Let’s talk about SIM trading. What is SIM trading is, what are the benefits of SIM trading, how to use SIM trading properly, what are the limitations of SIM trading and finally what might be a better alternative to SIM trading.
What is SIM Trading
SIM trading goes by several names in the trading industry it often is referred to as simulated trading or paper trading. Whatever name sit goes by at root SIM trading is using a trading platform to execute trades – except there is no money at risk.
That except is HUGE and it is both the greatest strength and greatest weakness of SIM trading.
Improper Use of a Great Tool
The Retail trading space loves SIM trading often viewing it as the practice forum from which a trader will solve all their trading ills and from which a trader can seamlessly graduate from proficient SIM trading to profitable live trading.
This concept of SIM trading is a fantasy that will drop you right into a nightmare of shock and disappoint, for while SIM trading definitely has its uses is simply a tool and like all tools it has its advantages and disadvantages, but ultimately its benefit will be dictated by the skill of its user.
SIM trading is often described as a tool which allows a trader to simulate trading, but what is a more accurate definition is that SIM trading is a tool which allows a trader to simulate the technical aspects of trading. ,
Have you ever watched an elite athlete talk about their sport? How often have you heard one of them say something along the lines of, “being a champion is 95% mental”? As a non-elite athlete its easy to look at this person, who has amazing physical attributes and dismiss this statement as hyperbole, but when you keep hearing this from so many athletes across so many sports at what point do you have to start to give this statement some credence? Trading is like this.
If you don’t know anything about trading, you will quickly learn that the technical aspects of trading are the relatively easy part of trading to learn. What makes or breaks traders and these trader’s accounts are the non-technical aspects of trading.
These nontechnical aspects of trading are intertwined almost inseparably with money. Now you start to see the problem inherent in the definition of SIM trading: trading using a trading platform to execute trades – except there is no money on the line.
The introduction of real money changes the trading game entirely or rather it changes entirely how you as a trader will react in the exact same situation or circumstance.
The effect money at risk has on decision making is simply astounding. This is because stress has a profound impact on our decision-making processes and outside of a physical threat to life, there is no greater stressor than the potential loss of significant sums of money.
Where SIM fails as a tool or where traders improperly use the tool that is SIM trading is the exact same place that most traders fail in trading: conflating the technical aspects of trading with trading.
SIM trading is a tool which should be used to ingrain proper trading habits, but because SIM trading is without consequence, as errors have no real cost, traders allow bad habits to develop.
A great example of this is overtrading, which is one of the most commonly cited issues traders struggle with. Ask yourself how do most traders develop the habit of overtrading in the first place? Its in SIM. In SIM you can click buy and sell to your heart’s content without consequence.
It becomes a video game with an endless restart button. “No harm, no foul” we think to ourselves, “It’s just SIM.” But there is harm, the trader is developing terrible trading habits that become ingrained and then carried over to live trading. Suddenly there is both harm and foul and unless you are independently wealthy there is no endless reset button.
A Wonderful Tool When Properly Used
For the average retail trader SIM trading is a necessity not an option. Most retail traders come to trading with limited capital so they cannot afford to lose money simply learning how their trading platform works. Early in your trading as you learn your platform and your trading strategy there is no good reason to have real money on the line.
SIM trading is wonderful for learning the ends and out of your platform, making mistakes and figuring out what happens if you click here instead of here or what the difference will be if you buy with a limit or instead of a market order.
Once you are comfortable with your platform SIM is also a great resource to practice the technical aspects of your trading strategy, to get screen time watching the market. SIM trading is also great when you are practicing a new strategy.
Sim Trading is a wonderful and invaluable tool, so long as you are mindful of using it properly
However, when using SIM to practice your trading strategy you as a trader need to be careful not allow yourself to develop poor trading habits. Remember the old adage, you play how you practice.” Stay focused on not allowing sloppiness to creep into your SIM trading just because there are no monetary consequences.
To the extent possible treat your SIM trading like real trading. Respect your trading rules as if there were real money at stake. This is easier said than done, that’s why I suggest moving on from SIM as quickly as possible.
Remember, if you fail to profit while trading in SIM there is an almost 100% probability that you will fail to profit while trading live, trading profitably in SIM has very little correlation with whether you will trade profitably live.
The Best of Both Worlds
After you have a basic familiarity with your trading platform and trading strategy move away from SIM trading as quickly as possible. By this I am not suggesting you jump directly into the live market. Rather you should enter some sort of trading combine.
Anyone who has read my posts know I am a big fan of trading combines. I call trading a combine “emotional SIM trading.” A combine is basically SIM trading with monetary consequences. A combine allows you to “risk” a couple thousand dollars but only costs you a couple hundred dollars -this is a great financial proposition Because there is actual money on the line, you get to experience a lot of the nontechnical elements of trading without risking the bulk of your precious and limited capital.
What is important here is not whether you actually desire to trade for whatever prop firm is offering the combine. The befit of the combine is that you as the trader can’t cheap with your rules and you are held accountable by a third party. This is as close to real trading as you can get without really trading. Take advantage of this opportunity to learn under stresses which are very similar to the stresses of live trading without the full financial consequences.
Unlike SIM trading a trading combine will give you a much more realistic idea of whether or not you will be successful in the live market.
SIM trading is a necessary step in almost any trader’s journey towards trading excellence. Used properly it is an invaluable tool but misused it can and will lead to misplaced confidence and the development of poor trading habits. If you are still trading SIM push yourself to take the leap to emotional SIM training.
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