2.2 Demo Trading to Hone Your Forex Skills
Now when you have decided to go ahead after knowing that you can make good money in Forex trading but you should not carry the “Millionaire Overnight” dream, we would suggest that you familiarize yourself with how trading works. You can start doing that on parallel, with demo trading, while you learn further.
A great feature of the Forex market and its brokers is the availability of demo trading platforms that work just like the real accounts with real market prices. Best of all, these are totally free! So you can do pretty much all you want without the fear of losing money. This way you can try out your understanding of the market, test various trading strategies and generally get a feel of the platform before you risk any hard-earned money of your own.
Even going for a demo trading phase, you still have to learn a lot and those lessons are yet to come. However, opening a practice account will surely help you in getting acquainted with the Forex terms and other basics you have learned so far.
Given this facility, we feel that you should have a long session of demo trading before you start live (real) trading. Here are the advantages:
- You get used to the platform and see if you like it.
- Along with the demo account you are usually given access to other services of the broker such as research, news feeds and trading calls.
- Since these accounts come with a fairly large opening equity account, you can try out various experiments and use it for your learning curve without extinguishing the account.
- Sufficient trading with a demo account will alert you to your trading and psychological mistakes which you can correct before you risk real money.
- Margin and leveraged trading can be experienced beforehand to understand its risks.
- Enhance your ability to place orders correctly and in a timely fashion – this is an absolute must for success as a trader.
- Back-testing of trading strategies is possible taking the real spread into account.
In fact it may be best not to go live unless you are consistently earning paper profits on your demo account.
Key Points to Follow while you practice
Treat it as Real Account and Set an Objective
DON'T GO WILD. Yes, demo trading is exactly same as the real trading BUT you are not putting your real money in it. With many of the demo trading accounts there are no restriction of funds. You lose your money and you have more to play with. Do not, repeat DO NOT start using your demo platform like a game. Trading is not gambling.
The first and most important point is to set up an objective and follow that all through with complete discipline. Treat your demo account as your real account and risk only the amounts you would when you go live. Be with the demo account till you start achieving your profits objective consistently.
Which Currency Pairs To Trade for Practice?
It is always recommended to trade with few selected currency pairs. More we trade with a currency pair, more understanding we develop about the possible behavior. Currency pairs differ in the following way:
- Average Volatility
- Session wise volatility
- Impact of various economic releases
Which Time Frames To Trade?
If you are a part-time trader, the convenient times for you will be early mornings and late evenings. You need to check on the global trading sessions and possible overlaps at those times. See which times will be better to trade and which need to be avoided. You don't have to - scratch that - you should not trade all the time.
You also need to decide the time-frame of charts you wish to trade with. If you plan to trade with very short-term positions then short term time frame charts are good, however, for longer-term trades you need to go for longer-term charts. Always keep your eyes on longer time frame charts to know about the overall trends and use short-er term charts to decide on the entry points.
Make a checklist for strategies you wish to follow and allot an optimum time period to test those strategies to decide whether you would use those strategies or would like to ignore those. It is always better not to change successfully tried strategies very randomly and very frequently.
Prepare a trading journal to keep a record of your trades. Refer it time and again to check on past mistakes.
Forex Demo Account Vs. Trading with Real Account
Please note that demo trading is a very important step to start the real Forex trading career and it should be taken very seriously. The time you spend on your Forex demo platform should be utilized to refine yourself as a better and more disciplined trader rather to prove that you are already a great trader - No, you are not - at least till you succeed not one or two or ten times but consistently.
- Demo Trading to Hone Your Skills