When you start out trading, often the first bit of advice that is given to you is to use a demo account, keep using a demo account until you perfect your strategy. While this isn’t necessarily bad advice, it is, however, advice that can lead you into a sense of false confidence. Yes, we agree that using a demo account is great, to begin with, however, there are a few things that you should keep in mind for when you move over to a live account.
Reduction in Emotion
When you are trading on a demo account, there is nothing to lose, which means all of the stress that comes with a loss is not there, make a loss and you shrug it off, blow the account, just open up a new one and all that money is back. This isn’t how it will work on a real account, each and every loss is you losing something of yours, this can be devastating to some, we have seen people lost thousands, others have lost $10 yet it can have the same psychological effect on someone and can be hard to take.
These negatives can cause a snowball effect and can cause some people to chase losses which can lead to more losses and even account closure and debts. It can also work for winning, your first winning trade on a demo account feels ok, but nothing special when you compare it to your first winning trade on a live account, it is a fantastic feeling, just don’t let it get into your head, stick to the strategy and you will have many more wins, don’t start trading just because you are on a high of the previous win.
The Need for Greed
If you were to ask someone if they are a greedy person, they will 90% of the time say no, watching someone trade is a good way to see the truth. We touched briefly on it in the previous post, but when you make a winning trade, that is actual money coming into your account, real money that you can withdraw and spend, it feels great, but I want more. Maybe I could get more by putting in trade here or there, obviously, these are not in line with my strategy but they could make me more money. My trade is going the wrong way, let me just move my stop loss further down so it doesn’t close because it will definitely turn. My trade is going the right way, let me move my take profit level higher so I can make a bit extra.
These are all things that we have done on a live account, but never ever think of doing it on a demo account, simply because we can make some money. These are not good habits to have, you set these initial trades or limits for a reason, stick with them, do not change them just because you think you could squeeze a little extra out of the markets, the markets will not be afraid to take it all back from you.
This works in a similar way to the emotions, there is no risk when trading on a demo account if you lose, you aren’t losing anything, but in the same way, if you win, you aren’t actually winning anything (apart from the knowledge of course). On a live account, seeing your balance going up or down can have a huge psychological impact, when it goes up, you are full of confidence and on a high, but when it goes down, it can really impact on your confidence and desire to continue learning.
So how do you avoid these sorts of things? It isn’t easy, any professional trader will tell you that, the hardest part of trading is taking out the emotion and sticking to your strategy, especially when things are starting to go wrong. Ensure that you are sticking to your plan, you created a strategy on the demo account, stick to the exact same on a live account, think of it as a process and try not to look at the profits, you could even hide them on your trading platform.
Ensure that you are using a trading journal, both on the demo account and on the live account, this way you will continue to use what is working and will be able to see if you are changing anything fro the demo account, allowing you to stop and move back towards your strategy.
It is a big change going from demo to live trading, but ensuring that you are fully prepared and taking your time not to rush into things are the first steps in becoming a successful live trader.