Some of you are probably wondering”Is it possible to hone my forex trading skills before risking money trading live?The answer is a resounding You can hone your skills on what we call a demo account. In fact I suggest you learn how to trade on your demo account as if you are trading live. Think of your demo account as a lab where you test your price action strategies and learn how to execute them before deciding whether you are ready to trade live or not. Instead of plunging straight into the lion’s den called the live market, you can take your time fine-tuning your price action trading skills. You take your time to learn when to enter a trade and when not to enter a trade. Once you’ve mastered this technique, you’re ready to go live.
So we’ll what we always do.We’ll start by defining what a demo account is.Then I’ll show you crucial tips on how to trade on a a demo account as if you are trading live.
What Is a Demo Account?
Well a forex demo account is a training took especially for beginner traders to practice trading forex with virtual money and current market data. Like i indicated earlier,think of your demo account as your virtual lab where you try out all your price action strategies before risking your money live. It’s also a stress-free way to try out your trading plans, time frames and different styles as well. The demo account set up is very similar to the live account in that you have your charts,market information all set up for you to analyze. The only difference being you’re trading virtual cash as opposed to real cash. You do not have deal with the emotional stress of losing money while you trade. In other words,you’re pretending to trade a real account for the purposes of honing your skills before going live.
It’s Absolutely Free
Oh!Did I tell you it’s free?If I didn’t, sorry about that. Yes, it’s absolutely free. You don’t have to deposit a dime, unlike your live account. As a matter of fact, your broker provides the virtual cash for you to trade around with. The cash ranges from $1000 – $50000.However, I’d strongly suggest you choose the amount you know you can afford to trade when you decide to trade live. If you know you don’t have $50,000 of physical cash sitting around, don’t choose a $50,000 virtual account to mess around with. If you plan on trading with $1000 of real cash, then trade with $1000 on your virtual account. The whole idea is to trade $1000 of virtual cash as if you’re trading on a live account. This way,when you decide to trade live, you are better ready to handle the pressure that comes with trading live on the forex market
Now let’s see what A Demo Account platform looks like.
As you can see a demo forex trading account is no different from a live account platform. The charts are nicely lined up for your analysis, and the market prices to the left are there for your choosing. So you see, everything is lined up at your convenience.Your job is simply to practice all those price action strategies to a Tee until you’re ready to go live.
Now that we know what a forex trading demo account is all bout. The logical question is
How Do I Learn How To Trade on My Demo Account Like I’m Trading Live?
Well first you
Choose A Trading Strategy that Suits Your Personality
Choosing a trading strategy that suits your personality is absolutely paramount. Is the strategy too slow or complex for you? Does it fit your schedule Are you open to trading on a 15 minute time frame?Or do you prefer taking your time on a larger time frame? These are questions you need to address while choosing the price action pattern that you want to trade with.
The one thing that you absolutely do not want to do is pick on a silver bullet strategy. Don’t pick on a strategy that promises you green grass and instead leave you with nothing but seaweed. Say you visit a forex trading website and you find a forex strategy that promises you 50 pips a day. You pick the strategy because of its spectacular win/loss ratio. This is good,but that does it suit your needs?Thisg oes back to the questions I posed earlier in the previous paragraph. If you don’t answer these questions, satisfatorily, you will be left holding a lot of seaweed.
Trade With A Realistic Account Size
I think I touched on this point earlier,and I’m gonna hammer on this point again. It makes no sense trading a $50,000 virtual account when you have only $1000 to trade with. Sure you may feel the adrenaline running through your veins when make $200 -$300 dollar trades when trading with $50000 virtual dollars. However,you don’t feel that same adrenaline surge when trading live on a $1000 account.. So you say to yourself “Well how do I solve this problem?”And the answer is :Choose a $1000 and trade as if you’re trading a$1000 account.” In other words, trade virtually, but with a live trading mindset. So that when come time to trade live, you would have cultivated the discipline and patience to trade live.
Now some of you wondering”Why can I trade $50,000?” Well for starters, you wont treat it like real money. Look it’s one thing pretending you are treating your demo account as a real account. But to pretend you’re $50,0000 richer, when in reality you only have $1000 in your live account? That’s flirting with danger. Just make you cultivate the mindset of trading with a $1000 on your demo account and you should make an easy transition to the live market.
Wanna know the second reason why you shouldn’t trade $50,000?Simple. You’d be tempted overleverage on your live trading account. Let’s say you’ve been trading$50,000 of virtual money . And that you’re used to making huge profits ranging from $1000-$5000. When you transition to your $1000 live account, still carrying your $50,000 mindset, you will experience a huge void. Why? because a $1000 account does not give you the leverage to make those $5000 returns that you so crave. Consequently, you’ll be forced to gamble more,which of course could do serious damage to your forex trading account. It will be like trading on steroids. Now if you have $50,000 sitting in your live account, that’s a different story. But so long as you are getting started with only $10000, just make sure your nose is still intact.
