A trading simulator is some software that replicates a live market environment, or it is an account on a standard piece of software delivered by your broker that uses live data feeds but doesn’t place an actual order into the markets when you hit buy or sell. Instead, your trade is on a separate server that mimics the real markets, so that you can see whether or not your trade idea would have made money. Simulators are designed to give new and inexperienced investors the chance to practice trading the markets without putting any of their capital at risk but also to learn the nuances of the software so that you are not learning how to do a specific function while your trade runs quickly against you.
Why is it important to have one?
Think of any other higher-risk job. Would a firm let you walk in off the street and attempt to construct a bridge, or fly a passenger airplane or perform brain surgery? Obviously, the answer is no. Nor should you want to put other people at risk. All the highest-risk jobs come with a certain amount of training, mentoring, tutoring, and practice with a high level of assessment before you’d be allowed to go in and attempt these jobs or tasks in the real world.
In trading, no one is mortally wounded if they have a trade go against them, so the risk is that you lose all your money. The market doesn’t care if you make £1000 or lose £30,000, so the only person who feels the pain or jubilation is you. You quickly realize you are trading against yourself.
Without some practice, the risk of you losing all your money is very high, and the saying goes, 90% of traders lose 90% of their capital in the first 90 days. Because these typical newbie traders don’t know what they are doing, they don’t have a plan and they are up against the brightest minds, the fastest computers, and newest most powerful technology, plus they don’t have the inside knowledge of what may be about to happen.
The trading simulator lets you put into practice everything that you are going to learn in the YouTrading academy. You can learn how to set up the charts and see for yourself how the market moves. It will give you time to formulate a plan of what you would like to see, where you would like to see it, and what you’d do should everything line up as expected.
You could stay in the simulated environment for the rest of your trading days, but you wouldn’t make any money and you’d soon get bored. So, the idea is to work out what you will do when there is money to be made or lost and for you to have sufficient belief in the probability that you can at least get beyond the first 90 days and then to continue in the markets 1 trade at a time with confidence and discipline.
You are the man on a wire.
There is a film which was released around 2008 called "Man on a wire". Which documents Philippe Petit’s walk between the twin towers in 1974 on a high wire. Something no other person could easily do or would probably want to do, due to the risks involved. What I would like you to think about when you are in the trading simulator is this: If you were to lay a rope on the ground and try and walk along with it, you’d find it very easy to go from one end to the other.
This is your metaphor for being in a simulated environment. Now, if you raise that rope and have it 30cm off the ground and you try and walk along with it, there is a sense of having to try very hard to stay balanced, but if you fall, it is merely a step-down and no harm done. This is where you need to get to in your mindset with the simulator. You have to take it seriously and do everything that you would do in the real markets, but with zero risks of damage to your financial well-being.
When you transfer out of the simulated environment to the live markets, you will decide how high your rope goes. Maybe you’ll only want to trade with £1000 in your account and if you lose that maybe it wouldn’t ruin your life, but for most that would be the equivalent of a month’s worth of rent or mortgage payment and you wouldn’t want to lose 12 months of payments, so anything you can do to mitigate the seriousness of the loss the better.
If you were to tie the rope 30 meters in the air and not in any way have a feel for what it is to walk across at 30 cm high, the likely hood is that you will fall and do some serious damage. But if you have the muscle memory, the plan of how to achieve the move from A to B, there is no difference between the 30cm to 30 meters, you just have to repeat the same steps for each. The only difference is whether your mind can cope with the added risk. If you treat your time correctly within the simulator you will be so much better prepared for the live markets.