Why you should trade in a simulator

0:00Simulation 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 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.

1:02So 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 pipes pops up? Microcaps 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? 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 companies trying to lift up their volume, their 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.

2:03You get rugs pulls, right? And this is just the beginning. 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 ship 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, bring your nine millimeter to that place. And test your ideas in a safe way without risking capital to say, like, okay, is there efficacy? 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

3:04have to do it. And to me, there's no better way. Carollary, 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 and Lotus, what was then called Lotus 1, 2, 3. 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? If it goes the way I want it to when 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 work station. The work station had client accounts and like a Unix internal email system, like an internet kind of a thing. But there was no other way to simulate.

4:06You had to do it by hand. So I said, well, I can do my charts by hand, which is how Ed and Michael did it. So I borrowed from them. 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 back test. 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 back test 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. You want to have the confidence of knowing what worked yesterday and then the year before that.

5:06Now, some of you were 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, 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 0708. Right? How would you have done post, you know, we just had 911. 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

6:06A 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. 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 and I'd had, if I had 5K, I'd put the other 4K in a high yield savings account as a drive 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 it if this they get discouraged too soon and they move on. 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 called Embracing the Suck, right?

7:07And in my own life, I can share with you after having started Jiu Jitsu, after the age of 50, it sucked. It was the worst. I hated it. There were at least two days where I didn't, I usually got dressed at the gym. And there were days where I was so afraid. This God's on his 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. 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. The shame and humility that I felt. No one knew it. I'm living by myself with Madame Dog. Where's the Madame Dog? I could. Yeah, she is. She's under the sits by my feet.

8:08The humility that I felt like, 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 and if it was a sparring class, I can't remember what it probably was. Some classes are hard to have drills and some have compahada. It is like a sparring class. 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. 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. 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 I was getting used to passing guard. But I think 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.

9:09Job number one is to not lose money. Your job as a speculator, even if you want to trade four times your capital in today, your number one job always, even besides trying to make money, is to place superior defense. Like I said yesterday or so about the scalpers, they know if they pile in for 10, 20,000 shares on something that risk in a nickel. And if that nickel is hit, like below the gun, 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. 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.

10:11I'm a pro. You talk to somebody else. You talk to Steve or Mike at SMB. They might have different opinion on it because they have a specific way of trading. So they, 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 watch baseball every day. I get 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. And he saw Willie Mays play at Polo Grounds 1951. It was rookie year. Watch 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. When you look up a guy since past away from cancer, he was big, dipper with tobacco in his face, which is, you don't need, you don't need that. His name is Tony Gwyn. And he was widely regarded as one of the better hitters ever to play the game.

11:15Left handed hitter played for the Padres. He kind of popularized the five and a half hole. And there's videos of him and YouTube with a T. And a T 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 up in front of you and inside to emulate pitches when they try to jam 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 hit and balls off the tee. And there's a guy who's a pro hitter. And he's one of the best ever and he's still hitting off the tee. Now 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.

12:21Test 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 those, that kind of results. Most people can't trade like Paul Tudor Jones, right? And 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. Focus on having say three, four, five names on your watch list and then trade those. And exhibit the consistent behaviors that this way when you look at the results that you get, you could say, hey, I did everything consistent. 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. Do you see what I'm saying? But I would do that and take solace in the fact that it's not costing you money.

13:25The 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? Well, because it's the day after day part, the jiu jitsu part for me, when 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, when 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. There are four of us left who started around the same time and all black belts now. And there must be thousands of people who had all the ability in the world.

14:28They had all the athleticism in the world, but the 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 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 jiu jitsu who are going to world championship and Campionato Brazoiero. They don't even really lift weights. They do farmer carries. They do things for natural strengths, maybe pull natural strength. They pull ups or whatever. They're not big on the weights though. They lose the speed, the quickness to mobility. So the biggest part of all of this, whether you go try jiu jitsu to get even to a blue belt,

15:32you 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? I have it written down here. To do the things that you don't want to do, remember I talked about the Andy Huberman. Andy, like I know him. Andy, Andrew Huberman with Gaggins, 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, teach 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. I had fundamentals at six and then the sparring class at seven. So that's two and a half hours. And I did that consistently for five years between for all of blue and all of purple.

16:40Then I started teaching in the classes where we're a little different starting it 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. Now I just have to go, maybe I don't trade five 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 PNL. You'll make money over time. You'll know the expected value of your trade and you'll be able to define what your edges. Once you can do that, you're in a great place to start.

17:40And that to me is the benefit of simulation. And if I was starting all over with the money that I had, forget, remember, it's like 13K and today's dollars. 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 and drive 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 Intervoys of Trading at Trade and Mindset. And I'll see you tomorrow.