We all know that if we want to get good at something, you can't beat experience. Just like an elite athlete, you can have the best coach and training in the world, but it's on the playing pitch where you learn the most.
The trader is forged in the fire of battle, and that is where you need to be if you want to gain mastery.
In saying that, you do need to have some simple structures in place to support you when you are starting out, and this is what we will cover today.
Let's get started by investigating the role a Forex demo/practice account plays in your trading progression.
How to make the most of your Forex practice account
Many world-beating trading strategies have been constructed in demo accounts, only to fail miserably in the real world.
Specific to Forex demo accounts, this happens for two reasons:
- The impact of spreads and/or slippage is not accurately reflected in a demo account
- The trader's psychology changes when they shift from demo to live trading.
In the real world, costs and slippage can turn what looks like a good system into a bad one. Think you are a gun news trader on demo? In a live account, you will seldom be able to get in at the same price you have been in practice.
You could spend hours (I've seen traders spend months or longer!) trading a strategy that just won't stack up to a live environment.
The good news is there is an easy fix. Mix some live trading (at small sizes) into your testing. That way, you can tell if you are getting the results you expected, or if your demo trading is off-track.
It's similar with your psychology. Don't wait months meticulously testing your strategy before seeing if it fits you.
Instead try ten small (but not too small) trades in a live environment, and assess your results as you go - you can then head back to your demo account to fine-tune your strategy.
This is to ensure that you really "feel it" when it matters most, instead of trading too small or with play money.
The experience you will have gained from this will be invaluable. You will either be part way through constructing a system that works for you, or you may be finding that you don't enjoy trading as much as you thought you might. That is okay. At least you will not have wasted your time in a demo environment.
Use your practice account as a tool to test your ideas and refine your strategy, but don't get too caught up in it. Every few trades, make sure you go back to trading live and test your ideas in real life.
You will progress much faster this way. Avoid wasting large amounts of time on pointless demo trading.
The six steps to effective order execution
Placing trades should not be a wild button press-a-thon. Instead, think of yourself like a hunter patiently stalking their prey, ready to pounce when the moment is just right. At the point where you take the trade, your state of mind should be one of decisiveness and commitment. Any sort of second guessing or reflection is inappropriate.
Here are the six steps you want take.
- See the trade. Notice the trade that meets your conditions
- Feel good about the trade. It's important to feel good about the trade, otherwise you will have difficulty taking it.
- Key in the order. Check your terminal to make sure you have not made any mistakes. This can be done in preparation beforehand.
- Execute the trade. Press the button to enter your order.
- Double check your position. View your open positions window and check the trade is correct.
- Fix any errors. If you have made a mistake, quickly fix any errors even if it means a small loss. Don't hold on and hope. This is critical because you will make mistakes, and it's important to limit their impact.
If you follow these six steps, even an inexperienced trader can trade with confidence.
Visualise yourself performing perfectly first
Visualisation techniques are used by elite athletes and traders alike.
For example, an Olympic shooter might visualize herself firing each shot with surgical precision. A basketball player might retreat into their mind's eye to visualize the action of slotting the ball perfectly through the hoop 100 times.
As a trader, you can run though in your mind a picture of yourself performing the above six tasks with skill and a sense of calm. That way when you come to place your trade, you will have your subconscious mind working for you, and the chances are you will perform just how you practiced.
Don't focus on the result
While it may seem like an oxymoron, top traders don't focus on their results. That is done in the planning stage, which is where those thoughts must stay.
When it comes to actually executing the trade, you should divorce yourself from any thoughts of the trade being "right" or "wrong". You have no control of that.
What you do have control over is how many mistakes you make. And by focusing on the flawless execution of your plan, instead of what the market might do, you are limiting the chance of making a mistake. This will pay large dividends in the long-run, even if any one trade goes against you.
Over time, as you gain experience and refine your plan, the results will take care of themselves - as long as you trade with discipline.
Trade with the trend with a close profit target
When you place your first trades, don't try and get clever picking a top or bottom. Instead, keep it simple and trade with the trend. You can do this by placing some moving averages on your charts. Place a 10 period EMA on a daily chart, look for the price to be out of an area of congestion, and then go to a 1 hour time frame and check that it is also trending in the direction of the daily chart.
When you do enter your trade, try not to put your stop too tight. You can limit your risk by trading a smaller size (this could be $10 or $20 risk or whatever suits you - you are in control).
Then you might want to place a tight profit target, say about 20-30 pips away. Watch the trade and if it gets close to your profit target, feel free to close it manually.
While this is not a complete trading strategy in itself, it will help you to gain confidence by getting some wins on the board. Even if your account is in a drawdown after ten trades or so, that does not matter, as it's about learning. It takes time to become profitable, and you will have learnt a lot both about yourself and about trading from this process - that is your first goal.
Still struggling with pulling the trigger? Try this
Some Forex traders take a different approach to entries - they automate it.
Instead of executing trades themselves, they use an expert advisor (EA) to trade on their behalf. For those that don't know, an expert advisor is a mechanical trading system that automatically places trades based on set criteria.
Doing this will eliminate some of the psychological issues traders have with pulling the trigger, such as indecisiveness, anxiety and entering early.
Over to you...
Many Forex traders face mental roadblocks with getting started. Don't be one of them. By trading a mixture of live and demo, with limited risk and in a controlled manner, you will avoid many of the hang-ups that hamstring prospective traders.
It's important to develop your own system, but it's also important to have skin in the game so that you can get constant feedback about what really works in the markets. Now it's your turn. How are you going to implement the steps in this article?