By Your Trading Mentor
I TRADED ON A DEMO ACCOUNT FOR ABOUT A WEEK
I was told it was a good idea to trade on a demo account for several months before moving onto a live trading account. This is good advice but I didn’t listen to it. To be honest I got bored on a demo account and I really didn’t learn much about trading until I put real money on the line. But having said that I also self taught and didn’t have a trading mentor to tell me the correct approach. So this is what I tell my trading students and what I wish someone had told me when I first started trading forex.
DEMO ACCOUNTS ARE COMPLETELY DIFFERENT TO LIVE ACCOUNTS BUT THEY DO HAVE THEIR PLACE
There is a well known phenomena in forex trading where everyone seems to make thousands of pounds with no problem on a demo trading account which leads them believe they are the best trader in the world, and then as soon as they switch to live trading with hopeful enthusiasm they end up losing all their money because they weren’t quite prepared for how big a role trading psychology plays in your ability to trade well. There is an excellent book on this subject called Trading In The Zone which i’ll amazon link here
but if you can’t be bothered to read a whole book then the summery is basically that the trick to making money as a forex trader is to not care about money and to focus on trading well instead. Ironically most traders when they first start trading actually care the most about making money, it’s what made them decide to be a trader in the first place. They were so confident when it was pretend demo money and then as soon as it was their life savings, the trader fear kicked in and suddenly they started second guessing every trade, closing it early, the second it fluctuated in the opposite direction, only to watch it go back the way they originally thought it was going as soon as it was closed at a loss. Ever been here? If you answered ‘no’ you’re probably still trading on demo.
DEMO TRADING IS GOOD FOR NAVIGATION
So while a demo trading account doesn’t actually prepare you for certain elements of trading psychology, what it does do very nicely is to give you practice navigating your way around a trading platform. Sometimes these can seem confusing at first. I use MetaTrader which I now find super easy but I can remember the day when I was tearing my hair out thinking it was the most complicated thing in the world. You definitely don’t want to be going through this while you have real money on the line. You want to be fully fluent in the platform you use, knowing exactly how to adjust the lot sizes when needed, where to place your stop loss and take profit and exactly how to close the trade. You also want to be able see all the trades you have closed, your profit and loss and how to add currency pairs to you watchlist.
ALWAYS DEVELOP NEW STRATEGIES ON DEMO ACCOUNTS
Not only do you want to be fully fluent in the trading platform you are using before you switch from demo trading to live trading but you also want to be happy with your strategy on demo first. This is the stage which I missed out and I wish I’d taken a bit more time and care over. I tested out my strategy on a live account which pretty much meant I lost all of my money, because that’s what happens when you develop your own strategy. Even when you are trading a pre-tested strategy which your trading mentor has given you, its still advisable to start off on demo. There are so many nuances in trading and it’s just far safer to have a couple test drives with play money first.
NOTHING BEATS THE REAL THING
Having said all of this, if you tell me you are bored on demo and it feels like it doesn’t mean anything to you and you’re not learning, I do understand. This is exactly how I felt as well. While it’s clever to spend a bit of time on a demo trading account I do honestly believe there is such a thing as spending too long on one. Nothing is going to make you pay attention to the way the financial markets moves quite like having real money at stake, even if its the smallest lot size possible and the trade has only gone £2 against you, you will still be paying attention and staring at those candles intensely as they move up and down.
Love from your Trading Mentor x