How long should I trade demo accounts before trading live?
I believe this is one of the most commonly asked questions when you just started trading.
“I’m making money. Let’s cash in!”
You just opened a new demo account. You entered a few trades for fun and made some demo money and you start thinking
“Well this doesn’t seem too hard!”, “if I traded live, I would’ve made some real cash!”
Well we all know what happens next…
The main purpose of trading demo accounts.
The main purpose of trading demo accounts should be focused on these 2 key points.
1) Understanding your trading platform
Learning how the platform works is your main purpose of trading demo. Be it mt4, mt5 or ctrader platforms, trading demo is to familiarize yourself with all the buttons and features of your trading platform. If you still have to think how to use specific functions or have trouble locating buttons, it’s a sign that you still need to practice on demo.
2) Understanding order types
You will need to understand how to place orders depending on your trading system, be it straight execution, pending orders, setting take profits and stop losses or modifying existing orders. Try out different orders and learn how all of them work!
Okay Trade Minim, now we’ve done going through. I’ve understood how everything works, I know how different orders work, can I go live now? Well the answer is NO. Here are the next steps you’ll need to list down before going Live.
Transitioning from demo to live, how to know you are ready.
1) Do you have a trading system?
Imagine driving a car without learning how to drive. Yeah that’s you, crashing into the side lane once you go live if you don’t have a trading system in place. Always have a process in place. The key points of a trading system should be rules to guide you on how you enter your trades and how you exit them. You need to have a process in place. Once you have a process to guide you then let’s move on to the next step.
2) Is your system profitable?
A simple question that most traders fail to answer. Because everyone wants to get in the action to make money but few are willing to put in the hard work that makes it possible!
You have a trading system or a process in place, but is it profitable? Back-test your system to test your entry and exit rules. Just like everything else in life, the more you practice, the better you get. Things that were scary in the past are now second nature, like swimming, driving even dating. Back-testing helps you understand the profitability and the nature of your trading system. If it’s not profitable, tweak it! Change variables and test out which works, and which doesn’t.
Once you developed a trading process, then you develop the habit. Once you developed the habit, then you will start creating the profit.
Remember the main goal of trading is to make PIPS, money comes from risks once you learn how to make pips.
Once you have a process that makes pips, then you start risking money.
3) Set correct expectations
Even after all your practice on demo, back-testing, you need to understand that live trading experience will be completely different from demo trading because real money is involved this time. Your palms will sweat, your heart seems to beat faster and these are common symptoms.
Start with small lot sizes first so you can test your emotional control. Never risk more than 1% of your capital when you just started out. If you find you have emotional issues, then go back to demo trading while you fix yourself. Once you fix the emotional issues, then start trading small again. Now you are testing yourself again, for results between entry/exit, ability to control your fears, and skills to apply your plan properly.
Once you have gone through these 3 processes, you can transition to start trading live. Know that these are the steps to guide you, but you will still need to go through disappointments and psychology struggles. Remember to always focus on your progress, your trading process and your emotional control, never focus on the end goal or money.
A successful trader isn’t inborn, it’s the process that gives birth to a successful trader.