The reason many forex traders fail is that they are undercapitalized in relation to the size of the trades they make. It is either greed or the prospect of controlling vast amounts of money with only a small amount of capital that coerces forex traders to take on such huge and fragile financial risk. Also ensure to prepare before going to trade because failure to practice Demo trading could lead you to become just another source of money in an already liquid market.
Yet to some traders, this statement may sound discouraging and useless, But it won‘t work for you in forex (as in any other business) without a theoretical foundation. We can’t think that we could just go ahead and open an account and get straight into trading with no previous experience. The basics of how financial markets work, the most important rules of leveraged trading (money management, risk management, SL, TP, etc.), the difference between technical and fundamental analysis, the instruments that we can trade, all this we need to know long before we even start thinking about our first trade, creating a trading plan and strategy.
Acquiring enough and understandable knowledge of the theoretical basics, could encourage you to open account with
with a brokerage firm or using the services of firms without fear. However, before we actually begins reasoning about trading, we should not skip trading on a demo account or Free Trial account, as some brokers call it.
Trading on a Demo account will give us chance not only we can try out the platform itself and new strategies, but we can also learn patience and follow the basic rules of money management and risk management, which we cannot do without even when we can consider ourselves experienced traders.
There is no need to rush
Waiting for the right trade opportunities requires patience. Entering and exiting a trade at the right moment requires patience. Too much rush for dream profits and unwillingness to take the time to study and trade on a Demo account is one of the reasons why the vast majority of forex traders lose all their money in a relatively short period of time.
While it is true that undercapitalization is often the reason, this is something that some companies are helping to solve these days. Patience is such an important skill to learn in a Free Trial account. If one deal doesn‘t work out, another will come along; there’s no rush. And thats true on a Free Rrial as well as on any other account. You can't just do what you 'think' will work – you must learn.
One instrument, one strategy
Strategy is technique used by a forex trader to determine whether to buy or sell a currency pair at any given time. Forex trading strategies can be based on technical analysis or fundamental, news-based events. When it comes to testing a strategy, its a good idea to choose one that is as simple as possible and fits you the best. We recently wrote an article here about how more experienced traders can benefit from a portfolio of strategies to trade on a larger number of instruments.
Beginners on Free Trial accounts who are still getting to grips with the forex environment do not have to deal with this problem. In their case, it should be about the most straightforward possible approach to trading and understanding how the markets work, not about making big profits in the first place.
When you're just starting, learn one trading strategy at a time to reduce overloading yourself. You might not need to master more than a few strategies to become a successful trader. Also Practice your strategy for at least six months in a demo account to master it before learning another one.
The more complex and “sophisticated” the approach that requires us to concentrate and follow many conditions, the greater the chances of losing trades due to non-compliance with the strategy. There is no need to overdo it with the number of instruments either. Ideally, we pick one currency pair or index that fits the chosen approach and focus on that.
Responsible approach and account size
As suggested, you need to practice trading on a demo account as if you were trading on the real account. Otherwise, it is meaningless. Executing trades that are not in line with the strategy just to try it out or opening unnecessarily large positions to make up for past losses is not the way. It leads to incorrect strategy results, and, in the case of a large number of randomly successful trades, to a false sense of being successful and ready for the real account.
Additionally, to get more insight and quick understanding the size of the capital in the demo account should be the same as in the planned “live” account. We will get used to the size of the positions we will be opening, and we will also get used to the size of the expected losses and profits in financial terms. If we get used to a loss of $1,000 on a Free Trial account (which is one per cent on a $100,000 account), we will have a hard time getting used to a stop loss of $250 on a $25,000 FTMO Account.
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