Why you should trade in a simulator

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• 0:01Speaker 00

  Simulation is the key to your trading success. Man, this is something that I would be doing for three, four, five, six months before I even risk a single dollar of my own money. There's no better way to kind of put your thoughts, words, and actions into a process that you can codify and that you could replicate over and over and over before you really risk any money. Whether you're going to risk real capital or whether you're going to do even one of these funding accounts. It's unbelievable. And I think, in my humble opinion, I think there's a kind of a caste system in trading

• 0:40Speaker 00

  about account size and trading real money versus paper trading and this and that. And I think it's all BS. I think you need to take care of yourselves. So I'm going to say it out loud. There's nothing wrong with simulation. And just before I get into this, I want to share something with you. So when I run my screens, I don't necessarily on the stocks, break it up by capitalization. I'm looking for opportunity. So guess what happens? Guess what pops up? Micro caps and small caps. Now, some of you probably know more about this than I do. What do we know about small caps? It's a free for all, to say it in a nice word, right?

• 1:23Speaker 00

  You have some of the most slippery, which is a nice word, a nice way of saying it. The most slippery things that are happening in the public markets are happening in this space. You've got, I mean, pump and dumps is like the plain vanilla ice cream that you order when you get into the small cap space. But you have, you know, companies trying to lift up their volume, they're painting the tape, making it look like there's a lot of activity, things that you would get arrested for years ago, so that the company can actually sell more of its treasury stock or whatever as a secondary, right? To raise more money. You've get rug pulls, right? And this is just the beginning.

• 2:07Speaker 00

  So I'm like, okay, well, I see other people doing very well in this space. I couldn't, I can't say that I ever was a small cap kind of champion. I was mostly large cap, big blue chip names that your grandparents would know, and commodity futures. So when you start going down in capitalization, you're getting into no man's land in many ways. So in the simulator, I actually look at saying, okay, what's happening in the pre-market, right? Which is also another danger zone. Bring your nine millimeter to that place. And test your ideas in a safe way, without risking capital to see, like, okay, is there efficacy?

• 2:52Speaker 00

  Because the goal is to understand, do you, where's your edge? Can you create edge? I think you can. I believe in you. But I don't think you can just ideate your way to financial success like you actually have to do it. And to me, there's no better way. Corollary, if you've watched the show enough, you've heard me tell about the days and weeks and months and years where I was, had my nose in my spreadsheets in Lotus, what was then called Lotus 123. That was my, that was my sim. That was my daydream. Here's my position, and/or here's where I want to establish my position, here's my account balance, if I get in here, and here's my protective stop, what's it going to do to my account balance?

• 3:35Speaker 00

  If it goes the way I want it to and I get in without any slippage, here's all the commissions and the clearing fees that you have to pay. And here's where I would start to think like I have to protect some profits, you know, before I have to walk away. We didn't have simulators because there wasn't an internet and it wasn't built into our workstation. The workstation had client accounts and like a Unix internal email system, like an Intranet kind of a thing. But there was no other way to simulate. You had to do it by hand. So I said, well, I can do my charts by hand, which is how Edda Michael did it. So I borrowed from them.

• 4:18Speaker 00

  But even still, like, that didn't give me the emotional education, because that's what the simulation gives you. It's not just, will my trading rules work? It's how will I feel about the results? Because once you get to that spot, that's how you build confidence. It's one thing to run the thing, run your model and backtest, right? Then it's another thing, when I talk about simulation, I'm really talking about what you're doing tomorrow, or what did you set up and plan to do today? The backtest is really backward looking, and you really want to try to test over 10 years, because that'll give you different market cycles. You don't want to see if you're going to put rules together like what's just working today.

• 5:01Speaker 00

  You want to have the confidence of knowing what worked yesteryear and then the year before that. Now, some of you are new to the game here, and we're in 2026. If you look back, that's 2016. Okay, so we had COVID, which affected things. But wouldn't it be good to see like, maybe you're really great at trading volatility? So sure, you could look at, you know, 22 was a tough year, but 20, 21, 22. But then go back and see if you can get some historical data and see how it would have worked in 07, 08. Right? How would you have done post, you know, we just had 9/11?

• 5:42Speaker 00

  You want to know that, look, when you're throwing a bullpen session as a pitcher, you want to know how the best hitters are going to do against your pitches, right? You don't want to go down and just do well in rookie ball or low A. The game gets faster and faster and faster as you get promoted after you get drafted. So double A is faster than low A, and low A is faster than rookie ball. And then triple A is faster, and then you get to the bigs, and it's insanely fast. So you want to always put out like your best against the best competition. And to me, there's no better way to do that than through a simulator. So if I was starting and I had limited capital and I wanted to do one of these funding accounts, I would do whatever, 40, 50 bucks a month on the funding account.

