As a novice trader, you are constantly encouraged to practice demo trading first before going live.
With demo trading, you were able to hone basic trading skills, develop a trading plan, perform proper risk management, and understand trading psychology (at least we hope so!) without putting your hard-earned money on the line.
Once you are able to show consistent profitability and build up your confidence in taking trades, you have decided it is time to get your feet wet and open a live trading account.
Since you were already running a winning streak in the demo, making huge profits with real money at risk shouldn’t be that hard, right?
mistake!
When most beginners go from demo to live, they usually think that the results of demo trading can be easily replicated on a real account.
Because of this, some are very frustrated when they realize that this is not always the case. Here are some reasons:
1. Real money means real feelings.
As traders, we try to be as emotionless as Spock while making trading decisions.
However, completely eliminating emotion is not humanly possible nor can the increased vulnerability to emotion be overcome when real money is at stake.
To illustrate, compare how you felt when you first traded on a demo account versus how you felt when you made your first live trade.
Was your heart beating faster? Did you feel butterflies in your stomach? Were your hands a little shaky?
If so, you are either madly in love or extra anxious when you first started live trading!
2. There is no real monetary risk in the demo.
Even if you try to treat your demo account as a real account, the truth is that there are no real financial risks in the demo account.
You can make some losses here and there, but in the back of your mind, you know that you can refill your demo account with fake money at any time.
If you made a lot of mistakes in the demo, you can take comfort in the fact that you can start over easily and that relieves you of a lot of stress.
By contrast, finding yourself in the doldrums while trading real money can hurt your trading confidence and can cloud your trading decisions later on.
3. The temptation to commit the sins of trading is stronger in live trading.
Since you are taking real monetary risk, you will be more emotionally invested in the results of your trades.
As a result, the temptation to fall back into your bad trading habits will be a lot stronger.
Just when you think you’ve finally overcome those habits, you may find yourself making common trading mistakes such as trailing stops, stopping winning trades early, and retaliatory trading.
For some traders, their desire to prove that their real accounts can be as profitable as their demo accounts leads to new problems such as over-trading and completely ignoring their trading plans.
How do you deal with these differences?
A good way to bridge the gap between demo trading and live trading is to copy the state of mind of emotionless trading that you practiced in the demo account.
You can do this by focusing on the process, not the profits. Make one trade at a time and focus on sticking to your plan and implementing proper risk management.
Make sure you trade with money that you can afford to lose. This will relieve some stress and help you focus on your trades better.
Another good way to replicate your demo trading success is to maintain good trading habits such as writing trade journals.
Write down what is happening in your live trades. How does it differ with your usual demo trades? Are your reactions and trading decisions different when you are trading with real money? What could i have done better?
By noting the mistakes you made on a live account that you normally wouldn’t make on a demo, you’ll have an idea of the exact issues you need to work on.
Switching from demo trading to live trading is difficult and often leads to losses at first, but it shouldn’t stop you from bouncing back.
You just have to tread lightly and make sure you are aware of and ready for the emotional commitment required for live trading.
Very useful information! 👍👍