How Demo-Trading differs from Live-Trading

Beginner Questions
1

I want to stay OUT of the psychological aspects because we know that is obvious.

I am sure many who want to make the transition from demo to live wonder how their strategies/performance would be affected. Seamless transition is one of the most important considerations in your trading life.

Even if you simply test strategies on demo for use on live, you must consider that demo and live are different in terms of actual market behaviour. Brokers can only strive to replicate and simulate market behaviour as accurately as possible, but it will NEVER be perfect.

When you demo-trade, whether it be mini lots or hundreds of Lots, none of your trades have any affect to the liquidity or volatility that moves the market chart itself, because that is a real market graph built on real market trades - not fake demo trades.

Think about George Soros, the man they say broke the Bank of England, when he went short that netted him $1 billion. This is evidence that when trading large enough, an INDIVIDUAL with massive position can affect the market.

Try to take a position in the billions in demo-trading and you will see that nothing actually happens to the market situation. Why? Because your trade has nothing to do with the charts you are seeing, why would it? Your trade does not really exist in real-life. Your demo-trade exists in a world of it’s own that uses the real market chart only for cross-referencing, to help you determine a hypothetical P&L and other account information.

Your demo-trade and the market-chart data are mutually exclusive and have absolutely no direct connection or correlation, whereas real-trades actually MOVE the market and have a direct connection.

Do you think a multi-billion position in real life could have an affect in real life?

Of course it can be argued that nobody has enough money to open billion dollar positions.

Did we forget the cumulative nature of a position at specific price level??

If we were to suddenly have the ENTIRE trading world go long on one specific price, do you reallly think nothing would happen? What about a country or a city?

When people say nothing can affect the market, that is false because that assumes the market has infinite liquidity which it does not. Whilst it does have the best liquidity compared to many other investment exchanges this does not mean it is infallible.

In my opinion, the solution is, as soon as you become somewhat profitable in demo, you should switch to live with decent account balance immediately and cease demo-trading, as there IS a point in which continuing to demo-trade will yield diminishing returns. The rest of your strategy MUST be designed in live-forward-trading, because there will be aspects of live trading that demo trading and back-testing can never replicate.

You must consider the reality that if 95% of traders do almost the same thing, than that 95% majority are making choices that drive the market. In other words, LOSERS MOVE THE MARKET.

The difference is, in demo-trading you aren’t technically part of that 95% herd YET that make the same decisions – EVEN IF YOU LOSE EVERYTIME in DEMO, which for the purpose of strategy testing and development is a BAD thing because you really don’t get to experience the true nature of loss.

The only way to not be part of the 95% of the herd after demo-trading is to learn how to avoid the herd when you meet them during live-trading. If you don’t meet them in live-trading early, you will get the wrong idea of what it means to lose, an experience that you MUST have hopefully with not large amounts of money because you can count on percentages to keep you synchronized and relative.

Losers are driving the market when you think about it. It is the cumulative effect of their decisions that make things move.

2

I guess nobody ever told you that the 95% success rate applies to new [B]retail traders[/B]

Combine that with the fact that the retail forex market is known to be a small fraction of daily forex volumes, and the points in your post aren’t really applicable anymore.

Why do so many of your trading theories revolve around this 95% figure? Don’t you know it’s just an estimate anyways. You think 95% of big players, those ones that [I]actually[/I] move the market are losers? Don’t count on it!

3

Akea,

Yes. The big players do move the market. They tend to be the people on the OTHER side of the 95% of losers.

Like I said in another thread, everytime a stop-loss gets hit, somebody’s take-profit gets hit. Where do you think the big players are in this equation?

Of course they gladly assist in [I]receiving[/I] the moves of the market, afterall money has to go somewhere.

They just sit and wait for the losers to make the wrong choices - and take profit.

I use 95% loosely, sure it could be 90%, 98%, 93.6736%. But you get the idea that a VAST MAJORITY lose.

I use this 95% figure alot for MANY reasons because the impact of this figure is what actually holds the key to the holy grail if you think deep enough.

You can not be part of the 5% that win, if you don’t understand what the other 95% are doing wrong.

4

Personally I don’t think that the big players are waiting for the retail traders to make their moves before cleaning them up. Big players make their moves based off a lot of analysis of market factors and algos created by their in-house quantitative analysts. It just so happens that they make a little extra profit off the small retail guys along the way. Not because they’re gunning for that little pot of money but because retail traders are mostly not skilled and make wrong decisions compared to the resources and experience of these professional traders.

I don’t particularly see the advantage in trying to work out what the so-called 95% are doing wrong. Again this is just my opinion but my time is fairly limited and I’d prefer to spend my time on trying to figuring out just what works for me. I don’t really want to spend all my time working out the myriad mistakes made by retail traders as there’s so many possibilities there that just won’t apply to my trading style.

