real money you WILL feel mental challenges that simply do not exist on SIM. A trade that you took 100 times in SIM suddenly doesn't look right anymore.

We all know the common pieces of advice like 'Plan the trade, trade the plan', 'Remove emotion', 'Trade like a robot' etc. Unfortunately that's not always enough. Easier said than done.

Something that I think helps enormously is to treat live like SIM. The idea being that just like when trading SIM you should treat it like live. Conversely I think when trading live you should treat it like SIM. Remove the psychological pressure and trade like it's just another SIM trade that you've taken hundreds of times in the past. It's just another statistic to add to your trade stats. Win or lose it doesn't matter because all you're doing is logging another trade which you can later analyze along with hundreds of other trades.

Of course this may be a double edged sword because if you treated SIM like a video game you'll do the same in live. For those traders, this will not be relevant and you have no business trading live. But for the rest if you can convince your mind that the next trade is unimportant, as is the case with SIM, this mind set can be extremely beneficial.

Thoughts?

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  #3 (permalink)
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DarkPoolTrading View Post

...

The idea being that just like when trading SIM you should treat it like live. Conversely I think when trading live you should treat it like SIM. Remove the psychological pressure and trade like it's just another SIM trade that you've taken hundreds of times in the past.



I like this idea. However, the question is, HOW to do this.

I try to focus on the price of my traded instrument as much as possible and not the $ I risk in the trade. Price ultimately dictates my stop and my target and I try to look at price only most of the time.

Hence, at the right of my screen I always see the price and the last few bars of my trading chart, no matter what window of my computer is in front. Of course, I am human and usually a few times during a trade I quickly sneak a peek at the $ value of my trade. But then I cover that part of my trading platform again with another window.

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  #4 (permalink)
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I stopped trading SIM a while ago - with the intention of working out psychological chinks while on a live market with a minimal position (relative to my account size).

In all honesty, SIM may never replicate the psychological pitfalls that will happen in a live market.
The benefits of SIM trading is to take your trading plan and forward test it - giving you confidence to trade in the live markets. The objective of SIM trading can only be that - and that alone. It is nearly impossible to fix psychological pitfalls using SIM trading. It just doesn't work that way.

That said, I have structured my advancement in trading psychology in 3 main levels:

Level 1 - Being able to take a loss, without flinching.
I think for any trader that wants to progress from SIM to the live markets, level 1 is the first and foremost psychological "advancement" that is required. Without this, you will take big hits to your account and will ruin your account without actually learning anything.

When I started, I made it a point to NEVER move my stop adversely, no matter what. Losses did come, but my account was always protected.

Level 2 - Being patient. Take trades which your system give, and nothing more
After ensuring that I was OK taking losses and never moving my stop, this is the next thing I am looking to fix. I used to take 10+ trades a day and was all over the place. Now, I take around 5-6 trades per session and am extremely patient in waiting for my setups. I am nonetheless still learning but I think this was the correct "pitfall" to fix after you are perfectly ok with taking losses.

Level 3 -Trading size.
Finally - the holy grail. I have not reached this level yet, and will only reach it after Level 1 and 2 are perfectly sound and I can trade the markets without fear and without negative emotional reaction. For people that have perfected level 1 and 2 - your account will grow and you will soon face this problem of trading size.

I have written all these in the first person as this is my approach to trading Live. I do not treat it as SIM as I know they serve fundamentally different purposes. I understand the logic behind "treating Live as SIM and treating SIM as live", but I prefer to take the approach that in the live markets, I am NOT here to make a living (at least for the first 6 months). Rather, I am here to train, to master a skill, to test my system, to perfect my psychology. Then, I will trade for a living.

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  #5 (permalink)
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karoshiman View Post
I like this idea. However, the question is, HOW to do this.

Therein lies the issue. How do we reduce the psychological pressure we place on ourselves when trading live as apposed to SIM.

For me I try and think about what the main aim is of SIM trading. In my opinion, it is to gather stats and validate a trading system. Sure there are several other aspects to SIM trading, but in the end the main reason people SIM trade is to prove (via stats) that they have an edge and can therefore trade live.

So with that in mind, I try to place as much emphasis on stats and process as possible when trading live. P&L is not important. Wins are not important. Losses are not important. The next trade is nothing more than one more stat to add to a spreadsheet to analyze along with many others.

Sure in the back of your mind you always know you're trading real money instead of SIM. But the goal is to focus on what was important in SIM (gathering LOTS of stats!). And focus less on the mental issues involved with live trading. At the end of each trade I try and increase the emphasis and enjoyment I get from recording my stats. The emphasis isn't on the trade. The emphasis is on recording the stats and thus continuing to prove/disprove my edge.

