There was a post recently in one of the trading evaluator Facebook groups:

At first glance to a lot of traders, this probably seems like a brilliant observation. If emotion is the problem in you getting good at trading, then learn without any emotion! Then you’ll know how your “system” works and what to do and when, and you will come out a winner when you go live. Genius!

Except… it’s not actually genius at all. In fact it’s completely ignoring the most critical thing that changes when traders have actual monetary risk on the line – their emotional state. Now, you can believe all you want that you can simply control your emotions and not let them ever get in the way. But that’s completely delusional denial. In fact, it’s denying one of the very core things that makes humans, human.

Like it or not, you, and I, and everyone else… are emotional creatures. There is simply no getting away from it. Sure you can ingest various substances to numb you to things and dull your emotional responses, but they dull your other cognitive functions too – probably not ideal when trying to trade (though I can see an argument for very careful dosing of THC as being beneficial in trading and countless other creative endeavors… but that’s not the topic today).

If you do all your practice on replay in sim, then you’re learning to trade in an environment that will never actually happen. And therefore you’re not building the greatest skill of all – recognizing and managing emotional responses. You’re going to have them, they’re unavoidable. You’re going to have moments where your trade gets swept against you more than you were prepared to risk, and you find your stomach somewhere down near your ankles as you freeze, unsure of what to do about this unexpected situation. Or you’ll find yourself so elated at how much money you made in a profitable trade that you start making really bad decisions the rest of the day, or even into your next trading session(s) and give it all back and more.

Emotions cloud our judgment, and impair our ability to think logically. It’s why any salesperson or politician attempts to appeal to you on an emotional level. People are much easier to manipulate when they’re in an emotional state because they won’t be thinking anymore, they’ll be feeling and reacting – and often not in their own best interest.

So if you want to really learn to trade and manage emotions, but don’t want to go broke in the process, what do you do? Frankly this is the best time n history to ask such a question because there are actually some excellent options available, that weren’t just a matter of years ago.

1. If you want to trade a live futures market, you can do it with a very small account thanks to the new Micro futures contracts. They’re 1/10 the size of the “mini” contracts, and so are 1/10 the risk, and 1/10 the reward. Taking a “big loss” of 20 points in micro ES will sting for sure at $100 – but it won’t wreck your small account like it would in a mini at a $1000 loss. It’s survivable, and will allow you to explore the boundaries of your risk parameters without breaking you.
2. If you don’t even want to fund a small account, there are the trading evaluators like TopStep, earn2Trade, LeeLoo, Apex, UProfit, Bulenox, Elite Trader, TickTick, and many more these days. They allow you to pay them a “small” monthly fee (generally starting at around $100 to $150) and they give you a simulated account with certain rules around it. Basically a profit goal you must reach, and a loss limit you must not break. If you can manage to reach the target without breaking a rule, then you get an account you can continue to trade except you’re allowed to withdraw profits (subject to more rules again, of course!). Now your only risk, is if you blow up the sim account then you’re out the fee you paid. But it will be far less than if you had traded real money.

The main point here is that either of these two options, gives you a little bit of “skin in the game”. You have something at risk. Either your actual cash – even if a relatively small amount – or the money you pay to the evaluator. These are good choices because it’s essential that your mind know somewhere in the back of it, that if you screw up there will be a financial penalty.

This is the essence of trading. Someone wins, someone loses. And learning to trade without this component… well I would argue it’s not learning to trade at all. It’s learning to play a video game, where no matter how badly you screw up you can always just push the button to start again, and you never have to improve because there’s no tangible pain if you don’t.

So do yourself a favor, don’t waste your time trying to trade replay thinking it will help improve your skills. It will help you to master your platform, and for that I totally recommend replay so that you know all the buttons and options by heart, and won’t ever fumble for them in the “heat of battle”. But don’t kid yourself that it’s trading, because it’s not.

Until next time, good trading!

Jonathan van Clute
Community Manager, Trading Research Group