The differences between the virtual world and the reality in forex trading can be observed while demo trading. Most forex traders constantly win while practicing with demo account. They enter the right trades and let them run long enough to collect the pips. However, when it comes to real accounts, the tables are turned! High demo trading margins are no longer available and psychologically you are simply more stressed over your own money! The question is, can demo accounts teach you something or are they simply useless? Is there a way to set yourself as free in trading live as you are while trading demo?
First of all, the issue with demo trading is a common thing. Most traders make huge amount of profits in the virtual world, but fail to make a cent once they go live. In my opinion, demo accounts are useful to understand the trading platform, try out new strategies and figure out your trading plan. Once you figure out these trading factors, it is better to move on to live account right away. Of course you should trade very small amounts in the beginning in order to make a smooth transition and work on your trading psychology. This is the only way you can bring the real trading emotions out.
Forex trading is not all about strategy. Demo trading is a proof of it. Your psychological state of mind is much more important for the success. Most traders suffer from indecision which results in eventual wipeout. Closing out too early on a good trades, or don’t cutting early enough on the loser trades are the common issues of every trader.
While demo trading, it is important to use the amount of money you intend to invest in the real account, otherwise you won’t be able to really test your trading system and find the black holes which can blow your account up.
It is important to analyze you trades and be honest with yourself. This is your chance to find out the problem in the trading system. Real money or virtual, big or small amounts, the trades have to remain the same. When practicing forex trading, it is important to treat virtual trading environment not any less than the real money settings.
Most important thing of all is to not give up. Some traders lose their faith after an unfortunate sequence of losses. It is heartbreaking to see your system bail on you, however the real challenge is to keep trading. You have to move forward in order to learn and finally understand what forex is all about. This does not include trading recklessly, but you have to figure out a way to terminate the fear and hesitation. After all, these weaknesses are your worst rivals!
My main point is that if you follow the strategy with clearly defined entries and exist with good risk management and money management and you still in loss, there is definitely something wrong with the strategy. In this case you have to redefine the strategy or build a new one based on the collected experience.
As for psychological aspect of forex trading, there is no simple answer. Every trader is unique and what may work for others might not work for you. This is something you have to figure out on your own.
Your losses are the price you pay to learn forex. Losses are not failure or mistake. It should not be treated as a negative part of trading. On the opposite, with every loss you move forward and improve your trading psychology. Since we are not robots and we most probably cannot trade after we die, it is important to work on your emotions. I suggest writing a journal with trading log and even your feelings during each trade. Every little detail can be extremely useful for self analysis later on.
Psychology is important in this profession. To become successful forex trader, you have to:
- Train your mind to trust your methods, rules, money management and risk management.
- Treat virtual money as your own while practicing with demo account.
- Explain your forex trading system even if you are with a hangover after a wild party the night before!
- Make scrupulous notes on everything related to your trades and analyze the current outcomes of the trades along with the other possible outcomes of the trades.
- Stop chasing losses. Revenge trading never works.
- Prove to yourself that your trading way is the best (at least for you!)
- Accept losses as the down payment for the obtained experience and future success.
- Make a rule to replay trades in your mind at the end of the day.
- Develop and adjust your instincts. Train yourself to use emotions for your benefit.
- Be afraid to ignore your rules. Emphasize the amount of money lost in case you ignore the rules.
Good luck finding a trader within you!
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