Demo trading vs Live trading

[sayaquira]

The idea of this thread is to discuss issues that will help understand newbies why making money in demo is easy and live is not. The usual answer is that one is not using real moeny therefore it is easier to handle the risk. What then is the real purppose of demo before going live?

Testing skills and not making fake money.

So when does a newbie knows to switch from demo to live? Can we build a checklist to help us identify we are ready to go live?

I welcome opinions and questions as I will share my points of view on this issue

 

[TheBramble]

A good question.

You use a demo account to test your trading system as you develop it, and yourself, into a position to consider the performance is sufficient to justify going in with real funds. Your system is stable, in that you are not changing approach, parameters, system, timeframes, indicators (if used), entry/exit/stop criteria, scale-in/out criteria or any other factors for the last 100 trades. It has become boringly consistent.

You will have gradually upped the risk from a fraction of 1% to a full 1% per trade during your proving period on the demo account.

Any time you get 5 losers in a row, you drop your risk size in half until you get your funds back up to the level they were at before the losing string.

Any time your account drops to 10% less than starting level, you drop your risk size to 1/10th prior size until you build it back up to the starting level.

Regardless of your selected primary trading timeframe I think it is near impossible to get to this level of proficiency in anything less than 6 months. I don’t know anyone who is trading today that did it in less time. Plan on a year to 18 months on demo. It’ll frighten you if I tell you how long (and how much) it took me by NOT taking this amount of effort time and control during the proving phase. You wont get there any quicker by going faster.

When you’re confident in your system, your style, your timeframe and all the other factors that need to be solidly in place before venturing out with real funds, and your P/L is showing consistently profitable returns with manageable drawdown you assign capital to a live account.

You then, and this is key, drop back to a fraction of 1% risk per trade on your live account just as you did when you started on the demo account. You work your way up to a full 1% risk on the live account, taking the same drop-downs on risk when you hit 5 consecutive losers or drop 10% of your account.

 

[Alex411]

Demo account is a good way to learn how a Forex market is working. But it also an "ideal market circumstances" and very often very differ from live trading. You must remember that broker provides different conditions for live and demo trading. It can use many "dishonest tricks" such as surge of spread, bad delay and many others.

 

[wackypete2]

Don't forget if after all your efforts you still can't make money in a demo account you are absolutely not going to make any by going live.

Peter

 

[GammaJammer]

Demo account is a good way to learn how a Forex market is working. But it also an "ideal market circumstances" and very often very differ from live trading. You must remember that broker provides different conditions for live and demo trading. It can use many "dishonest tricks" such as surge of spread, bad delay and many others.

You risk confusing trading on a demo account at a broker or whatever with demo trading. This could be done on paper if you want (trick if you're doing this though is to accurately simulate pricing that is available to you.

And as for brokers changing the rules on you, if they're doing that it usually means you're p*ssing about (i.e. 'scalping' as retail traders like to call it, or 'sniping' as it is labelled within the bookies). If you treat the bookie as you would want to be treated in their position you will find that there are some out there that will not abuse this. The more you act like an adult, the more your live trading conditions will resemble your demo ones. And that way you don't have to whinge all the time either. So you'll be a happier, more well adjusted human being. Surely this a far better way to live your life.

p.s. please explain to me why 'surge of spread' is dishonest. I am a little bit confused, but you seem very certain so I'm sure you will have some compelling reason to share with the class.

GJ

 

[mrsoul]

The idea of this thread is to discuss issues that will help understand newbies why making money in demo is easy and live is not. The usual answer is that one is not using real moeny therefore it is easier to handle the risk. What then is the real purppose of demo before going live?

Testing skills and not making fake money.

So when does a newbie knows to switch from demo to live? Can we build a checklist to help us identify we are ready to go live?

I welcome opinions and questions as I will share my points of view on this issue

If it doesn't work on a demo account, it most probably won't work live.
However, success on a demo account does not mean that it will work live.
The reason for this is emotions come into play:
-missing trades
-profit taking
-mistakes
-tilt
-etc.
All of these problems will show up live but, usually, not on a demo.

Plus, and most importantly, only when trading live is your focus and concentration 100%;
this is just not true on a demo account.

Best way to learn is to have an approach you feel comfortable with and go live in a small way.

 

[-oo0(GoldTrader)]

Upside down

Paper trading: When you loose you win. When you win you loose.

why making money in demo is easy and live is not.

 

[wackypete2]

Best way to learn is to have an approach you feel comfortable with and go live in a small way.

I absolutely agree with this. Anymore you can open a micro account for maybe $25-$50 and try trading pennies. Demo trading is fine to get the feel of the platform or to begin forming a strategy, but no matter how small you are trading, your emotions will still come into play when real money is on the line and in my opinion that is far better than demo trading. If the worst you do is completely blow out your micro account it's still a cheap lesson learned.

