So you want to start trading but are afraid to lose real money? There is a great solution you can use right now. This will be extremely helpful if you have no experience in FX and want to minimize any kind of risks.
In this article, we will suggest the FX simulator software guide by LearnFX to learn more about simulation in Forex and make the first difficult steps easier and more effective. With everyone talking about simulation theory all the time, why not use this powerful tool for Forex trading?
Everyone starts with something, and it is crucial not to lose your funds before you know how to trade. After studying and developing your trading strategy or strategies, it is important to see how well they perform before real trading, but you also need to know if they are making money. To ensure this, you have to first backtest your strategies and then simulate real-time trading without risking real money.
How To Backtest Trading Strategies
Backtesting is a well-known term in Forex and stock trading, and it allows traders to take historical data and see how the trading strategy would perform and if it’s profitable. Despite this advantage, backtesting has its cons too. Historical profitability is no guarantee for future success, and you need to test strategy in a simulated environment that mimics real-time market moves and is almost like real trading.
For this goal, there is more than enough online software which helps to manage, backtest and even simulate real-time trading. First of all, you need good charting software like the Meta Trader platform, which provides reliable historical data about an asset you are interested in. After you get the data and charts, you can start developing trading strategies. Trading strategy development is a key element in successful trading. After you get some ideas of how to use strategy, it is time to backtest it on historical data and see how well it behaved if run on historic data.
But backtesting is not enough, and many traders fail to repeat the success in real-time trading because there are spreads and other commissions which were invisible during historical testing. Also, sometimes historical data doesn’t show quick price movements. All these are good reasons to test your strategy in a simulated environment. Simulated trading allows you to run through real-time trading faster, hourly candles can be loaded in seconds, and you can see your strategy perform in a real-like environment. In addition, it reduces the time you have to stare at the screen and is very comfortable.
Difference Between Demo And Simulated Trading
You may think this is demo trading, where you have fake funds and trade on real markets, but there are differences. In a simulation, historical data is being used to simulate real-like trading, and prices are moving at your desired speed. This removes time from the equation and is very comfortable.
On a demo trading account, you will need to wait for proper setups to appear, and depending on your strategy, you may feel frustrated staring at your screen for hours without proper trade. Removing the time variables from trading makes simulation a double-edged sword. You can trade faster, but it doesn’t mean real-time trading will be the same, with real economic events happening and prices moving according to those events.
Real markets are sometimes very volatile, and time affects trading greatly. Traders tend to overtrade or open any possible trade during no setups. This negatively affects their profitability. When markets are volatile and prices move very fast, gaps can occur on the chart. This means the price can move past your stop loss resulting in an even bigger loss. In a simulation, there is no such violent environment. So you will need to demo trade and test your strategy further before touching real markets.
After all the preparation has been done, you can go on and test the waters with a small account not to get caught in any violent volatility. We do not advise you to start trading with real money unless you got some experience with simulation and then demo trading. The recommended time span for demo trading is generally between 3-6 months. During this time, traders learn to develop and test their strategies, trade on the demo account, and control their emotions.
Note that emotional intelligence is the major cause of many traders’ frustration in financial markets. Do not overtrade, and be disciplined and patient. Patience and discipline are key in this field. You have to execute strategy flawlessly without exaggerated emotions attached to it. We can not emphasize enough how important it is to be disciplined in trading.
By Amey MyersAmey, an intrepid traveler and avid blogger, roams the world, absorbing diverse cultures, flavors, and experiences. Her writing captures the essence of her adventures, inspiring others to explore. Amey's infectious passion for travel and storytelling epitomizes a life filled with exploration and adventure.
