Beginner forex traders are advised to trade through a demo account first before risking real money on a live trading account. Here are a couple of ways on how to make the most out of your demo trading practice:
1. Treat it like a real account.
How would you feel if the money you are currently practicing with was real and how will you deal with the loss? By imagining that you are actually trading real money instead of demo dollars, you can convince yourself to focus more and to be more careful with your trading decisions.
The problem with some traders that have been on a demo account for a while is that they no longer feel the pain of a loss, knowing that there’s no real money at stake after all. Instead of preparing their trading skills and psychology for the rigors of trading on a live account, they practice less caution when trading on demo. This defeats the purpose of practicing before moving on to live trading.
To address this issue, you can consider imposing penalties on yourself when you lose a trade or make a bad trading decision. For instance, you can have a money jar wherein you would require yourself to put a proportional amount to your loss. If you lost $1000 demo dollars, you can put $10 in the jar. If you lost $500 demo dollars, you should put $5 in the money jar.
Conversely, you can also reward yourself for winning trades. With the money jar example, you can take $10 for a $1000 win on your demo account then you can use this cash to treat yourself to dessert or a cup of your favorite coffee.
2. Give yourself grades.
Trading is a continuous process of learning and, just as in school, you can come up with grades for your performance for a particular period. This will encourage you to review your trade journal and evaluate yourself beyond the profit and loss figures.
The reason for this is that trading is more than just about the profit and loss. Although these hard numbers ultimately determine how well you did on your trading activity, there is always room for improvement if you take time to figure out what you did wrong and what you can work on.
By giving yourself grades, you’ll be able to gauge if you are doing better or worse as you progress in your trading career. Consecutive periods of low grades should urge you to take a step back and figure out what you should change with your trading.