Peter

 

[new_trader]

I absolutely agree with this. Anymore you can open a micro account for maybe $25-$50 and try trading pennies. Demo trading is fine to get the feel of the platform or to begin forming a strategy, but no matter how small you are trading, your emotions will still come into play when real money is on the line and in my opinion that is far better than demo trading. If the worst you do is completely blow out your micro account it's still a cheap lesson learned.

Peter

Penny/Micro accounts are often treated with the same disregard for risk as paper trading. You should trade an amount that discourages you from taking reckless trades but at the same time, not so much that it creates fear and hesitation in execution.

 

[TheBramble]

Penny/Micro accounts are often treated with the same disregard for risk as paper trading. You should trade an amount that discourages you from taking reckless trades but at the same time, not so much that it creates fear and hesitation in execution.

The amount of money at risk should never be a determinant in whether to take a trade or not. Your risk is a function of your level of development with your system and should always represent a fixed absolute percentage of your total trading capital at any given stage of your trading development.

If you have a system or personality which acknowledges the possibility of recklessness and you use risk size as a motivator/discourager then it doesn’t matter what size you trade, you’ll blow up sooner or later.

 

[TheBramble]

And as for brokers changing the rules on you, if they're doing that it usually means you're p*ssing about (i.e. 'scalping' as retail traders like to call it, or 'sniping' as it is labelled within the bookies). If you treat the bookie as you would want to be treated in their position you will find that there are some out there that will not abuse this. The more you act like an adult,

I’ve never grasped this issue GJ. If I were an SB (I assume that’s who we’re talking about) and operating the business model they do (very good one), I’d be delighted to have mug punters try and scalp. It’s tough enough to do so with pro rates and feeds so I reckon damned near impossible using an SB platform.

What would scare me a little would be the consistently successful big-hitters which although few and far between and who appear to be taken out by other means anyway would be the only real danger to my aim of eventually capturing all my clients’ money.

 

[new_trader]

The amount of money at risk should never be a determinant in whether to take a trade or not. Your risk is a function of your level of development with your system and should always represent a fixed absolute percentage of your total trading capital at any given stage of your trading development.

If you have a system or personality which acknowledges the possibility of recklessness and you use risk size as a motivator/discourager then it doesn’t matter what size you trade, you’ll blow up sooner or later.

I partly agree. Every trader knows they shouldn't break their rules, but how many do?? This is not a question of what should or shouldn't 'be', I am saying that there is a propensity for traders to behave differently when they are paper trading to when they are live trading. I am not so sure that trading micro-lots would be any different to paper trading. I'm sure many would be tempted to widen their stops because they will 'only' lose $100 as opposed to $500 or $1000 if it was the real deal. (I don't know the size of micro-lots)

I disagree with fixed % capital risk. Well, all I can say is that I ignored and still ignore the fixed % capital risk 'rule'. I say that risk is entirely dependant on skill and nothing else. Applying fixed % 'rules' means that two traders who are equally inexperienced will take different risks purely on the basis of their trading capital available. If the % is based on what a trader feels their level of development is at then it is really dependant on skill.

 

[sayaquira]

The amount of money at risk should never be a determinant in whether to take a trade or not. Your risk is a function of your level of development with your system and should always represent a fixed absolute percentage of your total trading capital at any given stage of your trading development.

If you have a system or personality which acknowledges the possibility of recklessness and you use risk size as a motivator/discourager then it doesn’t matter what size you trade, you’ll blow up sooner or later.

Bramble .. on your first post on the threat yo bring a valuable point to be included on tha checklist .. "trading has become boring.." it is clear that when one starts to develope a strategy the testing and adjusting goes from exciting, frustradting to boringonce it has been conquered. We could then conclude that once the trading has become stable and boring (wins/losses ratio acceptabble, profit/loss ratios acceptable, moeny management on target, rules followed at least 75% of the time, consistency on results), thenit is time to beging a next cycle with a different strategy on the demo ..

As for your second post on fixed absolute value related to trading capital.. this is true on the context of the total amount of trading capital on the account ..bu not as a fixed rule when entering a trade .. if our sl is always a fixed amonut of trading capital we could get stopped out more than many times .. risk on a trade should be on relation to the setup we are trading and at what point the trade becomes invalid... either on a micro mini or regular account proper capital is a must in order to take trades with risk related to setups ..

 

[sayaquira]

Demo account is a good way to learn how a Forex market is working. But it also an "ideal market circumstances" and very often very differ from live trading. You must remember that broker provides different conditions for live and demo trading. It can use many "dishonest tricks" such as surge of spread, bad delay and many others.

you are right alex on the fact that demo offers an ideal environment but no because of the way your broker treats your demo account .. it has to do with the way you treat your demo account and your emotions ..

