Why you need a broker DEMO account in Forex
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On our Forex brokers page we provide a list of brokers that provide demo accounts FOR FREE. In the column titled ‘DEMO ACCOUNT’ simply click a link to open a demo account and trade in a risk free environment free of charge.
In this video we discuss the importance of a demo trading account. The reason why we felt it was necessary to include this video is because a lot of traders out there start trading in live markets first, rather than in a demo account. Further, a large portion of those that do use a demo account, don’t use it long enough because they seem to develop ‘fake’ confidence that they can trade in live markets – only to realise that they get burnt in the long run.
Practice your trading strategies
You will always need to practice your trading strategies. We have been doing this long enough to know that people change and mould strategies they have been taught into their own versions – and rightly so. But, even if you follow what you have been taught to the fullest extent, you still need to develop confidence within yourself towards that strategy because it is NOT YOUR STRATEGY – it is something that someone else has taught you. Therefore, if you are going to follow step-by-step rules from someone else (like us) you need to make sure you have a clear one month minimum worth of successful data for that strategy. This is why you need to use a demo account and it is this that will build up the required confidence and confirm that your adopted strategy works.
You can make mistakes in your Forex demo account but you can’t make mistakes in your live account. The market simply won’t forgive you because it does not care whether you win or lose. The market is always right; you need to adapt to it and that is why a demo account is so important. If anything, use it to confirm the success rate of your trading strategy.
Familiarise yourself with market conditions
As we said earlier, the market doesn’t care about you or what you trade. For some reason traders fail to know that and also fail to accept that they cannot be right 100% of the time. The truth is that there is always going to be some factor, event or speech that will turn the market into the opposite direction to the one you are trading in. This is nothing to do with you and it is not your fault but this will never change. So, losses are a part of trading and it is up to you to control those losses and the more familiar with market conditions you are the easier it is going to be.
Just remember that the market moves in different directions because of factors that have nothing to do with you. It is up to you to get familiar with the effecting factors, the resulting market conditions/movement and simply be prepared.
Acquire professional trader’s DISCIPLINE
This point is something that any Forex professional will confirm; DISCIPLINE is the most important characteristic that a trader should have. Even though it is important to know what and when to trade it is also important to know when not to trade. However, to stay away from the market, knowing that you’re not going to make any money is a very hard thing to do. Unfortunately, people trade when they are bored or because they haven’t reached their financial target for the day – you cannot do this. These are characteristics of traders that fail.
If you want to be a successful trader you need to know when to stay away from the market. If there is any doubt towards a trading set-up that you have seen then you need to be disciplined enough to not click the order button. The worst part is, if you’re wrong you will see the trade that you purposely didn’t enter shoot towards your target and you will say to yourself “I wish I took that trade”. To control this emotion and not let it influence the same scenario next time is very hard. If you succeed however, you are half way there because if you don’t trade, you don’t lose. If you trade incorrectly you do lose so ensure you have the required discipline to be strong and confident towards your decisions.
Mastering of money management
Money management is something that a lot of hedge funds or trading floor managers keep a very close eye on. It comes in many formats, for example – you could give yourself a $100 daily loss limit or $5 depending on your available investment. The amount is not important (as long as it is relative to your investment) but if you stick to your rules; that is a good example of a form of money management.
If you set a daily limit of say $10 and you lose $5 in your first trade, you know that you cannot simply increase investment in your next trade. In fact, you need to decrease the amount to around $2.50 in each trade. Losses incurred should only be regained through good money management techniques, even if that means you have to trade twice to break-even again.
If you ignore this and double-up in the next trade, what happens if you also lose that trade? The answer is that you are in a much worse position then you were before and you probably took out your daily limit now. So, help yourself by using money management and practice it in a demo account because tomorrow will bring new opportunities even if you failed today.
Experience without risk
You need to feel the wrath of losses and see how it affects you and how you react to it. Risk is obviously zero as this is a demo account but it will prepare you for when you trade in your live account. It is screen time (looking at and analysing charts) that will give you the experience and the knowledge that you need to take into the live market. If you trade in a demo account for a month and you are still not confident then keep trading it; there is no time limit to mastering what needs to be mastered.
90% of traders fail. Why is this? Trading should be easy because it is simply a case of following a few rules. However, it is not a case of being right all the time because losses are a part of trading. But, if you are not psychologically prepared to take those losses, to take yourself out of the market or to pick yourself up after everything negative that can possibly happened has happened; it may not be your time yet.
You need more time in the demo account because these negative factors can mentally scar a trader. You need to be strong and prepare yourself. For example, if you have been taking a hit throughout the week and you end up moving your stop loss further away, you must go back to the demo account because you have broken one of your rules here. You should never move your stop loss if the trade has suddenly reversed towards you.
Trading is a psychological battle between yourself and yourself only – it is not a battle between you and the market. You need to make sure that you are confident and when you’re WRONG, you are happy enough that tomorrow will bring brand new opportunities.