• 6:26Speaker 00

  And I'd had, if I had 5K, I'd put the other 4K in a, in a high yield savings account as dry powder. And then I would pay whatever I had to pay to be on the simulator, and I would trade on the sim and just keep track of stuff. Because the goal is for you to develop the consistency that you need to execute your plan. When people reach out to me, they fail for a few reasons. One is they don't have conviction about what they're doing. And two, they don't have the stick-to-itiveness. They get discouraged too soon and they move on. And they move on too quickly. They don't see results in a week and they're like, I got to move on. This isn't working. And we talked about this in a previous episode, you know, called embracing the suck, right? And in my own life, I can share with you, after having started jiu-jitsu after the

• 7:10Speaker 00

  age of 50, it sucked. It was the worst. I hated it. There were at least two days where I, I didn't, I usually got dressed at the gym. And there were days where I was so afraid, this is God's honest truth, that I drove to the gym and I thought my game was so horrible, I didn't know what I was doing, I did nothing but get smashed, I had no, I had, I didn't exercise any skills. And this is when I was a white belt. I drove home. That's how scared I was. I'm over 50 years old. That happened twice. And then I realized when I got home, I'll share with you something else, very deep.

• 7:54Speaker 00

  The shame and humility that I felt. No one knew it. I'm living by myself with my damn dog. Where's the damn dog? Yep, oh, there she is. She's under the, sits by my feet. The humility that I felt like that was the, that was me being a loser, like I quit. I didn't, if I went in and got my ass kicked and I was 0 for 5 in, in, if it was a sparring class, I can't remember, it probably was. Some classes are, have drills and some have compahata, it is like a sparring class. So, but I was just so like, man, my game sucks, I don't know what I'm doing, everyone's a move ahead of me. Because I didn't know the chess game of it, right? It's a very, it's actually a cerebral sport.

• 8:38Speaker 00

  There is a physicality, yes, it's submission grappling, of course. But it's a chess move. It's anticipating what your opponent's going to do and maybe even trapping them. So I didn't have enough experience to know that deep. I could barely pull off a scissors sweep. In fact, I probably couldn't even pull off a scissors sweep. So, you know, I was getting used to passing guard. But I think the point, the moral of the story is before, like, I wasn't ready to join a tournament. And that's like the mindset is like, you have money, you want to get after it, you want to start making money. Realize this, job number one is to not lose money. Your job as a speculator, even if you want to trade four times your capital intraday,

• 9:19Speaker 00

  your number one job always, even besides trying to make money, is to play superior defense. Like I said yesterday or so about the scalpers, they know if they pile in for 10, 20,000 shares on something, they're risking a nickel. And if that nickel is hit, like below, they're gone. They're out. So they anticipate something that has to happen right now or within the next couple of one-minute bars. And if it doesn't materialize, they're out. Now, I'm not saying that you have to do it that way, but if you can formulate a set of rules, right, which you think you're compatible with, the simulator is going to help prove out and suss out that compatibility.

• 10:00Speaker 00

  The key to doing it the right way, though, is to stick with it for several months. So before you even leave SIM, I mean, you need three months minimum. Now, that's my gut feel. I'm a pro. You talk to somebody else, you talk to Steve or Mike at SMB, they might have a different opinion on it, because they're, they have a specific way of trading, so, and they have the statistics to back it up for their particular way. I don't know who you are. But here's the, here's where I'm coming from. I watched baseball every day. I got baseball on every day. I know the game very well. I played it as a kid. My sons played it at a very high level. My dad was a big New York Giant fan.

• 10:44Speaker 00

  He saw Willie Mays play at Polo Grounds, 1951, was rookie year. Watched baseball all day. So you look at who are some of the better hitters. And for the women out there, if you don't like sports analogies, I apologize. But you look up a guy since passed away from cancer, he was a big dipper with tobacco in his face, which is, you don't need, you don't need that. His name was Tony Gwynn. And he was widely regarded as, as, as one of the better hitters ever to play the game. Left-handed hitter, played for the Padres. He kind of popularized the five and a half hole.

• 11:22Speaker 00

  And there's videos of him on YouTube with a tee. And the tee is this picture of ice cream cone thing on a steel bar with a base that looks like a home plate. And the cup just holds the ball. And you can move that base, you know, up in front of you and inside to emulate pitches when they try to jam you inside, so you kind of have to pull them. And you can move it diagonally so that it's kind of off your back leg when they try to throw you outside, in which case you have to let the ball get deeper in the zone and go the opposite way. And I would just watch him hitting balls off the tee. Now, this guy's a pro hitter, and he's one of the best ever, and he's still hitting off the tee.

• 12:04Speaker 00

  And they would do it downstairs inside their batting cages at the stadium. I've been there. Good, nice place, nice stadium. So even if you're a pro, when you find yourself getting out of the groove, go to the simulator. Test it out. But the thing is, you have to stick with what you're doing. If you're trying to do 45 different things, you're going to get that kind of results. Most people can't trade like Paul Tudor Jones, right? I bet even Paul is not really all over the place. There are better ways to put the risk in your portfolio. Sometimes the best way to do that is with options or leaps, for example, and you'll earn your way up to that spot. But right here, right now, focus on one thing.

