Forex demo trading; why is it necessary and how long should you do it?
• WHY is forex demo trading necessary?
Many beginning forex traders feel the urge to jump head first into the market with real money. While this is a very tempting thing to do, it is never the best route to take for a variety of reasons. First off, you need to get familiar with the functionality of your particular brokers trading system. Many traders end up committing silly forex trading mistakes as a result of not fully understanding how the particular broker’s entry system they are using works. Some of these trading mistakes include things like not entering the correct position size or trading the currency pair, it sounds silly, but it happens. The last thing you need when starting off your forex trading career is to commit these types of silly error as a result of not having enough patience to learn how your trading platform works via a demo account.
Another big reason to trade on a demo account before switching to a live account is the fact that you need to practice your forex trading strategy and make sure it actually gives you a high probability edge before you try it out with real money. It is important that you know what are you looking for before you dive head first into the market with your hard earned money. If you don’t know what the market must look like before you enter than you are essentially just gambling. So, it is important you define this information on a demo account and make sure it actually works before committing any real money.
• How long should you demo trade?
Many traders are unsure how long they should demo trade before switching to a live trading account. This is a very good question but unfortunately does not have any definitive answer. The minimum you should demo trade your forex strategy is probably about 2 months, ideally 3. But the bottom line is that you need to demo trade until your particular forex trading strategy is bringing you consistently weekly profits. There is some truth to the notion that if you can’t profit on a demo account, you will not be able to profit on a live account. In fact, many traders find success while demo trading and then switch to a live account and find out that it is an entirely different ball game. So, you need to be careful that you do not become over confident as you demo trade because demo trading is quite different from live trading. The reason it is different is because there is literally NO emotion involved while demo trading due to the simple fact that there is no real money on the line. So, while demo trading is a necessary and effective tool for your trading success, it should not be used as a crutch, because ultimately you will need to switch over to a live trading account to really prove yourself.
Click here for Part 4: Forex Trading success is a marathon not a sprint.