5

If 95% of traders lose. Do you think this is a small pot or a big pot?

How could the banks make money, if they are ONLY competing with other other intelligently skilled banks?

What a war that would be!!

Isn’t it easier to compete with the unprofessional?

Don’t underestimate how much the average guy funds the market. If the market didn’t need them there would be no use for internet retail trading at all. The world is much bigger than you think and it is easy to assume that not alot of people trade forex - wrong. Think about those 15-second commercials on prime-time television that promote trading forex, if there was no money to be made from a retail trader, why on earth spend $25,000 for a 15 second ad.

6

As a percentage of the overall forex market retail traders are a relatively small pot (I think I read 2% or so). Big banks are not falling over themselves devising all sorts of strategies to scoop up this comparatively small amount of money. Sorry, but we’re just not that important. They move the market based on far more important and quantifiable reasons than being contrary to what the retail trader thinks. What the retail trader thinks is mostly wrong because most retail traders just don’t have enough information and education to get it right and make plenty of other mistakes to boot too. So big banks move the market according to the underlying fundamental market factors and scoop up the bad choices made by retail traders as an added bonus. Big banks were making good money in the forex business long before retail traders with their trusty PC and internet connection showed up on the scene. Now they make good money plus a little extra.

It’s fine to take on the contrarian view to retail traders if you want. Though that means understanding all the possibly wildly different viewpoints that retail traders potentially might have across all the timeframes that they might be trading. Seems a hard group to quantify in my opinion. I see more value and self-reward in educating yourself to try and understand the fundamental market factors in play so that you can try to make more informed decisions yourself rather than trying to counter-guess the retail traders’ positions. But hey… each to their own I suppose.

7

Very good response PipBandit. I am relieved that there are still some intelligent people here. I’ll try my best to explain my viewpoint on this.

Why do they keep promoting mutual funds to the average person, if they were not interested in the capital of the average person? Trading being a very important technique to grow mutual funds.

Sorry, but we’re just not that important.

Come again? Banks don’t need people… at all? Last time I checked, the entire credit card industry is driven by people’s inability to pay debt immediately and impulse.

They move the market based on far more important and quantifiable reasons than being contrary to what the retail trader thinks.

Are you sure? Speculation is a big factor in market moves. I want you to consider this possibility. When Barak Obama “devalued” the U.S. dollar last week, did he literally go into some machine and said “Look U.S. dollar this is what you are worth now!” or do you think that the fact he SAID it actually was the cause of the dollar doing what it did last week?

I believe had Barak Obama said NOTHING, nothing would have happened last week. It was the panicky traders who took his statements (mostly the
losers) who made the market move again.

What the retail trader thinks is mostly wrong because most retail traders just don’t have enough information and education to get it right and make plenty of other mistakes to boot too.

EXACTLY! However, we have to be very careful where we get our education from. In a game that requires losers to win, is there any incentive to provide truthful education?

So big banks move the market according to the underlying fundamental market factors and scoop up the bd echoices made by retail traders as an added bonus.

Exactly, but I wouldn’t say this is a little added bonus. I think the significance is much bigger…

Big banks were making good money in the forex business long before retail traders with their trusty PC and internet connection showed up on the scene. Now they make good money plus a little extra.

This is a very good point and I have no response to this. Just for the sake of conversation, I would remind you that the electronic forex market started around the 1970’s if I’m not mistaken. Home personal Computers really did not come all that long-after in the grand scheme of things.

The market itself is relatively new. My parents had a Commodore 64, TANDY TRS-80 and a 300 bps modem when I was a kid in the early 80’s. I was downloading “free” software, well before today’s methods existed (not going to mention them). We used to have things called BBS’s which are non-existent today, that we used to dial-up with our modem and connect through a text-based interface. It sort of acted like a “mini” internet, definitely not the eye-candy we see today. Obviously being a kid, I was more concerned about video games than I was about candlesticks, so I don’t know what the status of forex was then.

Although this will be a stretch, I can not say it was impossible in the early 80’s to trade forex given that technology then was in fact feasible to make it happen.

I see more value and self-reward in educating yourself to try and understand the fundamental market factors in play so that you can try to make more informed decisions yourself rather than trying to counter-guess the retail traders’ positions. But hey… each to their own I suppose.

Yes, self-education is what I have been preaching this entire time. I have said constantly and consistently that you can ONLY teach yourself. This means your education can only come from one thing – screen time.

Anybody with a winning strategy is highly UNLIKELY to share it, because they would recognize the most important fact, that there are no winners without losers. Making everybody a winner will in fact will make the market self-destruct.

