Most new day traders start trading in simulation so that they can gain experience without risking any real money. Once they are consistently profitable in simulation they will move to live trading, and this is when they come across one of the most common problems that affect new day traders. Moving from simulation trading to live trading sounds like an easy task, but many traders find that what was once a profitable trading system immediately starts losing money when it is traded live.
Fear of Losing Money
The reason that their trading system suddenly stops working is the additional emotion that comes with trading their own real money. The fear of losing one's own money is a very strong emotion, and can cause even experienced traders to make mistakes. Hesitating before entering a trade, moving their stop loss to break even too early, or taking a smaller profit than they would normally, are all common mistakes that are made because of the emotion of fear. This situation often gets compounded, because many new traders are unable to determine what they are doing differently, and are therefore unable to fix the problem.
Overcoming the Fear
If you are experiencing this, the solution is to have faith in your trading system. If you have tested your trading system thoroughly, and it consistently makes a profit, then you need to have faith in your trading system, and follow it exactly.
The following steps will help you determine what you are doing differently when you are trading live (entering late, moving your stop loss, etc.):
- Keep a record of every trade that you make, including the entry, the target and stop loss settings, any changes that are made (such as trailing the stop loss), and the exit.
- At the end of the day (or week), go back over the trades in simulation and compare the simulated trades to your trading log.
- If there are any differences between the simulated trades and the live trades, it should be easy to see where (and hopefully why) the differences are occurring.