Keeping it Simple No.3 Trading Demo and the Learning Curve

Keeping It Simple.

5th August 2015 Kis 3 About Trading Demo

So here we are again thinking back to when I was a novice trader and how I can help with simple ideas related to trading. This time it is demo accounts and how you would trade them as part of your learning curve. Once again let us start with the basics so that everyone is up to speed.

Some will tell you that unless you trade live you will not get the right “feeling” when you trade so use a live account with very small trades but I happen to think that this is jumping the gun. Many novice traders may not have a large enough account to be able to trade insignificant lots so for them trading demo at the learning stage is the only option. As I mentioned in my first blog you first need to get to grips with your trading system so that you can be consistently successful over a period of time. It is only when you know your system inside out that you should risk “real money”. Surely this point is so obvious that I am almost embarrassed to make it. Keep your expectations realistic. (See blog No.2).

So until you have at least doubled a demo account (by following your rules) do not even think about going live, do not even think about real profit. There is the key to using a demo account. You must “FOLLOW YOUR RULES”. Whatever your system is, Wavy Tunnel or other, it will have rules and your measure of success is whether you have:

  • A good enough appreciation of the rules.
  • The patience to wait for the right setups.
  • The discipline to only take trades that fit the rules.

IF you want to experiment with trades that do not conform to the rules of your system then please have a second demo account for “messing around” in. This makes sure you do not screw up your track record in your main demo account where you are testing your ability to trade your system by following the rules. This is a message I regularly send out during the FX Traders EDGE London Trading Room.

OK so we accept that the purpose of a demo account is that it provides a training ground for you to develop your skills so now a little guidance on how to approach that. Here are some factual statements to set the scene:

  • Market moves are fractal. There are nested Elliott Waves within each larger Elliott Wave.
  • The M1 is too noisy if you are trading the H1 chart or higher but it is NOT too noisy if you are trading the M5 or M15 charts.
  • Trades take many candles to complete and this is different for each currency pair and type of trade.
  • You want your learning curve to be as short as possible (I presume).

Do you see where I am going? If you want to learn fast from live charts then you need to study the shorter timeframes because the trades crop up more frequently. If an impulsive trade takes 15 candles to complete then that is 15 hours on the hourly chart and it may be two or more days before the next trade develops. If you are on the 5 minute chart then the impulsive trade only lasts 1 ¼ hours and the next trade could be only 2 or three hours away. I know that the spread becomes more important on the shorter timeframes but that is not the point at this stage. You are simply learning to recognize the setups from your trading system. Everything you learn on the M5 chart is transferable to the higher timeframes where you can look for the same setups but be involved in longer trades for more pips profit.

To see my other blogs type “Keeping it Simple” into the Blog search box.

Blog 1 Get a Trading System

Blog 2 Managing Expectations

I hope this was of some help. See you next time.

Be patient.

Be disciplined.

Have fun

Neil.

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