An Answer To "How Long Should I Demo Trade"?

“How Long Should I Demo Trade?” is a question that comes up often on these forums from new traders. Every time it is asked there is a discussion between the two primary camps about what is appropriate and what is not. As someone that has been fascinated by and interested in general psychology for most of my life- I thought I would attempt to address this question in a mini-article of sorts. Let’s first look at the two primary camps of opinions on the matter. You’ll find that most opinions in the threads are some variants of these two.

[B]1. The Two Camps[/B]
A. “Trade demo for a long time” (6+ months)
These folks typically view constant practice as the key to success. The more you repeat a process successfully, the more confident you will get in the process. Thus, you spend an extensive amount of time in a demo account repeating and honing your strategy until you are building profit. The trader should then be able to transition to a live account and build profit there using the exact same methodology they employed in demo.

B. “Don’t trade demo for long” (less than 2 months)
This camp feels it’s better to trade on a demo for as long as it takes to get used to the trading platform and understand your strategy. They feel it is better to open up a micro-account and trade in very small amounts of money live so that way you get used to dealing with the psychological impact of putting your money out in the market and letting it do what it’s going to do. The thought process is that you have no emotional investment in the fake money provided on a demo- thus you’re not accurately recreating the psychological stresses of trading through demo trading. You can instead ease into it like you would a hot bath.

What many of these discussions completely miss the point of is the psychology of the person asking the question. Advice is provided based on the contributor’s personal experience as opposed to what they know about the person asking. Neither answer is right or wrong. It all depends on the asker.

[B]2. “I was profitable on Demo but blew out my live account”[/B]
I can’t tell you how many times I’ve seen this mentioned on Babypips and other sites. I firmly believe that the reason is the trader is not psychologically prepared to trade with the amount of money they are trying to trade with. It is mechanically very easy to trade Forex. The difficult part is mastering all the psychological and emotional problems that can explode in your face. They assume that since they were successful in Demo, they will make the transition. It’s an entirely different ball game once you’re putting your actual money out in the market.

I think that a major contributor is a false sense of security that a profitable demo account provides. It’s easy to equate the two if you’re just looking at trading screens without really exploring everything that is going on in the mind of the trader. And others don’t understand how different it can be to trade Live since they haven’t done it yet.

[B]3. Evaluating Yourself[/B]
To find the right answer- you’re going to need to do an assessment of yourself. Not every point will be appropriate for each person. Just throwing some things out there to try and get your mind on the right track.

A. Ever been mugged or robbed? One minute your life is placid; and the next you have your property stripped from you by forces you have no control over. How long did it take you to get over that experience? Did you ruminate on it for months? Or were you able to shrug it off, say “crap happens”, and move on relatively soon? You should never be in a position in the market where you can lose everything on a single trade. But there is always the very real possibility that some major institution dumps a bunch of currency and sends your position straight into the crapper.

A person that was able to brush off an experience like the above will have little problem with the psychological stresses of trading.

B. Are you a big picture thinker or tend to focus on smaller things? If you take every successful trade as a personal victory and every failed trade as a major blow; you’re in for a long haul. That trade is only one you’ll make of thousands. In the big picture- it means next to nothing. There’s nothing wrong with taking a moment to pat yourself on the back or get frustrated by a loss. The important thing is that it doesn’t affect you for very long. If it does; you have to work to accommodate or change that.

Big picture thinkers are going to be less likely to spend time dwelling on individual trades, thus they are in a good position to make the demo-to-live transition.

C. How emotionally attached are you to your money? Are you able to treat your trading balance as though it is already gone? Or are you in a “I need this” sort of situation? I’ve seen a number of posters come on the boards and talk about how they are trying this out as a new career option because they’re between jobs or are facing a major life change. Those people are setting themselves up for failure because they won’t be trading with a clear mind. They’re too emotionally invested in their money at a time when a major life change is hitting them.

A person too emotionally attached to their money is likely to have a harder time making the transition to live. They are likely to end up over-trading, revenge trading, or micro-managing their trades into failure.

