(STL.News) Studies have shown that around 70 percent of traders have live accounts, but 63 percent of those are losing money on a regular basis. Surely, though, the whole point of trading is to make money? To make a profit? Why then are more than half of traders losing so much? The answer is that it all comes down to practice. The more trial and error you allow for at the start, the less error you’ll need to contend with at the end, when you really should be making more money than losing it. Yet it can be difficult; all this trialing and practicing can be expensive. Unless, of course, you use a demo account to practice on. This can be the ideal way to make sure you’re entirely ready to go for it and use real money to trade with. The question is, of course, when do you know you’re ready to make the switch? How long should you trade demo before going live? The following applies to trading stocks and forex exchange.
The Learning Experience
It’s a difficult question to answer in some ways – there are so many variables that come into play. One thing that you must be sure of before you come away from demo trading and start trading for real is that you know the basics of marketing. This means you have a strategy at hand that you are confident in; it needs to have an entry point, an exit point, and you need to know how to leave the trade if you need to should something go wrong.
Having this information in your arsenal is going to benefit you greatly when you change from demo trading to live trading. Without it, and without having a trading chart that you can rely on to give you profitable trades the majority of the time (remember, there is no way to win one hundred percent of the time, so be sure that you can afford to lose whatever you are treading with), you just won’t be ready to trade live profitably.
The great thing about demo trading is that you can spend time but not money in getting your strategy and your trading charts exactly how you want them. Since everyone wants something different out of trading and everyone works in a different way, creating your own charts and ways of working is essential; copying someone else’s just won’t work for you, and it will be harder to understand.
Are You Trading or Gambling?
Knowing the difference between trading and gambling is crucial. If you’re doing the former, you may well be ready to trade live. If it’s the latter, you’re definitely not. How can you tell the difference? It’s easy. When you are a trader you understand how to make a profit; you’re not guessing or hoping for the best. You have a strategy at hand. When you’re gambling, it’s likely you’ll be playing on a hunch, or even picking trades at random. This is no way to be profitable, and the likelihood is that you will lose much more than you ever win. Although you will still lose when trading – because everyone does – you won’t lose as much, and you will certainly be more successful than if you are gambling.
You Need To Earn It
Some people say that demo accounts aren’t any good because you don’t experience the same emotions are you would with a live account. You’re not using real money, you’re not actually winning or losing, so it won’t give you the same feeling. Or they might say that because they only trade with small amounts, if they lose while they’re learning they won’t really be affected.
The truth is, emotions are useful when it comes to trading. It’s far better to think in technical, analytical terms than it is to be emotional about it. In fact, being emotional is a good way to lose more – you will try to claw back your losses or you’ll think you’re on a ‘winning streak’ (which doesn’t exist) and keep going even if the charts say not to. So it’s far better to stick to the methods you know work because you have practiced them time and again on your demo account and not be swayed or tempted to stray from that path. Emotions are a profit killer. Once you have done all the groundwork you will have earned the ability to trade live, and you’ll know that your strategy is a good one.
Are You Logical and Methodical?
Perhaps when you first started you tried any and all trades on your demo account to see what worked for you. As time went on, though, did you stop that process and whittle the trades down to the ones you knew your strategy entailed? Did you stop trading when there was nothing suitable to trade? Did you start to put a plan in place? If so, that’s a great way to work – being logical and methodical in trading is a way to make more profits than losses.
It will take time to sift through all the information and advice that you’ll be surrounded by. Some of it will be good, but some needs to be ignored. While you’re working out which is which and you’re trying many different methods and ideas, a demo account is going to be the best course of action. Think of how many trades you can try out without fear of losing money; you’ll get to your goal more quickly and it won’t cost you a thing.
How long should you demo trade before going live? The answer is, it depends. It depends on how much work you put into creating your own trading strategy. It depends how much research you are willing to do. It depends how confident you are in the work you’ve done. So really it depends on you. Once you are confident and you know you can make a profit, then it’s time to make the switch.