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Hi, I've recently come back to futures after blowing up 2 accounts a couple years. In the past I always approached trading like gambling, but now I'm trying to come at it with a more long term approach. I'm not a fan of paper trading but seeing as I can't make consistent money in paper I don't see a point in trading real money. My question is while paper trading and searching for a strategy that works for me should I have a daily loss limit like I plan to have with my real account or should I first focus on trading and seeing what works and what doesn't before limiting the amount of trades I take per day?
My first answer was something like, "Yes, of course you should always use the same money management and risk management tools that you would use in real trading while trading in simulation ("paper trading"), and I think that makes the most sense.
But then I re-read your question and I can see how you are basically just wondering whether to test ideas out to see if they are practical, without trying to duplicate the full experience of real trading.
I still think it is best to always have some kind of loss limit in place when just sim trading, because without it you won't really know how your strategy would work out if you try to trade it. So I think it is better to try to stay somewhat close to the environment and mindset of live trading if you are to get a true test of a trading idea.
Also, while managing loss and risk are essential to actual trading, you always do have the option to also try out different loss control ideas, and in a sim account you can of course simply reset and try again.
But if you don't keep it as real as you can, you also won't develop a realistic attitude toward whatever strategy you are trying out. So there's a balance there.
In general, be conscious of the fact that simulated trading sidesteps the hardest part of real trading, which is keeping yourself rational and following your plan in the face of risk. So the closer you are to real trading, the better. And in general, don't stay too long in the imaginary world of simulated trading.
Good luck.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
You're right, if you can't make money with a demo account you don't stand a chance with real money.
Your risk control should be part of your trading strategy. If you are no longer gambling then your focus should be on not losing money.
What is it about futures that brings you back? With a 90 some odd percentage failure rate and knowing from past experience how easy it is to blow up, what are you planning on doing differently this time?
What have you learned from your past experiences?
"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
First off, you must be able make a profit paper trading before going live. I have found that I can make money paper trading but cannot stay profitable live trading.
I have stopped.
I to plan to start again soon. I will start with the micros, if I can stay profitable for a couple of months I plan to go full size. There is no reason go live if you can't make
money with paper.
Very good points. The experience of being able to trade profitably in simulated trading, but not when live, is extremely common. It is true that you should be able to make a profit in sim before going live, but that is not enough.
Many people can trade profitably in simulated trading, essentially because it is risk-free. But once they have real money on the line, and the possibility of loss, they find it's a totally different experience. When people talk about the "psychological" side of trading, this is what they mean, and, in my opinion, it is a far greater issue for most of us than having a winning strategy. The purely human emotional elements can easily overcome a person's ability to execute a method that is good in the abstract, but that does not work when we are dealing with real risk and real loss.
Anything that will lessen the negative impact on a trader's decision-making that comes with the risk of real trading is a good way to address the problem. Using the micro contracts instead of the full size is a good way to do this, as is only trading a small number of contracts (such as just one), and certainly always having loss limits in place, including when doing practice trading on paper. It needs to be part of the way you approach trading, just as much as, or actually more than, having a good method.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