Only until you start winning, you will realize how important it is to protect your secret from exposition and destruction. If the food on your family dinner table comes from this, or your extravagant lifestyle, you would understand the motive. It is NOT selfish either for a winner to be this way because you could give a winning strategy to one person out of good faith to help them out - but God knows who THEY tell and the domino effect begins.

Therefore it is fruitless to try ‘traditional basics and strategy’ If they are made by winners then it is a LIE. If they are made by losers, then what is the point?

8

Of course banks are interested in the capital of people. They take it and put it to use themselves - one of the cornerstones of the fractional reserve banking system. Naturally they want it for their mutual funds business too as the more money they have in a fund the higher the commission they get every quarter. Quarterly management fees are usually a certain number of basis points of the fund’s overall value. However mutual funds typically don’t have any exposure to the forex market as an investment. They’re in stocks, bonds, treasuries, etc. Forex is probably too volatile an instrument for your average mutual fund which usually looks to achieve a steady rate of return. Mutual funds and the like are involved in forex to simply move money around the globe. Japanese investors in US domiciled funds will have to change their Yen into USD. So, for example, if the yields in USTs were to rise up strongly over the next year this would result in many Japanese investors looking to invest in them for the greater return. This steady flow of money into USTs from Japanese investors would in turn result in the USD strengthening against the Yen (all other things being equal). This isn’t the market moving for bets it’s just supply and demand forces shifting the price over time. And what the retail trader thinks has no bearing on where the price is going. Of course Hedge Funds are another story and they’re involved in all sorts of speculation, CFDs, derivatives, etc. but again I don’t think they really factor retail forex traders thoughts into their decisions much. They sure aren’t above duping ordinary investors out of their cash though with complicated financial instruments but that’s a whole other story.

Sure banks need people as I explained above. But again this doesn’t drive forex moves. Retail traders make up a very small % of the overall market and as a result our influence on price action whether through our direct trading or big players moving the market to catch us out is very small.

USD was steadily devaluing since June mostly due to America’s quantitative easing program based on the market pricing in what QE lite was and what they thought QE2 would be. This was the big players trying to work out what effect QE lite and QE2 would have on the US economy and what effect it would have on USD. Yes this was mostly speculation but it was speculation on the part of big players who were looking to position themselves correctly for how they thought the market would be in a few months. The thoughts of retail traders had no bearing on the move I can assure you. There was a ton more money at stake than chasing retail market bets.

As for what the USD moves last week it didn’t have anything to do with Obama saying anything. Rather you’re starting to see some concerns surface over the efficacy of QE2 as a policy. The very prospect of QE2 since the summer had weakened the USD and pumped up the stock market by allowing primary dealers to pile into risky assets. In effect Bernanke had practically made it impossible for the market to be shorted. However, it’s reached a point now however where the market fundamentals don’t match with the stock market levels and people are getting nervous so you’re seeing USD strengthen some. Also, Eurozone debt woes have resurfaced which is adding to the overall feeling of risk aversion. Obama, etc. can jawbone all they want but it’s the market that’ll decide where price goes based on market analysis. And the market can definitely be spooked - right now there’s a lot of large financial institutions all looking at each other wondering who’s going to twitch first. They would’ve been mad to short the market all through the summer and autumn but everybody knows it’s going to have to be done sooner or later. Again, retail traders and their positioning don’t figure into this equation. The market is looking to many other more important factors because there is way, way more money at stake.

I’ve wondered about that one too. Personally I use spreadbetting as it’s tax free for me. My bets are matched up or aggregated with other bets. In the long run my provider will do best by keeping me on the books and taking home the spread as commission every time I trade. I guess it depends on your provider. If you’re going up against your broker I wouldn’t think they’d be too forthcoming with proper trading help.

Not really. We don’t make up enough of the pot to be really significant. It’s a numbers game at the end of the day and there’s far more money to be made elsewhere for big banks and hedge funds which aggressively trade currencies amongst other things.

It’s a stretch, yes. If I recall right it was the mid-90s before online forex trading started.

Yep, education is vital. But to say your education can only come from screen time seems wrong to me. I think I would have really struggled to learn forex if somebody gave me a trading portal and said have at it. There’s a ton of useful information on the internet which has to be put to use if you’re to learn forex within a reasonable timeframe. Just have to find what works for you and go with it. Just personally I’m somewhat cautious about counter-guessing the retail trading crowd as they’re not some homogenous group that trades one way - they’re all over the place with their trading so I’m more interested in understanding market fundamentals as they seem more constant to me. Anyway, I find it far more interesting to read up on all that stuff too.

1 Like
9

Oh my god, enough already.
What is it with you kreslik disciples?

