Practice trading
Trading your plan in real time with fake money, then tiny money, before anything bigger.
The dress rehearsal
A backtest shows how your rules did on the past. But the past is already finished. A means trading your plan live, in real time, as new candles appear, but with fake money or tiny money.
It's the dress rehearsal before opening night.
Why bother after a backtest?
Because a backtest can't test you. In a backtest, you see the result a second later. In real time:
- You have to sit through the waiting, while price wiggles toward your stop.
- You have to spot the setup quickly, live, without scrolling back.
- You have to actually take the trade when it comes, even after three losses in a row.
A forward test also checks the backtest. If the strategy looked great on the past but does poorly over the next 50 live trades, maybe it was overfit, or maybe you aren't trading it the same way.
Step 1: paper trading
means making pretend trades with fake money. Most brokers and charting apps have a (also called a simulator, or "sim") that works like the real thing with play money.
How to do it right:
- Use a pretend account the same size as the money you'd really use. Practicing with a fake $1,000,000 teaches bad habits if you'll really have $2,000.
- Follow your plan exactly, including risk per trade and your daily loss limit.
- Journal every trade, just like it was real.
- Collect a lot of trades, like 50 or more, before you judge it.
The catch with fake money
Fake money doesn't feel like real money. Fear and greed are quiet when nothing is at stake. Plenty of people trade great in practice, then fall apart with real money. So paper trading is a must, but it's not the last step.
Step 2: tiny real money
Next comes real money at the smallest size you can. In futures, help a lot:
- One MNQ (micro Nasdaq 100) moves $2 per point, one tenth of the full-size NQ at $20 per point.
- One MES (micro S&P 500) moves $5 per point, one tenth of the full-size ES at $50 per point.
The goal of this step isn't to make money. It's to see if you can follow your plan when the money is real, even if it's small. If your results look like your practice results, great. If they're worse, your feelings are getting in the way, and your journal will show you where.
When to move up
Grow slowly, and only when your numbers earn it. Here's one example rule: "After 50 real trades where I followed my plan at least 9 times out of 10, and my results are positive, I can add one more micro contract."
And if you hit your big stop rule, you go back down a step. There's no shame in it. Good traders do it too.
Remember
- A forward test means trading your plan in real time, with fake money or tiny money.
- It tests you, not just the rules: patience, speed and actually following through.
- Practice with a fake account the same size as your real one, and journal everything.
- Move to the smallest real size next, and grow only when your numbers earn it.
Check yourself
1. What can a forward test check that a backtest can't?
2. You'll really trade with $2,000. How big should your practice account be?
3. One MES moves $5 per point. How much is a 4-point move on one MES?
4. What's the main goal when you first trade tiny real money?
Next lesson: Reading your results
Money Tree School is education, not financial advice. Examples use made-up or historical numbers to show how things work; they are not recommendations to buy or sell anything. Markets can lose money.