Dear dear traders. Have you ever demo traded a broker's platform successfully, only to find that when you open up a live account, your system fails?! Based on the 9 years of trading experience (4 years of electronic trading experience) that I have racked up, I offer you some words of advice and some thoughts on the matter. Here they are:
First off, a demo's purpose should be ONLY to test a platform itself. That is, to see if the broker's platform is user-friendly, if the orders work, and pretty much to see if you like the platform. Contrary to this, a DEMO should NEVER be used to test a trading method/system, or to see if you are going to make it as a trader.
I liken this situation to playing poker in a free-chip poker arena. It seems everyone goes all-in all the time...with nothing! Same thing here.
The second reason still relates to the first. When real money is on the line, your true trader emotions come out. Losing 15 REAL DOLLAR$ feels a lot worse than losing $10K fake money. Losing fake money might not feel good, but losing real money feels BAAAAAAD.
Aside from all of those psychological reasons that demo trading is not realistic, there are other legitimate reason why demo trading will fail you in.
When I place a trade in a live atmosphere for the GBP/JPY at say, 2.2600, I am getting in line to purchase this contract, much like a line one enters to buy tickets to a Brittany Spears concert. There are many people in front of me. It's first-come, first-served! Demo accounts DO NOT take this into account. They simply fill you at your price, when the price is touched! This will give traders the false impression that the system is great since they always get filled. Secondly, and more damaging, it gives FALSE POSITIVES on automated trading systems. Many systems can be back-tested to show how profitable they would have been. However, they always assume a fill! Not realistic. I have picked many a market low, had the order working for hours, and still UNABLE! It's reality...especially around major retracement levels or technical resistance/support lines.
My suggestion is this: Once you find a system and a broker that you like and trust, open up a live account with a small portion of your trading money. If you plan on investing $10K, put in $2k. Heck, open with the account minimum at first! It's a lot better to take a small investment and see how you trade FOR REAL, then to take a few months of DEMO trading that gives you false confidence and false information. I would go further to say that demos should be used for now more than 2 weeks. Unless of course it's just for fun...in which case you should buy a PlayStation 2...the games are SO realistic.
That's all for this Friday!!!
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