 

[sayaquira]

I partly agree. Every trader knows they shouldn't break their rules, but how many do?? This is not a question of what should or shouldn't 'be', I am saying that there is a propensity for traders to behave differently when they are paper trading to when they are live trading. I am not so sure that trading micro-lots would be any different to paper trading. I'm sure many would be tempted to widen their stops because they will 'only' lose $100 as opposed to $500 or $1000 if it was the real deal. (I don't know the size of micro-lots)

I disagree with fixed % capital risk. Well, all I can say is that I ignored and still ignore the fixed % capital risk 'rule'. I say that risk is entirely dependant on skill and nothing else. Applying fixed % 'rules' means that two traders who are equally inexperienced will take different risks purely on the basis of their trading capital available. If the % is based on what a trader feels their level of development is at then it is really dependant on skill.

the issue with micro or mini is that probably the perception of the trader that he is using the dmo account to test his skills to make money with little money .. or his capacity to risk and get rewarded for it ... this is one of my main points on the issue of demo vs live ... new traders go after the money and not after the skills to trade on demos .. skill are the same on a micro or a mini ..

 

[sayaquira]

Demo trading or paper trading is ussually the first advice a new trader gets, so most new traders start their journey into trading with this advice and believe they are on the right track ... no wonder the statistics of succesfull traders is so small .. the most used phrase for new traders is " test if you can make money on a demo, 50k - 100k for you to trade and see if you can make money ..."

It seems that the only objective of demo bang in the head is to make money .. yea with 50k or 100k and no emotions on loosing them who cannot make money???

Skills development is a more proper way to define this first objective .. this is the first rule broken by new traders ..

 

[TheBramble]

once the trading has become stable and boring (wins/losses ratio acceptabble, profit/loss ratios acceptable, moeny management on target, rules followed at least 75% of the time, consistency on results), thenit is time to beging a next cycle with a different strategy on the demo ..

NO!!!! That’s precisely the time you DON’T CHANGE HORSES….this is exactly what you’re aiming for. Boring, profitable consistency.

Rules followed at least 75% of the time…??? This is a wind-up. Go on, admit it.

As for your second post on fixed absolute value related to trading capital.. this is true on the context of the total amount of trading capital on the account ..bu not as a fixed rule when entering a trade .. if our sl is always a fixed amonut of trading capital we could get stopped out more than many times .. risk on a trade should be on relation to the setup we are trading and at what point the trade becomes invalid... either on a micro mini or regular account proper capital is a must in order to take trades with risk related to setups ..

What’s a fixed risk got to do with probability of being stopped out? Risk is risk. Doesn’t matter what the setup. If you’ve calculated your pips/points to stop loss form entry – that’s your risk. You risk the same absolute amount every trade. You have no idea which ones are the ‘good’ ones and which are the ‘less good’. Your expectancy is the only thing keeping you in the game.
Any chance of using a spell checker on the next one…?

 

[jazzidee]

hmmmmmmm

Demo accounts will never make anybody a good trader. Newbs should go straight to live trading but with a broker that offer micr or nano lots. $500 will last a long time with a nano account. Demo accounts are for seasoned traders who wants to test a new trading strategy. :idea:

 

[sayaquira]

NO!!!! That’s precisely the time you DON’T CHANGE HORSES….this is exactly what you’re aiming for. Boring, profitable consistency.

Rules followed at least 75% of the time…??? This is a wind-up. Go on, admit it.

What’s a fixed risk got to do with probability of being stopped out? Risk is risk. Doesn’t matter what the setup. If you’ve calculated your pips/points to stop loss form entry – that’s your risk. You risk the same absolute amount every trade. You have no idea which ones are the ‘good’ ones and which are the ‘less good’. Your expectancy is the only thing keeping you in the game.
Any chance of using a spell checker on the next one…?

So you believe that a traders recipe strategy book is good with only one recipe. So you are master of one setup .. does that make you a successful trader? When on an airplane what is more important to know how to take off or to know how to land ... or to know how to handle an unpredicted emergency ... I would not suggest to any trader just to have one trading strategy ... markets change constantly so do conditions .. you mastered your 1st strategy .. it becomes boring .. stable .. why not use the free time while trading .. to develope a new strategy .. or you are going to wait and see that your strategy no longer works and only then go out to test a new one??? As for the 75% only automated trading has a 100% rate on following rules .. I would like to see statistics on manual trading with 100% rule following ratio...

 

[sayaquira]

What’s a fixed risk got to do with probability of being stopped out? Risk is risk. Doesn’t matter what the setup. If you’ve calculated your pips/points to stop loss form entry – that’s your risk. You risk the same absolute amount every trade. You have no idea which ones are the ‘good’ ones and which are the ‘less good’. Your expectancy is the only thing keeping you in the game.
Any chance of using a spell checker on the next one…?[/QUOTE]

I believe my post on the issue is clear on my position .. I do not agree with risk as a FIXED% of TC .. but this is an issue that can be argued and discussed .. Every trade has a different size of risk not a fixed one related to TC .. If you are not properly funded and cannot take the risk that the setup has .. either do not trade or develope a strategy with setups with risk size proportional to your capital...

As for the spell checker I will make you happy and use it .. sometimes speaking several languages can make you lazy on the details of spelling ...