Winning more on demos?

There’s a curious situation that can arise where, you begin winning more on demo accounts than on live accounts, and it has been bugging me.

The screenshot below is from my demo account and it should be obvious why this is bugging me. BTW I’m not just talking about the sums of money won – I’m also talking about overall profits.

But before I forget, it’s important to recognise that when you begin wining on demos consistently that doesn’t mean that you’ll do the same on a live account – and I’ll give my reasons for this in a minute.

The above screenshot is for trades made over 1 week on a demo account. Yes – USD/ZAR is an ‘exotic’ so-called ‘high-risk’ pair. Some important things should become obvious in what happened on 10/06/2015.

1. On a £2 bet, having gone short in previous 4 days, I’ve made ‘stupid’ profits – some would say.
2. I take those profits….and then.
3. Having taken those profits, I decide to go long shortly after with a heavier £4 bet, which then closes in profit.

Luck? I don’t think so. Hardly anybody says that a respected batsman in a cricket match, who drives the ball for six, was lucky. It’s about timing and skill. Miss the ball and you get your stumps knocked out innit?

[The ‘risk’ I’m talking about in this post is about trend-following trade setups. This is the sort of trade where you’re waiting on the market to give you a signal to exit – and you haven’t defined an exit point, because you don’t know where or how much the momentum in the market will actually take price].

What’s clearly happened in the above USD/ZAR demo account trades is that:

1. I’ve spotted the DIRECTION of momentum correctly.
2. I’ve spotted the change in direction and momentum correctly.
3. I entered the trades at the right time.
4. I exited at the right time.

So –  back to why I’m more successful on demo trades on this pair than on my live account – and this could well apply to some other new traders.

1. I’ve noticed that I trade less frequently on the demo these days. That obviously means there’s less opportunity to lose money.
2. I’m not emotional about the money on a demo – cuz I don’t care if I blow up the account, as I can top it back up with the £10 Million demo money allowance. (In the above demo I’ve put only £50K in).
3. I take or make wider stop-losses – as I couldn’t care less.
4. I don’t check the account frequently – may be once every day or two. Where as with live account I’d check several times per day.

The above appear important because on live accounts, I’m far more emotional and involved. I think that means that I interfere more as emotions do get a grip on me. I make tighter stop-losses and often take profits too soon (as nerves get in the way). I’m kicking myself about this because I took only £102 profits on live account, on the same trade that made £3K in the above demo trade (because nerves got the better of me).

Linda Rashke – a seasoned and expert trader – recently said in a Webinar (and several times in the past) a very important thing, that reasonably well-trained traders can more accurately preduct direction of movement, but not magnitude of movement. The truth in that statement is seen in the two USD/ZAR trades above. I clearly had spotted the correct direction. But on assessing magnitude – I got it wrong on my live account but correct on the demo account.

And why was that? When I think about it, the big difference was that my emotions got in the way. I’m not talking about nail-biting anxiety here, I’m talking about that little voice inside that says, “bail out now.. it’s too risky”. The trouble is that there is only one voice from ‘inside’ but whether it’s logic or emotion commanding that voice, is so very difficult to know.

Learning points:

1. Too many or too frequent trades may increase risk of overall losses.
2. Subtle or sub-conscious emotional involvement is a risk factor.
3. We become better at predicting direction but not magnitude of movements of price.
4. For trend following trades, give them a little more time.

[For the record, these are my personal lessons. If you do the above and lose money know that the ‘sue yourself principle’ applies to anything said at this site].