Demo trading certainly has advantages for new traders. However, what are the differences between real and demo trading? Why real results usually don't meet the demo expectations?
AtoZForex – Many traders make profit easily on demo trading, but often lose when they trade on a real account. Newbies become disappointed with what happens in real trading, with many giving up without understanding the reasons for the failure. We will take a look at why this happens and dive into some knowledge about the differences between the demo and real account performances.
Why traders make a profit on Demo trading?
Traders make a profit on a demo account for many reasons, including psychological reasons. When traders try demo trading, they get virtual money and hence have no fear of trading with that money. Also, they have no tension or pain for losing money and trade using high lot sizes, without any real understanding. Additionally, their profit increases substantially, boosting their ego and self-confidence trading the high lot sizes.
Moreover, there are no emotions (greed, fear) involved in demo accounts, so that traders can trade freely. Hence, trading without emotions can result in good trading results and make good profits. Furthermore, traders can take any kind of risk in demo accounts without having any fear of losing trades. Therefore, traders can take high risks in news time and make huge profits. Finally, in demo trading, traders don't spend much time carrying out their own analysis.
Reasons for failure in Real trading
Traders tend to repeat their demo performances in real accounts but they fail to make money. There are a number of reasons why traders fail in real trading, even if they made a profit on demo accounts.
When traders trade with real money, they feel a lot of tension using their own money as they don't want to lose it. Hence, this tension (fear) can cause traders to trade poorly and start losing money. Additionally, emotion can be a great problem in real accounts, as traders feel afraid and that affects their psychological state not giving them the chance to trade professionally and rationalize their decisions.
Finally, traders usually close the trade directly after seeing a small profit, such 5-10 pips. Hence, they miss huge pips from their trade, while trying to protect their funds. However, even if there is a possibility to get over 100 pips, they are happy with their few pips. That is usually happening due to fear of losing money, this limiting the real trading potential of investors.
How to make a profit from a real Forex account?
To become a successful trader, you should learn how to control your emotions during trading. The book by Selwyn Michael Gishen “The Artful Trader” lists 5 emotions that can kill your profit. Even though it is impossible to control your emotions completely, traders should aim to reduce their emotions to a certain extent. Also, it is important for traders to follow correct money management so that traders do not deplete their account easily.
Additionally, a trader should have a good strategy that can give regular profit. Hence, traders should develop a profitable strategy to make money on a continuous basis. Finally, Forex traders have to cut their losing trades and run their profitable trades. This would increase trader’s equity and result in profits from real accounts.
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