So by focusing on what was important during SIM, I try to replicate that in live and thus reduce the psychological pressures felt during live.

This is just an idea i've been trying out. As with all things psychological it's a bit intangible but the mental side really is the toughest part of trading.

Diversification is the only free lunch

Last edited by DarkPoolTrading; August 5th, 2013 at 09:26 AM.
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DarkPoolTrading View Post
Sure in the back of your mind you always know you're trading real money instead of SIM. But the goal is to focus on what was important in SIM (gathering LOTS of stats!). And focus less on the mental issues involved with live trading. At the end of each trade I try and increase the emphasis and enjoyment I get from recording my stats. The emphasis isn't on the trade. The emphasis is on recording the stats and thus continuing to prove/disprove my edge.

I agree with you in the approach that Live trading is nothing more than gathering stats and proving you have an edge in the markets, at least for a "new" trader.

However, could you clarify on the "focus less on the mental issues involved with live trading"? I am curious as to how different people would approach this problem, which you have similarly identified as the largest problem to solve in trading.

For me, I dig deep after every session and ask myself what I felt and why did I feel that way. I do not "focus less", but rather, find the source of the problem and actively write it in my journal, so that I will actively address it the next day and ensure that it does not happen again. If it happens again, I repeat the process the next session until it ceases to happen.

This is my perspective of "deliberate practice". Afterall, markets are uncertain, and the only variable that can be certain is your actions in the market, nothing more. Thus, I actively strive to fix the variables that can be fixed, and I believe facing your worst fears/problems head on is the best way to do so.

My 2 cents!

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  #7 (permalink)
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strikebackfast View Post
I agree with you in the approach that Live trading is nothing more than gathering stats and proving you have an edge in the markets, at least for a "new" trader.

However, could you clarify on the "focus less on the mental issues involved with live trading"? I am curious as to how different people would approach this problem, which you have similarly identified as the largest problem to solve in trading.

For me, I dig deep after every session and ask myself what I felt and why did I feel that way. I do not "focus less", but rather, find the source of the problem and actively write it in my journal, so that I will actively address it the next day and ensure that it does not happen again. If it happens again, I repeat the process the next session until it ceases to happen.

This is my perspective of "deliberate practice". Afterall, markets are uncertain, and the only variable that can be certain is your actions in the market, nothing more. Thus, I actively strive to fix the variables that can be fixed, and I believe facing your worst fears/problems head on is the best way to do so.

My 2 cents!

Good points, I agree completely. I should have been more clear about 'focusing less' on the mental aspects. I mean for this to be applied purely while trading. Our job when we're trading is to execute our plan. When we see our edge, we need to execute without our mental state getting in the way. This is the time where I feel focusing less on the mental side and more on treating the trade as a stats gathering exercise helps.

However when the trade is over or at the end of the day, then I agree that we should go back and analyze our mental state and see how we can improve and if there was anything that impacted our trade negatively. But at the time of the trade, when it's time to execute, we need to get our emotions out of the way and just execute our plan.

So the whole 'treat live as SIM' idea I feel is most beneficial when it's time to place the trade and a way to get the emotions out of the game. Because when you're trading SIM, those emotions don't exist. So how can we replicate that behavour in live?

This isn't any sort of definitive psychological technique,...just something im trying out which I think is beneficial.

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  #8 (permalink)
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DarkPoolTrading View Post
Therein lies the issue. How do we reduce the psychological pressure we place on ourselves when trading live as apposed to SIM..

You cant.

They are different.

No matter how hard you imagine an apple to taste like an orange, it will always taste like and be an apple.

The only way (imo) to address the issue is to be as easy trading live as you are in sim. That can only come from experience and time trading live.

Trading as small size is the obvious start. The other is not to keep switching back to sim if you have a bad streak, just to 'come back' in sim, then fall over again, go back to sim..... Just stay in live.

If there are fear issues when live (causing the losses), then the trader may either be undercapitalised or not sure of the strategy/uneasy in following it for what ever reason.

Face the fact sim and live are different. Embrace it. Deal with it.

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  #9 (permalink)
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I think it is a chicken vs the egg argument. If you trade on the sim like you would in real life, then you would feel the same anxiety on the sim as in real life. Otoh, if you did not feel the (imo healthy) anxiety on the sim, then you were not taking sim trading seriously enough anyways.

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