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23

2024/05

Turning practice profits into real trading wins: Let's make it happen!

Many say, “You can make money in practice trading, but you lose money in real trading.” So, where does the problem lie? Most people believe it’s because of their mindset.

Real trading involves:

  • Real money.
  • Making them nervous, while practice trading feels artificial.
  • Leading to a calmer mindset.

In reality, there are typically three ways people make money through practice trading:

1. They briefly profit from the rhythm of the market.

When they start practising, they might encounter a bullish market or randomly make profitable trades that align with market trends. After a few months, they find their accounts profitable, boosting their confidence.

However, it only indicates a little, even if you have profited in practice for half a year. The ability to profit is a long-term process that spans various market cycles. Brief profits often involve coincidence.

Real trading is different. It’s long-term, spanning many cycles and complex trends. With the experience of a complete market cycle, it’s sufficient to conclude. Short-term profits are coincidental.

2. They don't cut losses and quickly recover profits.

In practice, they don’t set stop-loss orders and don’t feel pressure when trapped in losing positions. They might ignore the market for a while, then find they’ve recovered and made some profit. They repeatedly do this, believing they can profit in practice.

Mostly, this happens during volatile or sideways markets, where not cutting losses under no pressure can lead to short-term recovery and profit-taking.

This ability to profit doesn’t indicate anything significant; instead, it results from not cutting losses during a specific period and not encountering strong trending markets.

However, after experiencing such markets over time, the practice account would suffer significant losses that small profits couldn’t offset. In actual trading, many people make small profits, but when faced with solid trends or extreme markets, not cutting losses leads to significant losses or even bankruptcy.

3. Starting over with a new Demo Account after losses

When losses occur in practice trading and efforts to recover are futile, one may feel disheartened. Seeing the loss-making account, the thought of recovering seems daunting.

Hence, they abandoned the losing demo account and started anew with another one. This approach boosts confidence. If losses persist in the new account, they switch again.

The fact that previous demo accounts all suffered losses indicates poor trading skills and a weak foundation. One’s trading skills can only improve slowly; it’s a lengthy process. Thus, profits in the final account are likely due to chance encounters with favourable market conditions, which are not indicative of consistent profitability in practice trading.

Natural Selection

Novice traders often start with demo accounts to gauge market depth. Despite experiencing profitable scenarios in practice, they may encounter losses in real trading. Those who initially struggled in practice and needed more confidence due to continuous losses might perceive the market as too challenging and opt out of financial trading altogether.

Hence, those who remain in the market are often labelled as “making money in practice, losing money in real trading.”

In conclusion, if your practice profits stem from the methods above or other incorrect approaches, it’s crucial to examine and acknowledge your poor trading skills and weak foundation.

It’s not just about mindset but primarily about your trading skills. Don’t attribute losses solely to mindset; recognize the deficiency in your trading skills.

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