Would you send your teenage son or daughter out onto the busy highway before letting them practice their driving and passing a driving test? Hopefully, your answer is a resounding no.
They need to practice the skillset of driving just like you did when you were in your teens.
Trading Forex is no different. You must master dozens of new skills to be competent and move from conscious competence to unconscious competence.
Today we are going to run through the top 3 reasons you should use an MT4 Forex demo account and a few skills you can practice, getting you closer to trading mastery.
The most obvious reason to use a demo account is to test every trading strategy you have before going live.
It makes sense, right?
Instead of risking real capital, you can learn the ropes and intricacies of your trading system without any pressure of financial loss.
You may have already back tested it using historical data and used a big enough sample size to indicate your strategy has an edge.
Now you need to move to forward testing.
This means you are going to test it on live data but in a demo environment.
Some of the key points you are looking for are:
The more your practice your trading strategy in the comfort of a pressure-free demo environment, the higher the chance of executing your strategy in live testing with real money.
So, take your time in getting this testing done correctly.
Your confidence in each trading system will improve dramatically following this demo tests.
Let’s say your end of day Forex trading system generated 30 signals per year on average.
As you can appreciate, it would take a long time to gather experience trading this if you were to use a demo account and take every signal that came up.
Instead, a powerful alternative is to use a demo account but apply your system across a 5-minute chart.
By moving to a lower timeframe and using the same entry and exit strategies, you can increase your trading experience 10-fold.
Using a 5-minute chart, you might get 30 trading signals per month instead of 30 per year.
This will fast-track your experience and give you valuable insights which would have normally taken several years.
Repetition is the mother of skill, and by using a demo account across a smaller time frame, you can gain years of experience in a matter of months.
The beauty of trading Forex is the excellent liquidity on lower time frames.
Stock traders do not have this luxury as there is often a cost (platform and data fee) to access live intraday 1-minute, and 5-minute charts.
Those using MT4 with AxiTrader have no monthly fees when testing strategies across any timeframe.
Malcolm Gladwell wrote an iconic book for those interested in becoming a peak performer called Outliers.
In this book, Gladwell fashioned up something he calls the 10,000-hour rule.
His hypothesis, backed up by some powerful real-life stories, suggests that 10,000 hours of deliberate practice will help you become world-class in any field.
Gladwell cites Bill Gates, The Beatles and many young athletes who rose to the top of their fields after being exposed to opportunities in their field and applying deliberate practice to their craft.
Trading is no different.
You must practice the skill of trading, and this is where a demo account is so handy.
Here are three skills professional traders can execute flawlessly and in the heat of the moment.
You want to be able to enter a position with a pre-determined exit level. Monitor your position for a breach of your exit conditions and close your trade.
This skillset is critical for anyone trading with leverage. You must be able to exit when the time comes.
Failure to do this using leverage could lead to losses in excess of your starting balance. Remember, trading Forex or any leveraged product is risky.
This technique allows you to ride winners and maximise your trades.
But the strategy is much easier said than done.
Applying this technique in a demo environment repeatedly allows you to ingrain this technique and apply it in real-time with ease.
Another interesting technique which can be excellent for reversal traders who ride a long position from oversold to resistance and take advantage of a possible reversal trade the other way.
There are many other reasons why you would want to stop and reverse. News events are common too, especially during the likes of Non-farm payroll data releases.
You want to be able to practice this technique and feel confident on a demo account before jumping in head first during a major news release.
There you have our top 3 reasons to use an MT4 demo Forex account. Hopefully, this puts a new perspective on the types of skills you can master with an active demo account.
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