Make Sure Your Price Action Charts Are Clean
If you want to get a clear view of the price action on your screen, make sure your price action charts are spotlessly clean. You want to see every single candlestick in plain view without those weird indicators clogging the screen and making your price chart look like a thick fog. Ever driven a car through fog?That’s what it feels like with those indicators. They form those squiggly lines on the screen to the point that they compress the price action on the charts. And when that happens, it’s very difficult to make sense of the price movement on the charts.
But when the price chart is fog-free without indicator interference, everything become crystal clear.You have no misty indicators to grapple with. Instead you have clear price charts with the candlesticks in plain view. Even more important, you have all the information at your finger tips as to the happenings on the market. At the risk of sounding like a broken record, let me show you the difference between a clean price action chart and an indicator-clogged price action chart
Notice how spotless the price chart looks. The price chart is devoid of indicators and it’s also easy on the eyes. Everybody candlestick is telling its own story as to the movement on the market. Even more important, you have lots of real estate to work with while you do your analysis. Basically the larger the price chart space, the easier it is to spot key levels and patterns. It doesn’t matter which trading strategy you choose, so long as you have more room on your screen to work with.
Now let’s take a look at a price chart with those nasty indicators
Now one look at this price chart will give anybody a tsunami-sized headache. See hown three indicators have completely crowded out the price action on the screen.How can anybody identify the key levels and patterns in this mess? It’s nothing but total confusion on the screen right now. And it’s definitely not easy on the eyes at all. Anybody looking at the screen for the first time will be wondering “Am I analyzing the indicators or the price action?”
Next up is:
Keep A Close Eye on Your Trading Performance
If you want to know how well your trading strategies are working for you on your demo account, then keep a close eye on your trading performance.Fortunately Metatrading 4(The trading software,in case you’ve forgotten) takes care of those analytics takes care of those analytics for you. The demo trade report is no different from that of a live account. Here is what a demo trade report looks like, in case you’ve forgotten
Here is a little sample of the MT4 demo trading account report. Everything is nicely labelled for your convenience. You are left in no doubt as where you are as far as your trading performance goes.
However, there is more to trading a demo account than getting MTV to give you a printout of your trading performance. While you test your trading strategy, you should cultivate good trading habits and chuck the ugly bad habits out the window. The best way to hold yourself accountable is to manually keep track of your trades and results.This is very important because trading on a demo account is the only time you get to access a price action set up objectively without risking your money.
This will definitely come in handy as you trade live with real money. By then your emotions will have startf running wild like a Californian bush fire, especially when you are tempted to risk more money than you need. This is where you apply what you’ve learnt on your demo account to the tee. Even more important.make sure you leave your ego outside your living when making that transition from demo trading to real money trading. Why?because when your position turns against you, your hurt pride causes to go for more than necessary.And when that happens,your trading account becomes the innocent victim.
I guess the appropriate question will be
Which Trading Performance Indicators should I Be Concentrating On?
Well here a few performance indicators that I’d keep track of if I were you:
- Currency Pair
- Stop Loss
- Profit Target
- Planned RR Ratio(Planned Risk:Reward Ratio)
Of all the above indicators, the summary is considered the most important.Why is that so? Because e you have to explain the thinking behind you taking the trade. You have to make the outside world understand what caused to go for that trade opportunity. The rest pretty much explain themselves.
Give Your Trading Strategy Time To Find Its Rhythm
Just like anything in life you need time and patience to get to your destination. This is no different with perfecting your trading strategy on your demo account. You need to give your trading strategy time to find its rhythm on the chart. You need to learn how to identify your trading strategy on the chart and make your trade entry. You also need to know when to make your exit when it runs its course. Even more important,make sure it’s profitable and that it fits your trading personality. Even more importantly, it must fit your needs.
I can hear some of you asking”How much time should I waste learning how to execute my strategy?” Well,I suggest you waste so much time your brain cells can’t take it anymore. Seriously though, you need to spend at least three months honing your skills before deciding whether you are ready to go live or not. Make sure the strategy fits your personality and your schedule. You do not want to pick a daily time frame when you know in your soul that you have a million things to do during the day.
That’s a wrap for ” Trade Your Demo Account As If You’re Trading Live” It’s important that you spend as much time perfecting your trading strategy before deciding to go live. Spend more time applying best practices to your trading. You want to make sure that you pick more good habits than the bad habits. Once you get that ratio right, then you know you are ready to trade live. Once you apply the above tips,your growth as a trader will shoot to heights that will blow your mind.
Til next time take care.
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