Sunday, February 25, 2018

Forex Trading: Demo Account vs Live Account

February 21, 2010 by  
Filed under Trading Mindset

It was a nice Saturday evening. I was waiting Manferd at the Central Mall. It was drizzling, which explains why he was going to be late. He came in the Starbucks with his hair wet, but it was still remain spike. I remind myself what hair wax he is using. I waved my hand, and he noticed me straight away.

Hey Nick, how you doing?” he greeted. Putting his dark blue sling bag on the sofa. His bag is always full and heavy. He hardly left his laptop at home.

It has been awhile since we meet each other. So we catch up for sometime. However I noticed he seems to have some questions to ask. I guess he was waiting the right moment.

Dude, I got to ask you something.” Finally, he seems comfortable to ask me what seems bothering him. “I don’t understand why I can’t make money in Forex”

Manferd is kind of new in Forex. However, he has been practicing on the demo account for a few months now. Recently he got his confidence in his trading plan and wants to “make it happen”

So what happened?” I asked quizzically. At this moment, I thinking of a few possible situations that can happened to him. However, it is a good idea to heard what he says first, what I assume may not be the actual cause of his problem.

Nick, you know I been practicing Forex since August right? At first it was hard, but I have no issue making virtual cash on demo accounts. Almost 70% of my trade makes money for me. However, when I try and attempt on the Live account. I put in USD $5000, now I am left with USD $3000! I simply don’t understand where I go wrong!”

It is obvious he does not know where he go wrong. He came and ask me because he want to know the reason why he lose money in the first place before he loses even more.

Manferd, do you gamble often?” Somehow I understand what could be the causes.

Only in Chinese New Year, a few rounds of Black Jack or maybe some rounds of Mahjong. I don’t really like gamble, the pressure is kind of big, I only gamble in Chinese New Year just to please my parents or relatives when they lack of 1 player.”

Now I understand. One of the possible reason that is affecting him is emotion.

Manferd, I think I understand why. When you playing card games or Mahjong, but if there is no money involved, you perform well right?”

He shut his eyes and recalling his past. When he opened his eyes, he nodded. “You are right, I seems to play better than those time I been gambling. But the point is?”

That could be reason why. When you are using demo account, there isn’t any money involved. You aren’t worry losing money at all. You are focusing on learning how to make money. Your emotions does not influence you when you are trading demo accounts.” I replied seriously.

But when your hard earned money is put into the live account. You have changed. You have become more doubtful, worried, and more careful. Emotions appeared and affecting your trades. And you really want to be perfect in your trading. Which we all know, is impossible.”

Manferd sat there, recalling his memories. He really looked serious, like a doctor just told him he got some serious illness. He maybe he is in denial.

OK, do you mean that I should start my training using live account in the first place?”, he questioningly asked. “To get used to this pressure?”

I giggled, “No, my dear friend. That is extremely unwise. Remember what the book, ‘Rich Dad, Poor Dad’s Guide to Investment’ teach?”

There are many lessons in there. Which one?”

The risky driver part.”


In Rich Dad, Poor Dad’s Guide to Investment, driving can be dangerous but the driver does not have to be a dangerous driver. If the driver take driving lessons, learn with an instructor, practice often and finally got his driving license. The driver can be safe driver.

Likewise, a driver that does not take any lesson or guidance and did not earn his driving license, that driver is an extremely risky driver. No matter how careful he can be.” I helped to refresh his memory. “It is the same for trading, you need to education, training to become a safe trader. Not a risky one.”

You don’t have to be risky Forex Trader, Manferd. You need those demo account to be an experience trader. How many demo account did you empty?” I jocose him “8? 9?”

6 actually… 7th one gave me the confidence…”

OK… so how much does 6 accounts gave you?”

Each account gave me $500,000. So in total, I wasted $3,000,000. So I should be bankrupt by now!” he laughed.

Yea, it was funny. But it strike a point. Without training, experience, guidance and education. Forex can really drain all your cash very fast. Education, training and experience are extremely important in Forex.

Here is something you can do now. If you still not comfortable, switch back to the demo account and trade for awhile.”

Er? Why so?” he arched his eyebrows.

When you lose money, you are worried. No one can blame you. It is your hard earned money. When I lose money at first, I break cold sweat man. And this causes you to lose confidence. You will keep thinking about the money you have just lose, and when that happened, you will carry on making mistakes.” I explained,

Demo account’s purpose is to allow you learn basic mechanics of trading platform. It is also allow you to practice your strategy and entering the orders you want. So, relieve the pressure, and go back to demo. Practice what you train yourself to be. And once you are ready, get back into the ‘battlefield’ again. ”

Cool. Thanks dude.”

No problem, and since you treat me this latte, I throw another tip in for you.”

Oh~~?? Being generous er?” as he replied, he reached into his bag and take out his old but useful clip-board. It always has A4 size paper clip on it. I guess he was always ready to learn a few tricks and takes notes.

Hahaha! Listen, you can try this:

  • Begin trading with small positions of real money

    • In this way, you wouldn’t kill your whole pool of cash in your account that fast.

    • You also learn what mistake you make when you go to live account.

  • Take notes when you make mistakes.

    • Write down what happened.

    • Write down the mistake.

    • Write down how are you feeling.

    • Write down what is your mindset then.

    • Write down what you just did.

    • And write down why you did is wrong.

  • Write down a solution to this problem.

    • This can enhanced the rules on your trading plan.

    • Rules on your trading plan keep your emotions in check.”

As he was scribbling on his click-board file, I keep looking at his paper just to ensure he did not get it wrong.

Ok, next you carry on this process. Until you become very consistent with your plan. Your trading plan. Of course, at first this is extremely hard. Especially with the new mistakes. You can never ‘slice away’ the new mistakes totally at first. But slowly, you will in-sync with your plan and follow your strategy.”

He smiled, “Thanks dude”

Yea, next time we meet, it will be your treat.”

He cursed at me, jokingly. We giggled and spend some time together talking about current affairs and we departed since it was late.

When I got into my car, then something struck me. “Damn! I forget to ask what hair wax is he using.”

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When trading on Live account

  • Start with small amount of positions

  • Take notes when you make mistakes.

    • Write down

      • what happened.

      • the mistake.

      • how are you feeling.

      • what is your mindset then.

      • what you just did.

      • why you did is wrong.

  • Create a solution.

    • Enhanced the rules on your trading plan.

    • Rules keep emotions in check.

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