Some beginner traders in their first few months of live trading end up surprised that they are having difficulties replicating their success in demo trading to a real account.This is perhaps a result of underestimating the psychological differences between demo and live trading and not being able to make the proper preparations for it.
1. Emotional detachment and risk tolerance
One of the main differences between demo and live trading lies in the emotional detachment and risk tolerance levels of traders. In a demo account, traders can experiment with various strategies and make trades without the fear of losing real money. This lack of financial risk can lead to a more relaxed attitude and lower emotional involvement.
However, when traders move to live accounts, the fear of losing money becomes real. This heightened emotional involvement can lead to impulsive decision-making, emotional biases, and increased risk aversion. The fear of losses can cause traders to exit winning trades prematurely or hold onto losing positions longer than necessary, ultimately impacting their overall trading performance.
2. Psychological pressure and performance anxiety
Lack of proper psychological preparation can also lead traders to overtrade when they move over from demo to live. For some, this can be a result of a winning streak that makes them overconfident and forget all about trading discipline and proper execution. Overleveraging might also be a problem if one hasn’t mastered proper position sizing and risk management techniques.
3. The temptation to commit trading sins is stronger in live trading.
Because you’re dealing with real monetary risk, you’ll be more emotionally invested in the outcome of your trades.
As a result, the temptation to go back to your bad trading habits will be a lot stronger.
Just when you thought that you’ve finally overcome those habits, you might find yourself committing common trading sins like moving your stop losses, cutting off your winning trades early, and revenge trading.
For some traders, their desire to prove that their live accounts can be as profitable as their demo accounts even lead to new problems like overtrading and ignoring their trading plans altogether.
So how can you deal with these differences?
A good way of bridging the gap between demo and live trading is to copy the mental state of emotionless trading you practiced on demo.
You can do this by focusing on the process and not the profits. Take one trade at a time and focus on sticking to your plan and implementing proper risk management.
Make sure that you’re trading money that you can afford to lose. This will take some of the pressure off and help you concentrate on your trades better.
Another good way to repeat your demo trading success is to keep good trading habits like writing trade journals.
Write down what’s going on in your live trades. How do they differ with your usual demo trades? Do your reactions and trade decisions differ when you trade real money? What could you have done better?
By noting the mistakes that you made on a live account that you don’t usually make on demo, you’ll have an idea about the exact problems that you need to work on.
Switching from demo to live trading is hard and often leads to losses at first, but it shouldn’t stop you from bouncing back.
You just have to tread lightly and make sure that you’re aware and prepared for the emotional commitment needed for live trading.
Are you tired of getting caught in the whirlwind of emotions that sabotage your trading decisions? Do you want to take your trading skills to the next level? Come watch this live replay!