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How to grow your trading account: Demo trading and its benefits

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Question of the day

would you allow a doctor who has not honed his skills treat you?

In my last Forex post , i was talking about how to implement a trading strategy and i said in that post that a trading strategy must be verifiable.

Demo trading is one of the ways to verify a trading strategy. In this post I will be writing about demo trading and why one should demo trade.

What is demo trading?

According to investopedia,a paper trade is a simulated trade that allows an investor to practice buying and selling without risking real money. Investopedia defines a demo account as a type of account offered by trading platforms, which is funded with fake money that enables a prospective customer to experiment with the trading platform and its various features, before deciding to set up a real account funded with the customers actual money.  Demo trading is trading using virtual money in order to verify a strategy in real time . Demo trading helps you to ubunderstand how to use a trading plareform. The main aim of demo trading is to prepare you for live trading.

How does demo trading work?

In demo trading, a certain amount of virtual money is given to you and you are allowed to trade with it as if you are trading live. Demo trading works like live trading , however it is virtual money and the emotions of real trading is not present with demo trading.

Is demo trading really useful?

Most new traders don't want to demo trade. When I was starting up too, i didn't like demo trading but i have a question for those who do not see importance in demo trading

what makes an athlete succeed in their field?

You will agree with me that it takes practice and simulating real life events. This is what demo trading does too.

Demo trading is as useful as making money from Forex trading and i must emphasize this

if you are going to start trading, you must demo trade. This is a must

Demo trading helps you to discover the type of trader you are. It will show you if you are a discretionary trader or a mechanical trader. I will talk about types of traders in my next post.

Another important thing about demo trading is that will help you discover your threshold for duration of your trades. Personally, i like to earn something every day that means i like day trading. Some other people like to leave their screens and do other things and come back after a week to see their trades. In summary , some people are scalpers, others are intraday trader while others are swing traders. Demo trading helps you identify what type you are.

Demo trading helps you identify the best time for you to trade. Most people feel that trading when both London and new York session overlap is the best. However, if you are in Australia, you might be far asleep by that time. Demo trading helps you identify the best time to trade. There is no best time to trade. What is best is relative and dependent on the individual.

Demo trading helps you identify the pairs that work with your strategy. When I was demo trading , i discovered that most of my successful trade was from the EUR/USD pair. So I decided to stick to trading this pair. Other people might prefer the AUD/USD pair. You need to demo trade to find this out.

Demo trading also helps you identify trades with high probability and profitability setup. I feel this is the most important part of demo trading. A trade with high probability is what you need as a trader . If you are able to find high probability set up consistently with a very good risk management strategy, you are unstoppable

How long should you demo trade?

I have heard a lot of people say things about this particular question. I have heard some people say three months and other people say 6 months. I have also heard other people use profit to determine how long one should demo trade. Some say when you have doubled your account three to four time. In my opinion, there should be different criteria that should determine whether you should transition to live trading. They include;

  1. Making profits consistently
  2. Applying proper risk management strategy on all your trades..
  3. Following your trading strategy in all your trades
  4. Double your demo account two times
  5. Get Adequate Forex education

The above criteria would take you nothing less than six months to achieve. It can also take you two years.
If you are able to do all the five listed above, you have a 99% chance of making it as a successful trader .

What broker is best for demo trading?

I have heard things about brokers rigging trades and i think some brokers do. So my advice will be for you to use the broker you want to use for your live trading. I have some brokers I can recommend. Xm is a good one and FXTM is also good.

In my next post, i will be writing about what you should focus on when demo trading.

References

  1. Investopedia
  2. Pixabay
Thank you for reading