You’re like a house bug – you spray & zap one out the back door & another sneaks in the front 10 minutes later.
You’re just another in a looooooong line of door knockers pal who have humped over the kreslik hill trumpeting the latest tired old drivel from the gospel according to TRO.

It’s mildly amusing for a day or two until the boredom sets in & the moderators spray you with their updated bug repellent zapper.
Save your breath there’s a good lad, we’ve heard it all before & the tale gets taller every time it’s told. :rolleyes:

10

It was only 7 weeks back over in your kreslik crèche that you were squeaking about how everyone over here were being hoodwinked.
So I assume you’re here to save everyone from the devils in disguise??

11

Moderators are devils in disguise?

Woooah peeps, lets all get out of here…

12

xtremeforex, are you having a hard time accepting the fact that retail traders make up only 2-4% of daily forex volumes?

Read that again xtremeforex: RETAIL TRADERS MAKE UP 2-4% OF DAILY FOREX VOLUMES

They aren’t significant. And I’m sure the retail accounts that make up MOST of that 2-4% are NOT 95% losing accounts. The accounts that are making up the losing herd are likely funded with <$10,000 and the volumes they are trading have no meaningful impact on the market.

xtremeforex, quit tip-toeing around these facts. Is it too painful to accept that the basis of your trading strategy is based on flawed assumptions?

Check this out too:
Retail Trader Profitable Accounts

13

<section deleted>

Forget it.

There’s no hope with people on Babypips. Even when you try to protect them, they still don’t get it.

Call it emotional involvement, call it being a good guy, call it whatever you want.

Have a nice day.

14

Please provide a source for your figures and I will cross-check them. Until then I can not provide comment with regard to that.

The accounts that are making up the losing herd are likely funded with <$10,000 and the volumes they are trading have no meaningful impact on the market.

Ask a beggar if he wants $10,000. What do you think he will say?

xtremeforex, quit tip-toeing around these facts. Is it too painful to accept that the basis of your trading strategy is based on flawed assumptions?

Yes, very flawed assumptions at 25-30% growth per month in live-trading, 99% trade win-rate. I must be doing something terribly wrong…

15

I think you’re getting a little too emotionally involved in this. It is a fact that retail traders make a very small percentage of the market. Deny it all you want, but it still doesn’t change the truth.

Trading forex is not a scary as you would like people to believe. It isn’t rocket science, and the boogie man isn’t out to get you. As long as you have a firm grasp of the fundamental concepts, and trade with a legit broker, you should go far. If you want to preach something, preach proper risk/account management. That has to be the #1 reason why 95% of retail traders fail.

Also, you keep saying that in order for someone to win someone else must lose. Just because the market changes directions doesn’t mean there isn’t money to be made. There is just as much money for everyone when it goes up as when it goes down. If the retail traders losing money can’t grasp this then they don’t deserve to keep their money. As they say, a fool and their money are soon parted.

16

I don’t understand what is the matter with some idiots on BabyPips and TRO?

Have you ever seen this guy’s work?? He is by-far the most helpful person that I have come across in the forex-world.

He virtually spends his entire time helping people and gives away hard-work for free. How could you hate on a man who does that?

I support him 100% and always look forward to what he comes out with next. This is the kind of guy who deserves an honourary phD.

Michel Kreslik and TRO are two of my idols of this business, they are very research and experimentation oriented and post what I would consider proprietary research publicly!! Just amazing.

17

Here we go with some numbers:

Francesc’s Weblog

However big or small the retail market may be, there are not only speculators, but also hedgers who pay intentionally. At least everybody who opens an account should be aware that he is entering a high risk market. Nothing for the very last bet if lost leads to hunger. People don’t become poor because of forex, they become poor because of their wishful thinking and problems with life management. That has nothing to do with forex or internet sites in general.

18

xtremeforex, what does TRO have to do with your arguments that are based on flawed assumptions about the size of the retail forex market?

Does it really bother you this much that not everyone idolizes some guy on the internet like you do? Jesus Christ, get a grip man!

19

How lovely for you.

Thing is pal, Babypips is all TRO’d out.
The story is old & tired. Babypips has had you guys stomping in here with your muddy boots virtually 24/7 since your idol got kicked out of here.
You must be at least disciple #20.

If you want to save the world go sign up with Greenpeace or Amnesty International, they’re a far more worthwhile cause.

20

This demonstrates once again the lack of intelligence demonstrated by some users of this forum.

The inability to stay on topic.

Instead you’re more interested in what TRO is up to these days…

Do you miss him? I’ll let him know… :slight_smile:

Perhaps, the forum should allow TRO back so he can teach some of the “successful” traders like Akeakamai the difference between a negative-sum game versus a zero-sum game… .

See you kids…on the other side of your trades. :slight_smile: