Effectiveness of Using a Forex Demo Account With Your Trading

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How to Use a Demo Account to Improve Trading Performance

Becoming a successful trader involves practice, lots of practice. Demo accounts allow us to practice without risking real capital. Learn the pros and cons of demo accounts, and how to get the most out of the experience so it actually benefits you when you switch to trading real money.

If your trading journey is just starting, or even if you are an experienced trader trying out a new strategy, a demo account is your best friend. If you’re brand new, the demo account allows you try out strategies, see what works, and spot your personal strengths and weaknesses. If you already have some strategies you’ve created or learned, the demo account gives you the opportunity to practice that strategy, fine-tune it, make it second-nature, and assess the strategy’s profitability.

Demo trading uses real market prices, but instead of placing real trades, your trades are simulated so no actual money changes hands. Demo accounts are free to use, offered by many brokers, and are a good way to see how various markets and assets move, practice capitalizing on those moves, and develop strategies.

The Goal of Demo Trading

The goal of demo trading isn’t to make as much money as possible. Interestingly, that shouldn’t even be our goal with live trading!

The goal of making money isn’t specific enough. Making money requires a methodical trading approach and a well laid out trading plan. Your only goal in demo trading is to create such a plan and then follow it. Following a plan is success, because a plan produces repeatable results. Follow a plan and if over several months you’ve made a profit, likely you can continue to produce profits. Random demo trades, which by chance produce a profit, are not repeatable.

When you open a demo account make it your goal to create a plan and follow it. That way you know if the plan works. If it doesn’t you can rule that strategy out, and focus on something else.

Following a plan isn’t easy. Our minds will want to place trades which aren’t part of our plan, or skip trades that are. Our mind may want to hold onto losing trades, letting them mount, or cut profits and losses too quickly. All these errors are caused by emotion. We can’t get rid of emotion, but we can learn how to control our emotions so we do the right thing.

The added benefit of demo trading is that we get to work on our discipline in a no-risk environment. As long as we continually only take the trades we are supposed to, we are building our discipline muscles. Discipline only increases by being disciplined. There are no short-cuts.

Some traders view the demo account as a playground because there is no risk. They take big risks, make trades that aren’t part of a strategy, and follow their impulses instead of a method. When this occurs the demo account loses its effectiveness. The demo account is only effective if you treat it with respect and only take the trades that align with your trading plan. Do this, and you set yourself up well for the eventual switch to live trading once you are consistently profitable in the demo account.

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The Demo Account Should Mirror Your Circumstances

Eventually, you’ll want to take your winning strategy from the demo account to a live account and make real money. To feel confident that what worked in the demo account will work in the real world, try to make the demo account experience as real as possible.

  • When trading a demo account think of it as real. It’s fake money, but if you wouldn’t try a certain tactic with real money, don’t try it with play money. Stay disciplined. Play money or not, this is your practice ground. Don’t practice bad habits. Only practice building good habits.
  • Your demo account should reflect the monetary value of what your real account will be. If you have $10,000 saved for day trading, your demo account should also start out with $10,000. Don’t trade a $1,000,000 demo account if you only have $5,000 for live trading. Trading the former will not properly prepare you for trading the latter. See How Much Money Do I Need to Become a Day Trader for more on the recommended capital for day trading.
  • Your demo software/platform should be the same software/platform you intend to use in live trading. Part of demo trading is becoming comfortable with your trading platform and broker. Never start live trading with an untested/unknown platform.

Practice Trading Anytime

The best way to practice day trading or swing trading that I have come across is the Market Replay Simulator. A market replay simulator allows the trader to download historical trading days and then trade them as if they were live. Place orders and see how they would have turned out as the price unfolds tick by tick, revealing exactly what you would have seen had you been trading that day live.

I typically only day trade for two hours a day. When I started trading futures, I would demo trade one day for two hours and then have to wait till the next day to practice trading that same two-hour period. By downloading historical days and then trading them, I was able to get two or three days worth of practice into one, and could even practice on the weekend. The more days I traded, and the more conditions I saw, the more confident I felt switching over to live capital once I started seeing consistent profits in the demo account.

