By Danielle Franklin
Practicing is over! You have done well with demo account and you have a fair understanding of forex, money management, charts and emotions involved in trading. You finally made big change – switched from demo to real account with couple of hundreds. But for some reasons, things don’t go as smooth as you expected. Why are you getting stopped almost on every trade? Why every insignificant retrace or movement takes you out of the game? Is the initial balance too small to handle the market dramas?
Every beginner in forex has experienced this problem. You are awesome at demo trading (making millions in couple of days!), but then you switch to live and suddenly forex shows the real face. Everything goes the way it shouldn’t! You thought you know it all, but somehow the real trading is much more difficult then demo. Even with a small risk of less than 2% even a minor spike kicks you out from the market. You are tired and disappointment.
One possible answer in such case is the illusion of understanding. You think you know what you are doing, but in reality you don’t. Forex trading is a very difficult profession and until you start making money and prove that your strategy works, consider yourself a freshman in this field.
If you get stopped on every trade, it might be because you are gambling and not really trading. Unless you can afford to lose money on this new hobby, go back to demo trading and back testing your strategy.
The reason to return to demo trading is to get more experience and perfect your system. There is no need to rush into live trading without being really prepared. I also suggest demo trading with the amount you are planning to invest in real account. There is no point of practicing with the balance of $10,000 while in real account you deposit only couple of hundreds. With bigger amount comes wider room to let it play out. The illusion of good trades on demo let you think that this can be real money. It can be real money if you have $10,000 to invest!
Before you compile your trading plan it is crucial to backtest and forward test your trading system in demo account. It the system worked in demo, there is no reason for it not to work in live trading, assuming that you applied the same set up used when practicing.
In case you didn’t backtest your strategy at all, stop trading right now! You are indeed gambling and the only thing you will see in the next future is losses. Backtest your strategy for at least 4 months, forward test it for, let’s say 3 months. If the results prove that the system works, you are ready to switch to live forex trading.
In case you did backtest, it is wise to analyze the trades you made. Even with small starting capital (let’s say $400), trading at 10p-50p per point makes plenty of room. You should be able to make profits without the stop being immediately hit at the size. Figure out if you lost because of tight stops, or there is much bigger problem behind it. Not only technical issues can damage your trading profits – fear of losing the money and necessity to protect your investment at all cost can be equally damaging.
Fear of losing is an emotional barricade that needs to be broken. Set a trading plan with a good entry point and an exit point (a win and a lose exit). Set it and don’t look back. Follow your plan no matter what and if you do exactly what you did on the demo account, you should be making money in no time.
Right mental attitude is the key to being successful trader. Don’t try to make fast money, instead try to reach perfection in being a trader. Your attitude towards trading makes a huge difference. The anxiety to earn will take you to the dark side of forex – first couple of losses will ruin your confidence. Consider the beginning in trading as exercise, a long-run investment in trading education.
You cannot “catch” forex market. Let the perception and understanding come to you with time and practice. Learn by your mistakes and try again. At the end if you make more than you lost, you are ready to make a living with forex trading.
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