A trader in the process of training can use many tools to achieve his goal of being consistent in the markets sooner. One of these tools is the simulator, which allows you to operate with a fictitious account, that is, without the operations being taken with real money. Something like the paper trading that was done in the past, where one wrote down in a notebook the shares that he intended to buy and then analyzed their performance.
The graphing platforms that are available today make it very easy to simulate and in this way the traders who are learning can take their operations without them being executed in the real market, that is, without any cost.
From my point of view it makes a lot of sense to use the simulator despite the fact that they have some disadvantages that we will cover below. The main utility is to train traders to take positions in a market that moves in real time, and with conditions that will be very similar to those they will have to face when operating with their accounts… but without the pressure needless to have to pay with money for their mistakes.
When a trader is training, he has to go through three clearly differentiated stages:
- Theoretical framework. It is about acquiring the key elements that correlate with success in the markets such as: positive hope, statistical advantage, risk management, etc.
- Simulated consistency. It consists of being able to beat the market consistently with a simulated account.
- consistency in real. It is achieved when you beat the market consistently with a live account.
Simulators play an excellent role in the second phase and allow the student to take pressure off. This way they can focus on the technical elements without having to worry about incurring real costs caused by their ignorance or lack of expertise.
However, the use of the simulator carries a great disadvantage that we must be aware of: they eliminate the fear of loss and that can lead the student to develop bad habits. It is not the same to simulate in a virtual account, than to operate knowing that one is going to have losing operations. The emotional response is very different…
This lack of consequences can lead the student to adopt erroneous attitudes and habits: operate without stops, exceed the risk limit per operation, get confused, over-operate…
With a real account and knowing that each mistake is going to cost money, the student is usually much more focused on what he is doing. But this concentration exercise is not necessarily good. Excess tension often negatively influences their learning process. For this reason I am in favor of the simulator, but as long as it is integrated in an appropriate way, namely: the professional spirit must be preserved at all times.
This means that the student, before using the simulator, must know what attitude is appropriate to win on the Stock Market, what behaviors he has to develop to achieve consistency, and what management he must do with his emotions… and then, with this knowledge, you will use the simulator to train yourself in taking positions always mimicking your real operations.
What this concept means is that the student will duplicate exactly the type of performance that he wants to achieve in real life. If his account is $10,000 and the market he will be working on allows him to use only one contract, in the simulator he will only use one contract. If in a trade the price goes against him and his stop is threatened, he will not touch it in simulated if he is not going to touch it in real either. The objective is to develop the habits of professional trading and for this it is essential to start with a correct attitude.
However, if the student is clear about his objective and what role the simulator plays in his training process, having this tool will accelerate his ability to act as a consistent trader.
For this reason, it is necessary for the trader to simulate the time necessary to achieve consistency in simulated, but not more time than necessary. That is, once said consistency is achieved, the trader will start operating in real. After all, your results depend on operating in real and that implies special emotional management and discipline that you will hardly achieve if you limit yourself to simulating.
In short: the simulator can, as long as you adopt the right attitude, but only long enough to be consistent and gain confidence in your performance. Then you have to go real.