Forex Q&A Podcast Episode 6’s question is a great one. A very important one. And one that a lot of you have screwed up royally in the past.
As always, you can listen to the podcast for this question below, or simply continue reading on…
The title always gives it away, but here it is officially…
“How long should I demo trade before transitioning into real money”
– Callum from Scunthorpe, UK
I love this question, it’s such an important one. Sadly, it’s one that allows for some of the worst trading advice available.
If you would like to listen to it here, you can, otherwise keep right on reading below.
More Bullshit Responses
It never fails.
If you ask some random “expert” how long should you demo trade, you’re going to get some wishy-washy answer that doesn’t help you at all, and will probably hurt you in the end.
“Trade until you feel comfortable with your platform, then start using real money right away”
Great answer, if you want to lose all of that real money.
“Demo trading is not real trading. The sooner you trade real money, the better.”
Right, because why develop a system that is proven to work, when you can just not? What could possibly go wrong?
I have a rule that I don’t call out any individual websites/videos/podcasts that I disagree with (unless they come at me first, then it’s over), but when I see things like this I get angry.
This is the type of advice that causes new Forex traders, people who have taken the initiative most people are scared to take, to go broke in a very short amount of time. Not. Fucking. Cool.
If you were to ask this question yourself, you would want an answer you can go out and execute on — an answer that makes sense. You want an answer that has a real reasoning behind it, and one that is in your best interest even if it’s what you don’t want to hear.
For Those Of You Unfamiliar…
I forget sometimes I have BRAND new traders on here, so for you, let me very quickly explain demo trading so we can move on.
Almost every online broker out there will allow you to trade fake money so you can used to their platform before risking real money. This is great, and never go with a broker who doesn’t allow this.
It’s called “demo trading”, and as much as you’re all excited about making millions of dollars in Forex, you absolutely have to do this first. And it’s really fun. I look back fondly on my demo trading days.
But you will lose your money immediately if you don’t demo trade first, and the question this week is “how long should you do it”?
You need a 6 month sample size where you have made at least a 6% return on the money you started with. Only then can I recommend you start trading your actual hard-earned money.
And that 6 months is probably not going to come in the first 6 months, so you will have to learn to be patient. This is great however, because patience is one of the 3 main virtues you need to trade successfully.
I just lost half of my readers after that last paragraph. No worries, they’ll be back after they fall on their faces.
“Booooooo, I want to quit my job NOW, not years from now. This blog sucks.”
I got news for you kid, it ‘aint happening. Not anytime soon. At least I’m trying to save you the money you already have. You’re….welcome?
How I arrived at 6%
The S&P 500 averages just under 12% return every year. That’s really good. Fortunes have been made on putting your money there and doing absolutely nothing else.
For those of you not paying attention, a 6% return in 6 months puts you on pace for a 12% yearly return. If you’re not doing that, I would be doing you a disservice by telling you to put your money anywhere else but the S&P 500, because that will be your higher ROI than what you’re currently doing.
Of course, if you’re going to do that, wait until the next recession hits. We’re grossly overdue. Get in cheap.
But for the rest of you, use this as your benchmark. If your demo trading account starts at $50,000 (many do), you want to aim for at least $53,000 at the end of a 6 month period.
If you don’t get there, keep trading until you do. But remember, it has to be a 6% return in the LAST 6 months of your trading.
And no cheating. If you have some freak trade that gave you over 6% in one big move, don’t just stop and say “ta-da!”. You didn’t really win. This is a fake result, because the chances of it happening again, when real money is on the line, is tiny.
Demo Trading Is Awesome!!
You want to make money, I get it. But this is the most fun part of Forex.
This is the part where you build the system, you’re own unique system, that will make you money for the rest of your life. Yes, rest of your life.
How much longer do you plan on living? 30, 40, 50 years? And you can’t wait 6 to 18 months to make sure you get it right? FOH
And if it all falls apart, you can just hit the proverbial reset button, and start back at $50,000 or whatever your starting number was. Take advantage of this great opportunity, because it doesn’t exist in real life.
Nerding out and building your little empire is something you’ll look back on with a smile too, I can guarantee this. When you discover a new tool that, when added to your current system, makes everything much more successful than it was before — the euphoria that comes over you cannot be measured.
It actually feels even better than making real money. You’ll understand what I mean someday. I hope.
What To Do After You’ve Passed My Trial
You then trade real money. But a very small amount. Then you repeat this trial again with the real money.
I am 100% certain this will happen to you…
You have a system, forged from your demo trading, and you follow it religiously. In doing so, you have taken emotion out of the equation, which is crucial. You are bullet-proof. You are ready to trade real money.
Then you trade real money. And your trade is moving. You’re hard-earned money is going way up! Or way down!
You start to experience emotions you never had before, and you don’t know how to handle it.
And you do something stupid. And then you do it again. You can’t seem to stop doing these things, even though you know they’re wrong.
And congratulations, you just self-sabotaged your entire trading, and in turn, you’re trading account.
It WILL happen. Make sure it happens with a very small amount of money, okay?
From here, once you do succeed, you can start putting a heftier amount into your trading account, or you can use the past successes to document and show a trading firm you know what you’re doing, and hope they can give you a look. I covered both options in Episode 5.
Demo trading is a part of Forex trading you cannot skip. It is absolutely forbidden. But, and I cannot express this enough, it’s the best and most fun part of the whole ride.
And you get to do it risk-free!
Very very few things in life allow for this. Take full advantage.