• 12:49Speaker 00

  Focus on having, say, three, four, five names on your watch list, and then trade those. And exhibit the consistent behavior so that this way, when you look at the results that you get, you could say, hey, I did everything consistently, so now when I look at the results, I can better explain like what the heck happened. Either I don't have edge here, right? But you don't want to have some outlier winner that carries the day when it's really not your core strategy. You see what I'm saying? But I would do that and take solace in the fact that it's not costing you money. The market will be here in three months. The market's going to be here next year. You can develop all the confidence that you need. Why?

• 13:33Speaker 00

  Well, because it's the day after day part. The jiu-jitsu part for me, with someone, you know, I mentioned jiu-jitsu the other day, you know, and then about getting a black belt. And they were like, wow, that's impressive. What was the hardest part? You know what the hardest part of it was? Was going every day. Just like the gym, anything like that. That's the difference, is can you go every day? And I've always said, even when I got my blue belt, I said, I don't know jack squat, really, about what a blue belt is. I don't think I know anything about jiu-jitsu, but I come every day, I have a good attitude, I don't, you know, I take my beatings like everybody else.

• 14:12Speaker 00

  There are four of us left who started around the same time, and they're all black belts now. And there must be thousands of people who had all the ability in the world, they had all the athleticism in the world, but two things couldn't happen. They couldn't come consistently, one, and two, they thought that lifting weights kind of made them tough, so when they would come into jiu-jitsu and they'd get smashed, they couldn't take it, so they left. Okay, I've been in those situations in my life, but there's a certain discipline you get from lifting weights. It's great. It doesn't help you with grappling, because now you have to oxygenate all those muscles

• 14:56Speaker 00

  so you gas fast. So being a musclehead isn't going to help you in submission grappling. You can have all the strength in the world, but it also affects your mobility. I know a lot of professional, you know, jiu-jiteros who are going to world championship in Campionado Brazileiro, they don't even really lift weights. They do farmer carries, they do things for natural strength, maybe natural strength, they do pull-ups or whatever. They're not big on the weights, though. They lose the speed, the quickness, the mobility. So the biggest part of all of this, whether you want to go try jiu-jitsu to get even to a blue belt, you have to go every day. You have to put the work in. That's the hardest part. It's the day after day part. Again, it's the, what was that part of the brain?

• 15:40Speaker 00

  I have it written down here. The do the things that you don't want to do. Remember, I talked about the Andy Huberman? Andy, like I know him. Andrew Huberman with Goggins, the anterior mid-singulate cortex. I didn't want to go to jiu-jitsu. My body ached. I had pains in places I didn't even know I had. And I was getting beaten by people who were half my age. But if you don't go to class, you're not going to learn. And if you don't learn, and if you don't show up to class, teacher's not going to promote you. So I always thought a lot of my promotion was on my attendance, because I would train, you know, five, six days a week, Sundays rest, Monday and Wednesday, two classes.

• 16:21Speaker 00

  Had fundamentals at six, and then the sparring class at seven. So that's, that's, that's two and a half hours. And I did that consistently for five years between, for all of blue and all of purple. Right then, I started teaching, and the classes were a little different, starting at like brown belt. So at any rate, you have to embrace the suck and do that stuff day after day after day so that this way, you build the confidence in what you're doing so that by the time you go live with your real money, you're like, man, I've been able to behave consistently for six months doing this.

• 17:04Speaker 00

  Now I just have to go, maybe I don't trade fives or tens, I'll start with ones and twos just to make sure I don't freak out when I'm risking real money. Because that is the one difference, is that in the sim, it's monopoly money. If you go live, it's real money. So that's why I'm saying, trade small, trade appropriately, build your confidence through the consistent behavior. Don't worry about your P and L. You'll make money over time, you'll know the expected value of your trade, and you'll be able to define what your edge is. Once you can do that, you're in a great place to start. And that, to me, is the benefit of simulation. And if I was starting all over with the money that I had, remember, it's like 13K in today's

• 17:48Speaker 00

  dollars, I don't, I might put in like 3K into a budget to say, here's what I'm going to use for my trading education, I'm going to keep 10 in dry powder, and then this is what I'm going to do for the next three, six, whatever it takes to know it's such a huge advantage. We didn't have that when we were younger, but it's such a huge edge for you. I would live in the simulator. And if you have to set up several different accounts so that you can bifurcate and keep your different trading strategies separate, then I would do that, too. Anyway, that's all I got for you today. Thanks very much for being here. Go get your free copy of The Inner Voice of Trading at Trader Mindset, and I'll see you tomorrow.