- Why more than 2 months of demo trading is a waist of time.
- The psychological connection between demo accounts and live accounts.
- How the trading “Guru's” will hate this podcast.
- The #1 thing you must do FLAWLESSLY!
Email from: Darrell from Montana
Darrell writes – “Yo Waz up Karma. I been trading in a demo account for almost 19 months now and am wondering when I should stop demoing and do live trading. I want to make money but I feel kind of stuck here in Demoland. Scared to get out of it and loose some real money, know what I mean?”
And he goes on just talking about some other things. But this was his main question.
First off, thanks Darrell for listening to the show and taking the time to email me. I really appreciate it.
So to answer your question.
Are you kidding me? Nineteen months?
OMG! that is about 17 and a half months too long mate. I can’t believe you have been trading that long. That is way way wayyyyy to long to demo trade. I’ve said on the show many times and I think recently as well, I think demo trading for longer than a MAX of 2 months is silly.
Now I know I’m going to get a ton of slack on this topic from the “Gurus” out there, but I don’t believe in demo trading that long.
Now while the “Gurus” will tell you to demo trade for 4-6 months or longer in order to first become profitable in trading, while I can see their point of view, I really don’t believe in it anymore.
I once did though. Hell I myself traded for 4-5 months before ever going live. But looking back, I now think that was the wrong thing to do.
Now for anyone listening to this episode that does not know what Demo trading is, demo trading is simply trading in the market using fake, pretend money. that is essentially it. Everything in the market is virtually identical to how the live market is running, maybe a slight delay in price, but virtually the same.
You can place trades using the fake money, Win fake money, loose fake money, etc. you get the point.
Now demo trading is mainly for just two reasons and two reasons only.
1. To test a strategy / system.
2. To learn the platform.
So lets look at number one first.
Test a Strategy / System
When first presented with a system of trading, or when first discovery of a system, it is at a stage of hypothesis. You have no idea if it really works or not. Even if someone tells you it does, you don’t. And NEVER just take anyones word for it. Test it as much as you can. Try and break the system to pieces. Make sure it does work, and works for you.
So many people make the mistake of hearing someone talk about how awesome their system is only to find out later it doesn’t work or at least doesn’t work for them. Hell, the system I use which is Harmonic Pattern trading doesn’t work for everyone. I have taught many people this system and have found that 3% of the people I teach, this system is not for them. no matter how hard they try. But instead of just giving someone a system of entering and exiting the markets, I try to teach them how to trade.
It’s a BIG difference. That type of difference enables them to go out and utilize any other system and be profitable. They have the foundation in place.
This is one of the big reasons to use a demo account.
The second reason is:
To Learn the Platform
The biggest and least respected aspect of trading I think is misunderstanding how important proper execution is. You could have the best system in the world, have the best trading plan, be committed to sticking with that trading plan. but if your execution sucks, if you forget to place a stop loss and screw something else up in the order process, you could loose everything.
So in this way, I think a demo account is not only valuable, but essential. You have to be able to execute a trade FLAWLESSLY. Read that line again.
No mistakes allowed here.
Those are the reasons to use a demo platform. Not to trade for an endless amount of time to make yourself feel better.
Now again, the gurus will tell you to trade until you are consistently profitable. Now while I see and understand, and even partially agree with them, I disagree with them more.
You see, when you trade in a demo account, you have absolutely no psychological connection to the money you are trading with. None whatsoever.
So if you loose say, $100k in your demo account, it really doesn’t matter. You can reset it and away you go again. Loose it a second time, hey no problem. It is like respawning in some video game.
You don’t respect that money.
Now, if you learned your platform well in demo trading, and tested your system in demo trading, that should take really no where longer than a month and a half to MAYBE two months max. And that is not even doing it for 15 hours a day.
Then once you have this, open a live account and start trading incredibly small amounts of real capital. In this way, you will learn much much faster due to having that real money on the table. You will be more cautious and not place ignorant trades. You will also be well on your way to potentially making profit.
I know people that have demo traded for years and never have the courage to more into live trading. Demo trading and live trading are two very different things. And yes it can be intimidating a bit. But if you ever want to make any type of money in the world, you have to take some risks. Plain and simple.
So my advice to you Darell are those 3 things.
- Learn your system
- Learn how to flawlessly execute trades on your demo platform
- Open a live account and start trading.
I hope I answered your question for you mate, and again a big thank you for listening to the show and emailing me. I love getting emails.
If you want your question answered on the show and a big shout out, email me at firstname.lastname@example.org and I’ll make it happen.
Links and Resources Mentioned in this Episode:
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Good Luck & Happy Trading!
Music by: Troyboi