In this episode of Truth About FX, Walter digs into the psychology on why demo trading is more profitable than live accounts. He shares how “desensitizing” yourself can help you overcome your trading fears…And how keeping a journal can bring you one step closer into correctly executing your trades and bringing in the profits.
Download (Duration: 06:15 / 7.2 MB)
In This Episode:
00:17 – bulk of the reason
02:03 – scared of dogs
03:06 – let the dog sniff you
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. Somebody writes in and asked: Why can’t I be successful with live trading when I’m successful with paper trading?
Walter: This is a really good point. This is quite common and it’s also, I think — I believe — the root of the reason why when you look at trading competitions, in the live account competitions, you will see… Let’s say, the winner has 600% return which is really good over the course of a month or whatever — three months or whatever it is — and then you go to the demo account competition and the winner makes like 5,000% over the same period of time.
If you’ll look at it, it’s always the case that the demo traders make more money than the live account traders. Now, I believe you can get into the differences between trading on the demo and trading with the live feed and there are definitely valid concerns there but I think the bulk of the reason why this has happens is Psychology.
It’s Psychology. It’s because people, when they’re trading fake money, they’re okay with having losses and they’re okay with taking huge giant risk. When they’re trading live, real Dollars and Euros and Pounds, they don’t and it’s more difficult.
This is what’s going on with you and this is what happens to everybody. The key here is to desensitize yourself. Systematic desensitization is one of the ways that in Psychology, like if you have a fear and you fear something, they’ll slowly work you into that.
Let’s say you have a fear of a dog. I had a friend that I went to Graduate school with. She got her PhD like two years before I did and she was scared of dogs. She knew it was an irrational fear.
She knew that she should like dogs and all that like most people do or at least tolerate them but she was horrified whenever there was a dog. She thought that it would come and attack her.
And so, what they had to do with her was what they typically do with a fear. Like this is slowly work you into a situation where you’ll feel like more and more comfortable with the dogs.
What you’ll do is you’ll go, they’ll put the dog in the corner or they’ll show you a video of a dog, and you’ll watch the video on a computer screen or whatever it is. “Oh! That’s great,” and say that dog is on the other side of this wall.
And then, you’ll come in the next day and you’ll go in the room. The dog is on way, way, way on the other side of the room in the corner. Slowly you take a step closer to the dog and over time, over days, over weeks, you get closer and closer to the dog until finally the dog is right next to you.
Eventually, you’ll put your hand out and let the dog sniff your hand. They’ll say like, “Let the dog sniff you” sort of thing. That’s one way to do it. You can do that with your trading.
That means you’ll start with a trading account that’s in Forex Tester or your simulator or whatever that is, then you go ahead and use the demo account, then you go ahead and use a $100 account or whatever amount of money you would blow on going to a restaurant on Saturday night.
Just use that. Put that money aside that you know you can lose it all and you don’t care and trade your account with that. That’s the kind of thing that you need to do really in order to get desensitized to the live money.
Slowly work your way up from a $100 account, $500 account, $1,000 account. Slowly build it up that way. It’s going to take forever but, along the way, you’ll be focusing on what’s important which is basically your trading execution and not the fact that it’s a live money.
That’s what I’ll do. And, keep a good journal. Make sure that you’ll record in your journal, how well you executed that trade. That’s the key.
Hugh: Yeah. I’ve always struggled with the trading journal but recently I’ve been a lot better so it helps a lot.
Walter: Okay, great. That’s excellent!
Hugh: Thanks, Walter.