I began trading in 2005, and even with more than 13 years of experience, I still find replay simulators to be a valuable tool and use them regularly to work on issues I notice in my trading. If you aren’t using one, you may be unnecessarily putting yourself at a disadvantage.

Forex replay simulator: The SoftFx Forex Simulator is for traders who want to practice forex trading using the MetaTrader4 platform with an advanced simulator providing access to 10 years of historical days to trade in 33 currency pairs and several commodities and stock indexes. The software has a one-time fee of $99 (only works on PC, not Macs). The nice thing about this simulator is that if you are a forex trader most brokers offer MT4, so you can gain experience on the platform while you practice. MT4 is a free trading platform.

Futures replay simulator: NinjaTrader, a popular futures trading platform, offers a Market Replay connection. You can download a free demo account that lasts for about 30 days, and use the market replay connection for free during that time. While using the replay connection is free, if you decide to trade live with NinjaTrader, the platform costs $999, or is free if you trade through one of their affiliated brokers (trade commissions are increased if the platform is not purchased).

Stock replay simulator: TradingSim works best for replaying and practicing on stocks. The simulator costs $297/year, per market (futures are also available, but NinjaTrader is a viable free option).

Differences Between Demo and Live Trading

Your demo trading may go fantastic, pulling in loads of money, yet often demo account conditions are more favorable than live market conditions. If you account for the following factors, which reduce profitability, is your demo method still likely going to viable in the real world? If the method isn’t going to be profitable in live conditions, focus your time on something that will be.

  • Fear: In live trading there’s fear, in demo trading there isn’t. Make the demo experience as real as possible. Pretend the money is real. Fear distorts our perceptions and can cause us to question our trading plan, skip trade signals, take trades we shouldn’t, get out of trades too early, or let losses mount. Condition yourself for this in the demo account, and it’ll play less of a role in your live trading. Risking 1% (or less) of account capital on each trade will also help keep anxiety at bay once you start live trading.
  • Slippage: In demo trading, you usually get the price you want. Your entries and stop loss orders fill at the price you specify. In the real market that doesn’t always happen. Market orders may fill at a different price than expected (slippage), and stop loss orders are especially susceptible to slippage when the price is moving quickly against you. Assume that some losses will be bigger than anticipated. Is the demo strategy still profitable?
  • Position size: Usually in a demo account you’ll receive the position size you request, no matter what it is. If you want 2000 shares of a fast moving stock, you get 2000 shares. That may not always be possible in the live market. In the live market your orders affect how other traders act. You may only get 100, 300 or 900 shares because other traders want in too, leaving you with a smaller position on “good” trades that are quickly moving in your favor. Unfortunately, you’ll get the full 2000, or whatever amount you wanted, if the price is moving against you. “Partial fills” greatly affect profitability. View the Level II screen of the stocks/futures/currencies you trade to make sure the market can actually give you the position sizes (with ease) that you’re practicing with.

Download my Forex Strategies Guide For Day and Swing Traders. Over 300 pages of Forex basics and 20+ Forex strategies for profiting in the 24-hours-a-day Forex market. This isn’t just an eBook, it’s a course to build your skill step-by-step.

Final Word on Demo Trading

Treat a demo account like a real account. What you do here determines your future success. Get into good habits, like following a plan, setting up the account to mirror your circumstances, and training yourself on the software. Imagine how fear will affect you when real money is on the line, and push through it, sticking to your plan. Account for slippage and partials fills. Is your method still profitable when accounting for these realities? The more precise you make your demo trading, the easier it’ll be to transition those precise methods into the live market, and start making real money.

Consider using a market replay simulator to get in more practice during times when you usually wouldn’t be trading.

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Forex trading advisor and its effectiveness

The efficiency of trading on the Forex market depends on many factors. For example, some traders achieve great success in currency trading thanks to the so-called trading advisors, which are in fact automatic trading systems.

What is a forex advisor? And what is the efficiency of using automated systems for trading currencies?

To begin with, the trading advisor is a computer program that works with a trading terminal according to a certain algorithm. Most of the advisers currently have the mq4 extension, as well as the ex4 extension. Such trading advisors work quite well with modern trading terminals, which leading Forex companies provide to traders.

