Before you trade live with Forex, you are going toneed todemo test forawhile. This istrue whether you are using fundamental ortechnical analysis, price action, orsome other method ofdetermining your Forex trades. It is true whether you have traded another commodity before ornot. It is also true whether you have backtested ornot. Alot ofbeginners ask how long it is going tobebefore they can become live traders, andtheanswer isusually, "Longer than you think." Beyond that it is going tovary with every person. About how long should you plan ondemo testing before you golive?
Ifyou are demo testing, you have probably already established some kind oftrading method which was successful inbacktesting, atleast tosome degree. Ifyou have asolid foundation, you can open anaccount with aForex broker andtrade virtual money forfree, usually indefinitely, before you invest real money intheforeign exchange market. How long you demo test isgoing todepend inpart upon thetimeframe you are going tobetrading. Position traders who stay inForex trades forweeks ormonths obviously will have todemo longer than intraday traders who stay intrades forhours ordays. Even ifyou are doing intraday trading onvery short time periods orif you are scalping, you should plan todemo test foratleast afew months before you golive.
Why demo test that long, even ifyou are trading onafast timeframe? Demo testing isabout more than just proving your method works successfully andconsistently inreal time (though that is thebiggest part ofit). It is also about getting toknow yourself asatrader. While demo testing Forex, you are going toencounter alot ofunexpected situations. You might discover that you can only trade during certain days orhours forexample— that is something you probably overlooked with your backtests. You may find that you are too tired totrade during nighttime hours, even though you backtested that time period. Oryou might find out that you have toset upacomplex alert system toknow when totrade. Maybe you did not realize how stressful trading could beinreal time. There are alot ofreasons that you may find trading more difficult indemo phase.
It is important toiron out asmany ofthose issues asyou can during theForex demo phase, while you do not have real money ontheline. Once you deal with those complexities andunderstand how trading will fit into your real life and you are consistently profitable forseveral months, you may beready totrade. Four tosix months isagood timeframe todemo before going live (that is four tosix months ofconsistent profit). Atavery minimum, shoot fortwo tothree months. Andremember you can always goback todemo testing ifthings do not work out when you golive— it is very common andithappens with alot ofForex traders. You will also probably routinely goback todemo every time you have tomake amodification toyour trading method.
