Yes you read it right. Demo trading account is dangerous. The reason for this is that most beginners are seeing demo trading account as a way of verifying that they can make money with their strategy. You would think that is smart way to do it. First practise and then use real money in the markets. But the truth is that most traders can’t translate successful demo trading into tracings successfully with real money. The reason for this is quite simple. If you don’t put money on the line then you are eliminating one the most important variables that has a huge impact on your trading decision: the psychological pressure of risking your own money! This is just one of the reason why demo trading is dangerous. In this article we will explain why playing demo trading account too long can be dangerous for your development as a good trader and of course we will tell you how to use the demo trading account the right way.
Playing demo trading account too long can be dangerous for your development as a trader
1) Fake trading mistakes has no real impact. When things has no real impact most people won’t do their best to find out of what went wrong to become a better trader. Even worse some might think no worries , I didn’t lose real money it is just a demo. I would never lose when i play with real money. Practising/playing on your demo trading account for to long is like playing a friendly soccer match. It has not many real value. Because you don’t lose something real if your trades went bad and you don’t gain much when your trades go well.
2) One of the main reason why beginners/practitioners don’t make money is that they cut profitable trades and keep the losing trades going on. Now why is that? This happens mostly to beginners/practitioners when they just started to use real money after a long time practising on a demo account. The reason for this when they are facing a potential loss , they don’t see it as a real loss unless they close the trade. So what happens next is that they keep waiting while the lost is getting bigger and bigger. Then they start hoping and wishing for losing lesser on their trades. In the end those traders usually close their trades at huge loss or lose it all. On the other hand, when traders see that their trade is in profit, they fear that price may change in the opposite direction any second and eat up their profits And because of that most traders are closing their winning trades too early. In a demo trading account you will never find these kind of psychological pressure and although it may suck if you lose on demo, but it does not really matter.
You cannot pretend and treat demo-trading like as if it is trading real money. Why? Because there is no real money on the line and you KNOW that. Treating demo-trading as if it is real-money is like eating a Big-Mac and pretending it is a salad.-
How to use demo trading account the right way?
There a few ways to use the demo trading account in your advantage.
- A demo trading account is a great way for you to get used your brokers platform and gives you an insight of how real trading works. And you can test without damaging your money. You can open a demo trading account at Plus500 by clicking here. Try out different tools, indicators or settings, watch how they behave, place some sample trades, see how position sizing works and observe what happens on the charts during a trading day. At Markets.com and Avatrade.com they also have a serie of video seminar on trading. So go and check them out here and here
- A demo trading account really comes in handy is when you are separating the charting from execution. The cool thing about a demo trading account is that you can do all the charting, following prices and then you wait until you get a buying signal. When you get the buying signal then you need to go over to your real money account, tick in your order and execute your trade. After that you close your real money platform and go back to your demo-platform. The reason for this is that most traders screw up when they are watching their trades in real time and see their money account balance going up and down with every tick. Some traders are sensitive for this and therefore are likely to mess around with their trade when they are actually watching it. By separating execution from your money account, you make it harder for yourself to mess things up and you create a more objective view of your trade.
What have you learned?
For absolute beginners trading on a demo trading account is a must! But only for a small period of time. Once you have figured out how to execute a trade and know how use your trading tools on the trading platform such as the stop loss , charting and so on. Then it is time for you to practise with real money.