Practice Trading

Today I briefly chatted with someone who asked me about RIMM. This is a stock I've traded a lot over the years and have a good understanding of how this stock moves and its options, so at least he picked a good person here to ask questions on.

As I chatted with this person, found out he is not real familiar with trading options for stocks, and he just used a blanket statement that he didn't know much about that, rather just options for index funds.

He said he wanted to put a small amount of money as his trading platform was giving free trades for the month of October for him. I told him that from my personal experience to test or to learn knowledge using real money right off the bat without doing any practice trading/testing was a very bad idea.

He told me his options swing account was very good and that practice trading wasn't the same, as the psychology is different than funded trading. Sure, the psychology is different if you treat your papertrading very different from funded trading. The greater the difference you have between these two also makes a big difference.

I'm a big advocator of realtime practice trading. If you're a daytrader, then find a platform that will allow you to realtime practice trade with no delay in data. It can be as easy as is a drop down menu that lets you choose between a funded and a non-funded account, which takes less than a couple seconds. The platform and functions should all be the same. As I've mentioned before, there are 2 differences between my funded and non-funded accounts: 1) quicker fills in real life; 2) trading bar is highlighted in a different color for funded. All functions with regards to my price action/indicators, how I enter and exit trades, trading ladder are all the same for both types of accounts.

People usually are more relaxed with their practice accounts, therefore making better trading decisions. What if you didn't know whether you were in a practice or real account? Treat every trade as real whether practice or funded.

If we look at Pro Sports players or Olympians, etc., one of the common elements is that they all practice and do their best to simulate real life, as well as work on specific plays to help hone their skills in certain areas. So, if we want to be traders for life, why would people choose to practice their hard earned money away?

I would like to reiterate that you CAN make money trading poorly. I have made a boatload of money making bad trades. This really is a 2x2 array. You can do the following:

Bad Trading: Make a Profit x Have a Cost
Good Trading: Make a Profit x Have a Cost

Good trading entails having a good trading plan & strategy, having good knowledge, executing your trading strategy & plan, managing your risk well. The ideal is to have good trading end in very good profits, but there is always the possibility of a trade going against you. And, thus, you need to have an exit plan to get out that trade.

I've made plenty of bad trades where I was highly profitable. These are probably the worst trades as they reinforce bad habits, and in the end, you begin to take riskier and riskier positions. Ultimately, this leads to a person's demise or at least a great dwindling of their account(s), if this is not corrected. You begin to think you're invincible and you begin to develop an ego.

A part of good trading is recognizing the emotions you have and managing them, but having very good defined entries & exits no matter what happens in the market or to whatever you are trading. You remain humble, recognizing that most of us are just mere spectators and have no influence whatsoever on the market.

A person that is hell bent on using their own money to learn, so let them learn. The Bible says a fool and his money are soon departed. Hey, I've been the fool more than I'd care to remember, but remembering helps keep me humble, knowing I've been there and do not want to go there again. The road to making good trades has not been easy.

I spend far more time practice trading than I do funded trading, because in my practice trading, I find subtle things, like sometimes a gambler's mentality lately. There are times I put on much bigger positions and grow my accounts a lot quicker than I would in real life. Hashing out my feelings on things and really being able to identify what is going on emotionally is not always so clear.

Even if you had oodles of money to blow, it's still not a good idea to practice firsthanded stuff with real money. If you have that money to waste, please email me. Send me your money and I'd be sure to write you a very nice thank you note. I could add to my accounts to use the money more wisely.
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