No matter how hard you try, it will be impossible for you to climb up the trading ladder until you’ve learned how to risk live money.
Trading in the live market draws in psychological elements that are generally not experienced in a simulated environment. This, as you’ll see throughout the article, is the key difference…
As a new trader entering into the wonderful world of currency trading, you will have undoubtedly come across several traders promoting the benefits of using a demo account before transitioning over to a live account. We happen to agree with this, and believe that trading a demo account is incredibly helpful.
Although a practice account typically mitigates the psychological side of things, simulated trading provides a stage in which to develop and hone your trading method, begin creating a trading journal and familiarise yourself with how a platform functions.
It is often recommended that once you are recording consistent profits on demo, you can then begin thinking about taking the leap over to a live account. To begin with, we would not advise opening a live account with a huge sum of money. Why? Well, although you’re able to pin down consistent profits on demo, live trading is a completely different animal altogether! Think lion and tame house cat – that’s how much of a difference there is, traders!
Switching over from demo to live is often an exciting, yet slightly daunting, prospect for most. The typical trader often sees no reason why their demo results cannot be replicated on a live account. The trouble with this is that having your hard-earned money on the line will cause stronger emotions to materialize, which were masked when trading simulated funds. Sweaty palms, a dry mouth, a pounding heart beat and a swarm of butterflies in your stomach are common symptoms when one first experiences live trading. After all, it is never easy, especially in the earlier stages, watching real money fluctuate from positive to negative.
Live trading will also teach you things about yourself that you never knew existed! You may believe that you are a disciplined patient person now (and you may well have been on demo), but wait until there is real money on the line. This changes a lot of people!
In addition to the above, you may find yourself breaking trading rules once live money enters the equation. Things like moving stop losses, prematurely taking profits before the target is achieved and revenge trading are just some of the trading sins you may commit. Furthermore, in an attempt to prove that you can replicate your demo results, this could lead to overtrading, and sometimes even ignoring your trading plan altogether.
Ultimately, the method that you used to successfully trade on demo should not change. It’s the psychological side of things that will require work in live trading.
While there is never a guarantee that you’ll mirror your demo results, the following points should make the transition easier:
The above, of course, is not the be-all and end-all, but each point should help avoid emotionally-driven mistakes linked with live trading.
IC Markets is revolutionizing on-line forex trading; on-line traders are now able to gain access to pricing and liquidity previously only available to investment banks and high net worth individuals.