[B]4. Answers![/B]
A. The type of person that will benefit the most from a long-term demo account is going to be someone who is comfortable with their money and potential loss. The person will likely be able to shrug off losses and move on within short order. Emotion won’t be a major part of their decision making processes. This type of person will make a smoother transition because the stress will not weight as heavily on their minds as a person who is more emotional.

This type of person would be able to go with a short-term demo account as well with the same/better results.

B. Humans are emotional creatures by nature. A short-term demo account into a micro-account is an excellent way to begin preparing for the psychological shift required to trade. The trader is taking baby-steps as opposed to trying to make giant leaps across psychological barriers. That rarely ever works in any avenue where psychology plays a major role because you have to accommodate the individual. A jolt may get someone on the right path; but it won’t build future success. That is why easing into any new situation is far more effective. The same is true for trading.

[B]5. Why Should I Listen To You?[/B]
You don’t have to and I’m not saying you should. This is my opinion based on what I’ve learned about psychology in my life, experience making the transition myself, and reading numerous posts on the subject matter here on these boards. Neither way is necessarily “wrong”; but I believe that with the general way the human mind works- easing into it is going to be a safer, more effective method of transition than jumping straight in after Demo’ing for awhile. My opinion is that a person should not spend any longer than it takes to learn the platform and understand their strategy before jumping into a micro-account ($150-$200ish) and trading spare change per pip.

To newbies reading this, always remember-

Always start small. There’s no reason to open your first Live account with over $500.
Many people blow out their first account (or two) after successfully Demo trading.
Emotion in trading is your enemy. Do everything you can to control or eliminate it.

12 Likes

Great article stone!

I definitely agree with what you’re saying. It’s very hard to tell someone that it’s best for them to demo trade for a while versus a couple of months. Trading psychology is all about the individual, and I think that is in essence what makes it so hard to teach. Unlike teaching someone a new trading strategy, which can typically be done in a short period of time, trading psychology requires the individual to do some critical thinking through self evaluation over a long period of time usually months or years. As you imply, trading is more of an internal, psychological struggle than anything else.

SerenityFX

Fantastic article. As a novice and a beginner to forex trading, articles like these help your learning curb and mind set. Brilliant write up.

Kudos and thanks.

Kind regards,
Dave

@Serenity: Yeah, a major part of the reason I wrote it up is because I’ve read so many posts where people just gave advice from their own perspective instead of taking into account the person asking. I wonder just how many traders realize just how personal their approach actually is.

@Tridztan: You’re very welcome, Dave. Always keep learning. You won’t incorporate everything you read into your trading but having a strong body of knowledge is very beneficial.

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Many thanks for you input.

One should trade in the demo account until they have gained confidence to face the real market and this is possible only when they have good trading system.

I think many people don’t take demo seriously and tend to leave trades running or turn off for days - this may actually be a good thing for some traders.

There is no hard set rule to demo trade and the duration totally depends upon the trader and their capability of grasping the concept to perform well while trading.

Stage 1:
you MUST be profitable for at least 6 months on demo before you consider jumping to live.
That also, you MUST be profitable based on a STRATEGY/PLAN.

Stage 2:
Then, I would go live with small cash (<10K). MUST be profitable for another 6 months.

While I keep stressing profitable that doesn’t mean that you won’t be at a loss. But it better be a small percentage if you are going live.

If you are just starting out (<1 year trading experience), give yourself more time if you think you are already at Stage 1.

Taking control of your emotions is the hardest part of trading when starting out.

Cheers :slight_smile:

If a trader follows all these stages perfectly then am sure they will be able to sustain in the forex market for longer period of time.

That will work for some people but a complete waste of time for others.

Demo trading wouldn’t be waste for anyone who is determined to learn.

Once again, and as I pointed out in the article, a majority of the replies in this thread are doing the exact thing I decried. They make the assumption that because it worked for best for them that it should work fine for everyone else. There are always deviations within psychology.

I demo traded for three weeks to learn the mechanical functions of the platform and the basics of my strategy then went live with a micro account; and that worked out fine for me because I used a very small amount of money to learn with.

