When you start trading you’re always told not to rush straight into a live trading account but to open up a demo account instead. This is to save you making costly mistakes and to make sure you really know what you’re doing before you head out into the ‘real world’ and use real money. Starting with a demo account rather than a live trading account is a good idea, but there are some drawbacks.
The main problem that people have with using a demo account is that they use it for far too long before making the switch to a live trading account. They wait until they are making solid ‘profits’ on the demo account, giving themselves lots of screen time and what they might think of as experience, and then go to a live trading account only to find that they lose money and can’t seem to get anywhere. And why is this? It’s because they’ve become immune to losing – lose using a demo account and you can just start all over again. So it doesn’t matter and trades that just make no sense are made because they can be.
Do that in real life and you’ll have big problems as many people tend to find out to their detriment.
It’s true – a live trading account is not the same as a demo account, even though a demo account is used to practice trading on. It’s not the trading that’s different though; it’s the mindset needed to develop the mental skills to trade profitably when you get to a real trading account. Think of a demo account as a simulator. It will give you the basic skills, but just as a pilot has to get out and fly in the sky at some point, so too does a trade need to get out and trade with their own, real money.
Demo accounts are only there to give you a taste of what it will be like when you set up a live trading account. They’re not real and they don’t exactly replicate what a live trading account is really like – demo accounts usually have different prices and order fills, even different stop out levels. So it’s no wonder that a demo account will never match up exactly to a live trading account.
Bearing this in mind, you’ll need to realise that a demo trading account will not and cannot teach you as much as actually trading can. If your aim is to make money from trading then you’ll need a real live trading account and you’ll need it sooner rather than later. Be careful though; yes you need to use a live trading account but that doesn’t mean you have to use every penny you have on your first handful of trades. Take it slowly, build up a good pot of money, be wary, and always stick to your charts.
When you use a demo account you’ll gain a false sense of confidence about how good you are at trading. When you take that confidence and apply it to a live trading account you’ll soon see that it was misplaced confidence and that you need to start all over again (perhaps literally if you weren’t careful on your first few trades and you’ve lost a lot of money).
Think back to your demo account and think of the emotions involved in winning or losing – it’s likely that there weren’t any. You just accepted the fact that you had gained or lost and moved on to the next trade. Why? Because it wasn’t your money, and it meant nothing to you.
This is actually something very valuable that you can take with you to your live trading account. Emotions can cloud judgement and can persuade traders that it’s okay to make a trade even when their chart says it’s not. You may have just lost some money and you want to make it back quickly, so you pick a trade that is half right. That’s a bad idea. You may just have won some money and you want to continue with your ‘winning streak’ so you make a trade that you wouldn’t normally touch. Another bad idea.
Emotions can get the better of your knowledge, so try to ignore them as best you can – this takes practice.