The Best way to practice forex trading is by opening a forex demo account and testing a beginner-friendly trading strategy with free virtual money that a broker provides. This article explains tips that can help you train how to trade the forex market correctly.
Table of Contents
5 Tips to Help You Practice Forex Trading the Right Way
1. Choose the Right Demo Account Balance
Did you know there are forex brokers that allow traders to set their preferred account balance when opening demo accounts? Examples of such brokers include FXTM. You can open a free demo account and set your trading capital from as little as $10. Have a look at the screenshots below:
Setting an amount equivalent to the amount of trading capital you will deposit when you start trading on a live account is a good idea. Have a look at this scenario: A forex mentor tells their students to practice how to trade forex on a demo account with $10,000 virtual money. The mentor recommends targeting a 5% return on investment per month. That is $500 monthly, and as usual, it can be either less or more.
The beginner makes good profits with the free money until he or she gains confidence in trading with real money. When the trader opens a real account and begins trading with real money, he deposits $100 and then tries to make the same profits he was making on a demo account. Wait a minute, is this trader even serious?
This is actually where poor risk management forces many traders to quit the market because things are not working out as expected. So, what should you do as a beginner who wants to build a successful career in the forex trading business? Simple! Use the same amount of trading capital on both demo and real accounts.
2. Back Test a Trading System
Do you have time to find out if the trading strategy you plan to use could have made you profits consistently in case you started using it a few months or years ago? If you said no, you are in trouble, but don’t panic! Just keep watching…
Most beginner traders do not have time to backtest a trading system because they want to start making money as soon as they install a trading platform. Making money is not a bad idea, in fact, I love money as much as you do. But listen to this… What process are you going to follow to make that money? Do you have the skills? It’s a good idea to establish a good foundation when starting a forex trading career.
So, take your time to find out how a trading system could perform if you could have used it some weeks ago, months ago, or years ago. That is what is called backtesting in forex trading.
3. Forward Test a Trading System
The next step after backtesting is forward testing a trading system. Now that the results you got when backtesting proved that the trading strategy could have given you consistent profits if you started using it some time back, what you do in the forward testing stage is to simply trade on a demo account with the free virtual money your broker gave you.
Please do not waste time forward testing a system that you have not back-tested. You don’t know whether it can provide reliable profits or not, so there is no point wasting time in the forward testing stage. Remember that there are no shortcuts in forex!
4. Demo Trade Until You Are Sure
When forward testing, do not be in a hurry to start using a live account. Demo trade the strategy until you are convinced you can generate consistent profits. It doesn’t matter how long it takes. Scalpers, day traders, and swing traders can develop a sound trading system within a year, while position traders can find a working strategy after a few years.
Do not trade with free money for long. I know this idea contradicts the many statements you may have heard or read. But you must understand that trading the forex market with free money is very different from trading with real money. When dealing with real money, a trader’s emotions are involved.
But what is the need for trading on a demo account then? So you ask! A demo account lays a foundation for a smooth trading journey. Without it, every new trader would be required to practice trading using real money. Is that something anyone would want? Definitely not!
So, select one trading strategy, then use a free Demo Account for at least six months to test the strategy. If your personality aligns with the trading strategy, open a live account and deposit at least $100 for more practice. Don’t expect this money to bring you profits just yet.
Suppose the $100 brings in profits at the end of your practice period (on a live account), fine. If it doesn’t, find out why you are always at losses yet you were making profits when practising with free money. If you find out where you are making mistakes. make changes appropriately.
5. Demo Trade With EURUSD
EURUSD is the best currency pair for beginners. We talked about this in the previous video in detail. You can click the link at the top right corner to watch the video in case you have not.
Forex trading is not a get-rich-quick scheme. But if you can practice forex trading on a demo account by following the 5 tips explained in this article, the forex market will reward you significantly for being disciplined.
In the next article, I will teach you how to install and configure forex trading software on your PC or mobile device. Ensure you read the post because it marks the beginning of practicals in this forex trading tutorial.
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Disclaimer: Trading forex involves risks, and it's important to carefully consider your investment objectives and risk tolerance before participating in the forex market. The information on this website expresses our authors' opinions and is meant for general knowledge only. Even though OpWell Forex provides reliable Forex Trading products and services in good faith, our website's content is not intended to substitute for professional investment advice. Therefore, we shall not be liable for any loss incurred as a result of consuming any of our resources.