Though I recognize that demo trading for an extended may be beneficial for some; it does not address the question of why so many people go from demo to live and blow out their first account- or a solution to that problem. Six months is plenty of time to be lulled into a false sense of security about knowing what you’re doing without knowing any of the actual emotional challenges that are ahead.

And the argument is; well consistency and success in demo will remove the emotional component live. If that were true, then most people wouldn’t have a story about blowing out their first account. It’s neither true nor is it in line with the way the human mind works. Blanket statements of “this worked for me it’ll work for you” are not only irrelevant, but harmful to new traders because it does nothing to take into account their own personality, emotional and stress tolerances, and background.

Mechanically, learning to trade is not difficult at all. The hard part is mastering the psychological stuff related to putting your money into the market. The sooner a person gets started on that; the better off they will be and the faster they can be successful.

Will demo trading six months help someone? Sure- but doing so puts off the most important lessons a trader needs to learn.

1 Like

+1
I think their are 3 reasons why ask and answer these type of questons.

  1. The questions are vague. Example: What’s the right strategy to start with? How long should I demo trade? What’s the best currency pair to start with? How much should I open my account with? Do people really make money trading forex? Is the forex stacked against me? what indicators are the best for trading? Can you help me. I finished baby pips school so where do I start? etc etc.

  2. People answer they answer (in most cases) what worked for them based on their experiences or what they read about or know somebody who said or did what they’re saying.

  3. Next to vague questions, my next favorite is the people don’t read or listen to the question. Example. (Questioh) Anybody suggest some good reading material. I want to be a day trader but I’m just starting out? (Answer) Complete waste of time, open up a demo account and start trading, or Complete waste of time open up a micro account with a minimum amount and start trading. (Question) I read that the Awesome Oscillator is better suited for market cycles than the Moving average Oscillator, I have tried them both and I don’t see much difference; can anyone point me in the right direction to find out the difference (Answer) Take all that crap of your charts and just use price action. or (Answer) Don’t use either one, 200 SMA is much better

So back to the original question " how long should I demo?" (Answer) Depends :slight_smile: Is your trading plan that addresses proper mindset, proper bankroll management and the method you intend to trade by finished and tested?

then their’s your final question. . . Do I really need all that crap?

For me, I pearsonally feel that I have to go live the next day. Thankfully, I didn’t hear to that emotions so far.
I’m still demo trading and want to keep it until I get a small picture how prices are moving and have a layout of a strategy that fits for me personally.

Neverheless, there are things you do on demo which you wouldn’t do on live already with just an 100$ account.
I especially mean things like overtrading (which I sometimes do on demo) or keeping a trading diary (I keep track of some succesful and unsuccesful trading setups, but only if I think this wasn’t a setup just because of overtrading).

Newbie should do demo trading for 6 months to know abot this market . In this time we will learn basics of forex. Trading with money managment and risk handling require more time. Specially emotional control is difficult in trading it need several practice.

The only factor or reason to stop demo trading is when you become confident in your trading strategy enough that you can trade with that in your real account without fear.

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You should at least have 20 straight wins in your demo account, before considering going live…

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How would you ever acquire 20 straight wins? No one has a system that can perform that well. I’m more of the mindset of average 6-7 wins out of 10; or if you’re a high target trader who aims for massive returns on individual trades, like 3 out of 10.

I think that is misconception for newbie trader where they always think about accuracy instead of profitability,
emphasize on the accuracy usually happen because of fear of lost or fear of rejection, when I’m lost then I’m wrong attitude surfacing out. Cannot blame anyone for this, because society from old time to nowadays trained us to be like that.

I would added, the most successful baseball player only hit 3 out of 10 balls, insurance agent get in average 1 closing after 9 rejection, Colonel Sanders received 1008 rejection before finally setup Kentucky Fried Chicken. So it doesn’t matter if we experience winning streak, what most important is managing the losing streaks so it doesn’t get into us.

Back to topic, how long should one demoing?
IMO, each person will set for themselves, whenever feel ready then enter the real market. Soldiers in training camp will stay green until they experience their first war.