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There’s a bit of a learning curve you must go through with any skill worth learning. And trading is no different.

A typical experience might be for a newbie trader to learn a trading strategy, apply it to a demo account (or paper trade it) and then take it live once he’s seen his virtual profits rack-up over a week or two.

And that’s a perfectly sensible way to go about things. But… problems can soon arise as soon as REAL MONEY appears in the equation.

It’s a strange phenomenon because in theory nothing has really changed… the markets still behave the same, the execution of trades is still carried out in the same way on the brokers software, the strategy rules are still valid…

So why don’t all traders make the move from demo trading to live trading and enjoy spectacular results?

It’s the mind-bending effect of having hard cash on the line. It’s money they’ve worked hard for, become mentally attached to, and if they are honest with themselves it’s money they probably aren’t really ready to risk in the markets.

Their self-preservation instincts sabotage their successful methodology. Trades are missed or taken without discipline. And they can become disheartened with their real-world results pretty quickly.

But I think it’s only because so many miss going through the proper transition period.

Many traders try to go straight from using a demo account to a fully funded real money account and the pressure to perform they exert upon themselves is too great. It’s like going straight from riding a bike with stabilisers to lining up alongside the Tour de France riders.

Expectations are too high.

But accept you’re still fresh faced and learning, be prepared to take the odd little tumble in a safe environment, and your path to the big time can be so much smoother.

Instead of this: Demo trading > Virtual Profits > Fund full size account > PRESSURE TO PERFORM

Try this: Demo trading > Virtual Profits > Fund small real money account > Consistent Profits > Increase account size > Consistent Profits > Increase account size > CONSISTENT FULL SIZE PROFITS

I suppose it’s the natural human desire to make big money quickly that gets in the way. But scale into your full size account incrementally and you’re protecting your trading bankroll while you harden yourself to real world conditions.

There is so much to be said for trading with real money – it’s a completely different world to demo trading purely because of the mental aspect of willingly embracing risk – but expose yourself to it in a SMALL way.

Especially since it’s so easy to trade from 10p per pip with most brokers these days.

Build up your resistance to performance-pressure gently and your probability of successfully transitioning into full size, real money trading increases exponentially.

But how do you know when you’re ready to move things up a notch?

Simple…

Ask yourself these 5 questions whenever you consider increasing your trading account size

  • Am I sticking to my strategy rules without fail?
    Be honest; if you’re flying by the seat of your pants, trading without a clear plan, sod’s law says the markets will bite at the worst possible moment – right when you’ve risked more money than usual. But it’s easily remedied – just make sure you have a clear strategy in place. You need to know exactly what to do next at all times and a good strategy plan falls under these 5 main headings: what to trade, how much to buy/sell, when to enter a trade, when to exit a losing trade, when to exit a winning trade. Make sure you’ve got all those points covered before taking on more risk.
  • Is my strategy delivering consistent profits?
    If your strategy is unproven, or is going through a prolonged period of drawdown, throwing more money at it is not the answer. Backtest, tweak, go back to demo trading until you get it delivering consistent profits, and keep your powder dry until that time.
  • Am in control of my emotions when trading at my current size?
    Any feelings of panic, extreme fear, aggression, loss of temper etc… will be amplified manifold when more money is dropped into the mix. Instead of increasing your trading size you should work on desensitizing yourself to trading results at your current level.
  • Are trading results affecting my life outside the markets?
    Are you taking your trades away from the screen with you? Is it affecting your mood, your relationships, your sleep patterns? If so, go smaller instead of larger. Scale your trading size down a level – until it doesn’t affect you – and then work on sizing up again from there.
  • Am I totally confident in my broker, the trading software I use, and any other tools of the trade?
    Make sure you’ve got all other bases covered before risking more money. Make sure you can completely trust your broker and you’re happy with the charting software and trading software you currently use. Do a little audit of the tools of your trade and make sure there’s nothing that needs optimising or improving before injecting more bankroll into your trading campaign.

And once you’ve worked your way through that little checklist congratulations are in order. You’re treating your trading like a business and respecting your trading funds appropriately.

You DESERVE to be trading at larger size!

Be Prepared: Market Moving Data Coming This Week (London Time)

Wednesday 14th December:
09:30     GBP      Average Earnings Index
09:30     GBP      Claimant Count Change
12:15     GBP      Carney Speaks
13:30     USD      Retail Sales
13:30     USD      PPI
15:30     USD      Crude Oil Inventories
19:00     USD      Interest rate decision & fed statement
19:30     USD      FOMC Press Conference

Thursday 15th December:
08:30     CHF      Swiss Interest Rate Decision
08:30     EUR      German Manufacturing PMI
09:30     GBP      Retail Sales
12:00     GBP      Interest Rate Decision & BoE Meeting Minutes
13:30     USD      CPI
13:30     USD      Philly Fed

Friday 16th December:
10:00     EUR      CPI
13:30     USD      Building permits

Monday 19th December:
09:00     EUR      German IFO Business climate index

Tuesday 20th December:
– no big reports

So we’re got quite a helping of central bank data this week: interest rate decisions from the UK, the US, and Switzerland. Keep an eye out for any change in expected policy, either in the decisions themselves or more likely in the comments and meeting minutes that are released alongside. It’s all stuff that can move the markets!

Trade safely and I’ll catch up with you again next week.