Sunday, 7 November 2010

Demo Trading


After my online research and reading Currency Trading for Dummies, the next logical step for me was to open a FXCM Demo Account. I must admit on initially downloading the Trading Station II Platform, I felt as though I did not have a clue.  There were all these flashing red and blue boxes, and all kinds of options, sell, buy, stop, limit & entry.  Then there were the charts with erratic candlesticks all over the screen.  This got me thinking how on earth had people learnt to trade this business before demo trading was an option.  

After a few days familiarising myself with the Trading Platform, watching tutorials and cross referencing with my book, I started to gain a little understanding and began to look for candlestick reversal patterns that I had studied.  I had some losses, but was also able to test and practice trades. The Demo Trading I was doing gave me invaluable experiences as I had made different mistakes such as pressing the buy instead of sell, picking the wrong currency pair and a few other silly mistakes.  

Fast forward four weeks and I was £7,000 up.  Yes unbelievable, looking back it was the worst possible result I could have had.  I was amazed, I thought I can actually do this, I can make serious money, give up the day job and live on the Costa-del-Sol, just with the press of a few buttons on my new Forex Trading Station II Platform.  HOW WRONG WAS I.....

The Positives of Demo Trading, (which still remain positives today):
1) Demo trading costs nothing
2) Allows you to develop and test systems without risk
3) Most importantly, allows you to learn how to use the Trading Platform effectively.  

The Negatives of Demo Trading:
1) Account size (which I will blog about later).  Most demo accounts give you £50,000 to trade with, most beginners have considerably less.  This in my opinion can make trading with discipline and patience much more difficult.  Also the large profits made on you £50,000 demo account are much less likely with for example a £1000 account.
2) No understanding of real risk.  It is an advantage to be able to trade without risk, but this leaves an important element out of the art of trading.  Trading psychology is important, it feels very different when your hard earned money is on the line.  The Demo Account saves you from potential massive losses whilst learning, but does not teach you anything about dealing with the emotions you will feel once that account balance is connected to your wallet.

To summarise, if I was to start again, which I have done recently at this time of writing, it would to be Demo Trade profitably between 2 - 3 months before going live.

Discipline and conscious control over emotional state are the 2 factors that determine Forex Winners or Losers

2 comments:

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  2. So what happened next? Good post - I'm intrigued to know how you got on? though to be honest you probably need to do more than read 1 book by a couple of dummies and then expect to become master of the universe. Trading professionally for a fund it took me a whole year of 14hr days in front of Market Depth ladders before I was consistently profitable and let loose on a live account. try www.learntotradethemarkets.com as a pointer in the right direction.

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