In this article we will discuss the fact that the results in your demo account are likely to contrast significantly with the results in your live account.
When most people start trading, they think that their results when trading with virtual money will be the same when trading with real money. Of course, this is almost never the case. The reason for this is that a person’s emotions impact very significantly on their ability to make decisions when it comes to real money. Let’s examine why this happens and give some tips to try to diminish this important aspect.
To begin with, I want to make it clear that I have nothing against demo accounts. Any beginner should use a demo account to familiarize themselves with the basic mechanisms of their trading platform. It also allows people to practice specific strategies and determine their validity before doing so with real money. Another good use is when a trader is on a bad streak, it’s good to spend some time on a demo account. When a trader is having a succession of losing trades, his brain is so focused on money that no matter what he does, everything goes wrong. Switching to a demo account can relieve that pressure and remind you that you still know how to trade well.
As I said before, one of the biggest advantages of demo accounts is to try new strategies without risking real money. However, the results of a demo account are generally not the same when switching to a live account.
To begin with, there is a basic reason why trading a demo account seems “easier”. The reason is that the virtual money used can be reloaded at any time, and started again. So what’s the risk? There is no risk. If you screw up, it can simply start over without any consequence or penalty. This takes a huge pressure off you. You could pop 5 accounts and win big with one. But that doesn’t mean that you will be able to repeat that great gain on an account again. This is the first aspect to consider with a demo account, but there are other factors more important than this.
Suppose we have already accepted the obvious reasons why a demo account is not a 100% accurate predictor of real account results. Suppose you have some idea of what you are doing, using proper risk management, have a good strategy and have been consistently delivering good results on your demo account. The reality is that it is much easier to follow the rules when there is no real money at stake. A trader’s emotions are much stronger when trading real money than when trading a demo. If you don’t believe me, you may not have traded real money for a long time. With real money you will be tempted to make a number of mistakes out of fear or greed: move your stop beyond what was determined at the beginning, exit a winning position before reaching the established level, open positions that did not meet all the prerequisites, open positions to “avenge” a previous loss, etc. I can continue to mention many of these errors and you yourself will possibly have your own list of “errors” that you could add.
How do you make your results with real money look like your results in a demo account?
The first thing is to start trading using small positions with real money. Don’t start by risking what you would think is normal to risk. If you are trading very small positions, you will not ruin your account, but you will learn what mistakes you make now that you are trading in a live account. Even if you are risking small amounts of money on each trade, your brain will work differently than it would when trading on a demo account.
Once you start making mistakes trading real money as described above, take note of what happens. Write down the mistakes that went through your mind, why you made that decision and why what you did was wrong. The next step is to write a solution to this problem. This will allow you to develop valuable “rules” that will protect you from your own emotions when trading Forex. In my opinion, it is not easy (but far from impossible) to correct these errors before you feel the pain of losing money due to the error (even if it is a very small amount you risk by trading).
Continue this process until you become more consistent following your trading plan. Of course, you will never eliminate new errors completely, but following this process will help you become much more consistent in following your plan and not deviate from your strategy.
This article may be a brief explanation of how to minimize the impact of moving from a demo account to a real account, but I would like to emphasize how important it is to start by risking small amounts of real money. Don’t trade in a demo account forever because you only get certain levels of experience. Trade your demo account until you have a basic trading plan (with your own trading system and a money management plan) with which you feel comfortable trading. At that point, trade small trades on a live account and you will be able to improve your trading levels much faster than if you continued trading on your demo account for months on end.