Demo trading is a waste of time

Conventional wisdom says to trade on a demo account until you are winning consistently, and only then do you start trading on a live account.

To a new trader, this sounds like good advice because it means he would only risk real money if he's almost certain to start winning right away.​

More often than not however, this won't work.

You see... this is all based on the assumption that you would trade in exactly the same way on a demo account as you would a live account. If that were the case, then yes, such advice would be effective.​

​In practice however, this assumption rarely holds up.

Trading is 20% strategy, 80% pain​

The reason why so many amateur traders believe in demo trading, is because they assume that the strategy is the most important aspect. They think that if they can trade successfully on a paper account, they can easily do the same on a real account.

Well here's the blunt truth: trading with no real consequence (demo trading) is vastly different from trading with the prospect of actual monetary loss (​live trading).​

In a computer game, it's easy to "drive" a car going at 200km/h. Now try doing that in real life and see if it's the same thing.

​In demo trading, there are no consequences. You don't really care if you make a million dollars or blow up your account. Because in reality, it means squat.

In live trading, wins and losses get personal. The prospect of making (or losing) a thousand dollars is going to mess with your objectivity and trading behaviour. This is something paper traders don't yet understand.

The core issue here is that people grossly underestimate the impact that emotions have on their trading.​

They think that the secret to trading lies in the strategy, when in truth, it lies in their mental and emotional resilience.

Sadly, amateur traders tend to stay way too long on a demo account, and waste time playing around in a consequence-free environment.

4 weeks of demo trading is more than enough​

This being said, demo trading does serve one useful purpose: to allow you to familiarise yourself with the trading platform.

If you're new, take some time to learn how to use your trading platform. Try taking some trades and get used to the trading process.

​Generally speaking though, this shouldn't take more than a few weeks. Anything more than that is likely to be an excuse to avoid taking risks.

​Risk is to traders like water is to fish. We live in it. So if you're not taking risks, you're not learning to trade.

Bottom line: the longer you hide behind the safety of a demo account, the longer you're putting off getting a real trading education.​

But don't risk too much

Now of course, you shouldn't start trading with the standard lot sizes. As we discussed previously, it takes time to build up your emotional resilience to handle such large amounts.​

That's why (and notice how I keep going back to the same point), you should just stick to trading with 1 micro lot for now.​

It's an amount that won't lead to large losses, while at the same time being significant enough for you to have some skin in the game.​

Remember, your learning doesn't truly start until there's something at stake.​

How's your trading coming along?​

So have you tried trading with 1 micro lot yet?

If you have, drop me a message (in the 'Contact Me' section below) and let me know how it's coming along. I'd love to hear your feedback!

​Best regards,
Chris Lee

P.S. Tomorrow's post: Why lottery winners go broke within 5 years...