Demo Trading is Worthless

By March 24, 2016Uncategorized

Ok, not quite worthless.  Demo Trading can be useful to learn the ins and outs of your trading platform, There’s No sense losing real money putting in a trade or an order incorrectly before you know what every single button does when you press it. But beyond that, DEMO TRADING IS WORTHLESS.

The fact is demo trading ignores the hardest part of trading – putting YOUR money at risk; what that feels like; how much it can sway your judgement; how often it can cause you to “chicken out”. You simply cannot experience that with fake money, even if you try your hardest to take it as seriously as real money. 2016-03-24_5-23-54No amount of war games prepares you to be in the trenches with bullets whizzing by your head and bombs exploding nearby. (Not sure about that last line; but I think some sort of non-trading example is a good idea)

I have experienced the unpleasantness of having to fire a potentially great trader. His trading strategy was great; he had an edge; didn’t take too much risk; and he could have been very successful. However, the fear of losing overwhelmed his thoughts and he could not “pull the trigger” to execute his plan and achieve his trading budget.

You see the point? It’s not an issue of having a viable strategy; it’s having the confidence to execute the strategy. And you don’t get that kind of confidence (real trading confidence) racking up demo pips. You only get it from putting on real trades and risking real money.

How I learned to trade
I started out in 1981 manually keeping track of the open position and P&L for the GBPUSD trader at European American bank (now a part of Citigroup). I learned a lot about trading the GBPUSD watching this seasoned pro work for 8 hours a day. When I finally got my chance to be  a trader at European American (the guy I was assisting left to become Chief Dealer of  another bank) I made a classic mistake my first week on the job..

I walked over to the Chief Dealer (my boss) and told him the GBPUSD pair was about to tumble. After I explained my reasoning He looked at me and said, “Well, Make sure you sell it”.

At the end of the day the GBPUSD pair was 300 pips lower. It could have been the best trade of my career (or something like that) but I had only a tiny position and made tiny money. It’s been 35 years since that day but I can still see the look on the Chief Dealer’s face when I told him my P&L for the day. He did not say a single word; he just looked at me blankly and walked away. I understood completely.

Since that day my policy has always been “no position, no opinion”. Many traders worry about finding the “holy grail” trading system. Believe it or not that’s the easy part. There are many good trading systems. The hard part is actually using one and putting on the trades.

Everyone takes losses in trading, especially the pros. You can’t play the game without getting hurt once in a while. But quit playing around with demo trading, set aside some money – call it tuition – and practice the real skill you need to develop: facing the fear of losing money in a trade and getting back up to trade again. It’s not actually that bad, you’ll see.

Happy trading,

Jimmy Young

edited by Ben Young