Are You Ready to Trade Real Money?

12/30/2011 9:30 am EST

Focus: TRADING

Anne-Marie Baiynd

President and CEO, TheTradingBook.com

New traders who are seeing consistent profits in their paper trading performance may be ready to make the transition and begin trading real money, says Anne-Marie Baiynd.

Do you think you are ready to trade real money? Let’s talk with Anne-Marie Baiynd before you pull that trigger. Anne-Marie, how do you know if you are really ready to trade?

You know, that is a difficult question to answer completely, but as a coach, I always advise paper trading. If you can run for three months in the green, you have a series of trades that are green consistently, and you don’t ride a huge roller coaster, then you really are technically able to manage. 

Many of us don’t give ourselves that amount of time to string many months together, but the truth is if you can’t do it with play money, you are really not going to be able to do it with real money. 

In your advising, do you find any differences between the way men trade and the way women trade?

I do. In my experience as a coach, I have noticed that many more men do not want to paper trade; they just want to get to the business of trading. 

Nothing is wrong with that, but you have got to practice off the field, right? I think a lot of folks that trade professionally, I would like to call us athletes, and athletes spend most of their time preparing off the field. 

If we realize that, do all that preparation off the field, and work in our paper trading accounts, then when we get into the live game, we are much better equipped.

I see that men don’t, in my experience, like paper trading; women will paper trade. Now there is the “maverick female”—me—that did not paper trade. You know, I lived to regret it. I did, I lived to regret it. 

It is an expensive lesson, isn’t it?

It is very expensive, and the market is going to teach you lessons every day. It is your responsibility to learn them, and many of us don’t. 

We just come back and make the same mistakes over again. The market tries to teach us those lessons and we just don’t learn them. 

When should we not trade?

You know, that is a two-fold answer. As far as volatility goes, if we are seeing markets that continually gyrate between ranges and we are short-term investors, or we are building our 401(k) with something—like a stock that we are accumulating over the years—now is not a good time during high volatility like this to step into trading events.

Staying out of the market when it is highly volatile is much better for the person who is either a novice or someone who does not trade on a much shorter time frame. For the person who trades on a shorter time frame, this is a wonderful environment.

But for a buy and hold, this is giving a lot of sleepless nights.

Absolutely, because things drop and then they pop. You get stopped out and you have to go back in, or you have magnificently wide stops that leave so much at risk. It is just not the space to do it.

Now, the second answer regarding when not to trade: If you haven’t slept well, or you have had an argument with your significant other or your children, or you don’t feel well, you should not trade, because again, we have to make money at peak performance, and when we are not at peak, maybe we should take that day to study.

You know, most traders feel like if they are sitting in front of the screen, they have to be in a trade, and they don’t. The choice is simple: do you want to make a lot of trades and lose a bunch of money, or do you want to make just a few trades and make money? 

See related: How to Overcome Overtrading

The choice is up to you, but you don’t have to be a serial trader, and you definitely don’t need to trade if you aren’t at your best. 

Also, make your size smaller if you are feeling off kilter. For me, there are days where I am just in a bad mood, so I am not going to trade because it makes me trade angry. When I trade angry, I make irrational decisions, and I have learned that.                 

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