Programs with the mq4 extension have open source, which makes it possible to change the algorithms of the advisor, based on the strategy of a single trader. As for the ex4 advisors, they do not provide ample opportunities for code correction, which means that they do not allow adjusting the action algorithms with the terminal in large ranges.

A forex expert advisor can be fully automatic, it can itself perform technical analysis, and it can stop or open a trading order. If such an adviser works as it should, then the trader will be spared from having to be at the computer or other devices throughout the day. Also, such a trading advisor will not let the trader lose sight of the important events occurring in the foreign exchange market.

A semi-automated forex advisor is an auxiliary trading tool, its functionality and capabilities are limited. Such programs are able to perform for a trader only a part of the work, but the most important steps, in any case, will be done by a person.

How to choose an automated trading system?

1. You need to initially look for an advisor with a trading direction that suits your trading strategy. It is important that the adviser be able to handle multiple currency pairs.

2. The performance of the trading platform is of great importance. The performance depends on how well the adviser is suitable for your plans and the size of your deposit. The same advisor may work well for one trader but interfere with pursuing the tasks set by another.

Forex advisor is an important trading tool that allows you to automate the work with the terminal, save your time and increase your profits.

Forex Trading Basics- Setting up a Demo Account

It’s no secret that if you want to become an expert in something, you must practice. There is no short cut to success. Have you ever come across the 10,000 hours rule? According to this rule, if you want to be an expert at anything, you must be ready to practice for at least 10,000 hours. It applies in every aspect of life, and Forex trading is no exception.

Forex trading is easy, especially for professional traders. In the eyes of an expert trader, it looks quite simple and understandable. But in the eyes of a newbie, Forex trading may seem complicated and risky. So, how do you learn to trade Forex without having to risk your hard-earned money? The secret lies in the forex trading demo account. In this article, you will learn everything about the demo account, from how to create them, their advantages and disadvantages, and where you can create one.

What’s a Forex Demo Trading Account?

A Forex demo trading account is a virtual account that allows you to trade with virtual money. A demo account simulates a live account. The only difference is that you are trading with virtual money. Demo trading accounts are risk-free, and you stand to lose nothing. Both novice and professional traders can use demo trading accounts. For instance, if a professional trader wants to test a particular strategy, they will use a demo trading account to do so. Since there is no risk of losing capital, traders can learn and gain experience while using demo accounts.

What are the Features of a Demo Account?

As highlighted earlier, demo accounts provide a safe platform for traders to learn and earn experience in trading the stock market. Demo trading accounts have different features depending on the provider of the platform. Some of the standard features of demo accounts include:

1. Charts

Many demo trading accounts have critical charts, especially when trading currency pairs. Without these charts, it would be almost impossible to know the most profitable trends in the market. A demo trading account will help you explore and interpret charts and also implement a variety of charting tools.

2. Analysis of Trading Tools

Every Forex trader will need indicators for technical analysis and other critical tools to trade Forex. These tools help you to pinpoint the best place to enter and exit a trade. With a demo trading account, you can try as many times as possible until you find the best point to enter the trade.

3. Market Research

Market indicators are only useful when you can read the market trends. For instance, you need to know the basics of candlestick analysis to trade effectively. A demo trading account is an excellent platform to master these nuances.

Many demo trading accounts provide tools to test market trends. The Forex market is always shifting. For instance, you can have particular currency pairs showing good profits in Asia while others are performing better in the London trading session. Trading with a demo account will enable you to observe these trends and determine the best time to trade in a particular Forex market.

What are the Advantages of a Demo Trading Account?

When many people start trading Forex, they know little or nothing about Forex. If you decide to learn by trading with a live account, it may cost you a deposit. So, the best thing is to register for a risk-free demo account. With a demo account, you will make mistakes, but you will learn from them without having to lose your money.

Another advantage of using a demo trading account is that you get a chance to test the quality of services offered by your broker. With a demo account, you can check the effectiveness of their platform and the tools that they provide.

Lastly, a demo trading account gives you first-hand experience. You can learn a lot about Forex by reading books, attending seminars, and watching videos, but nothing can beat the experience of learning on a demo platform.

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    Binarium

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  • Binomo
    Binomo

    Only For Experienced Traders!

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