First of all, I will like to take this opportunity to wish everyone here a Merry & Happy Christmas.
If you are a reader of my blog or you are a student of my course, you will find that I emphasize a lot on demo trading. I always advice people to trade on a demo account first and wait till they are able to generate consecutive months of profits in their demo trading before they moved to live trading.
In fact, I have received emails from readers and students asking me why they can’t go straight to live trading and make real money. Therefore I will like to use this post to talk about this topic so that you guys know the importance of demo trading.
Below are why I emphasize a lot on demo trading
1) Discipline & Patience – The problem with most new traders is they tend to be very eager to get into action. Because of that eagerness, they tend to enter trades that are not 100% according to their trading plan.
Let me ask you a question. When you find yourself getting stopped out in a trade, do you feel that you wanted to quickly enter another trade to recoup back the losses?
I bet most of you answered YES for the above question and that is also why most of you ended up with your account totally wiped out after some time.
When you are dealing with your real money, your emotion starts to kick in once you incur a loss. This emotion will cause you to enter trades that are not according to your trading plan.
That is why you should trade on a demo account first and on the demo account, you will not have those urge of entering another trade just to recoup back the losses as no real money is involved.
If you manage to trade according to the plan and manage to get 2 consecutive months of winning with the strategy, you now have faith in the strategy and even when you are trading with a live account, your faith in it will stopped you from entering trades that are not according to the plan.
This is because you know that this strategy will eventually make you profits by the end of the month and there is no need for you to rush into a trade.
Only people who had success in their demo trading have faith in their strategy and therefore have the discipline to stick to the strategy.
It is also through demo trading that traders built their patience in trading. Because of the fact that you believe in your strategy as you manage to make consecutive months of profits in your demo account, you will have the patience to wait for a trade even if it takes a few days to occur.
For most new traders, they wanted to trade everyday and the reason why I know that is I am also a new trader once. This mindset will lead you to enter trades that are not according to plan and this is to me gambling on the market and not trading the market.
2) Execution Skills – Besides training your discipline and patience, the demo account is the best place for you to perfect your execution skills of a strategy.
Some of you thought that you can start to make money from trading one day from taking a forex course. This is completely wrong as learning a strategy from a course is not the same as executing a strategy on real trading.
This is the same as mathematics. You can spend the whole day memorizing various maths formulas. But if you do not put them to practice on an assessment book, you will still find that you do not know when to apply them and you may apply the wrong formula on a question.
Therefore mathematics is pretty similar to trading, you will need to practice what you have learned on a demo account until you are able to execute those strategies perfectly before you moved to live trading. Once you manage to produce at least 2 months of consecutive profits on your demo account, then I can say that you are ready to trade live.
3) Reliability of a Strategy – Whenever you learned a new strategy, you must always have the habit of putting it to test on a demo account to see if it is really profitable or not before you trade live with it. You are the last defense for your hard earned money. Therefore testing out a strategy on a demo can prevent you from losing your real money due to a lousy strategy that you have learned.
The above are 3 main reasons why I always bugged you guys to trade on a demo account before you go live and I really hope that it sinks into your brain so that you can really be able to trade profitably one day like me.