There is an unfavorable outlook on demo trading merely for the fact that you can’t generate profit with virtual money. A lot of traders essentially think that it is a waste of time and nothing like the real thing.
However, that is simply not the case. In fact, demo trading could prove to be invaluable when you are first learning how to trade the financial markets.
If you demo trade the right way, you can prepare yourself for when you start trading with real money. Here’s why!
Learn how to trade in a risk-free environment.
Owning a demo trading account allows you to practice and hone your trading skills without risking any real money, by trading with virtual funds in a real trading environment. Novice traders feel more confident putting funds at risk in the financial markets if they have a chance to put their trading into practice first.
Moreover, a demo account enables you to make common beginner’s mistakes without having to pay for the consequences out of your own pocket. After all, becoming a successful trader requires education and diligent practice.
Grasp the basics of trading
A demo account is a great way to learn about the markets. It helps you familiarize yourself with the technical side of trading. It also teaches you how to place entries, stops, and targets.
A demo account also lets you master the basic concepts of technical analysis including, trend lines, indicators, chart patterns and the way markets react when they reach important support and resistance levels.
Learn to Manage Your Emotions
Learning how to control emotions like fear, excitement, greed, and overconfidence can prove to be the difference between success and failure in trading. While it is true that demo trading doesn’t involve any emotions, but it can help you become familiar with these emotions, and hence practice disciplined trading.
So, what is the value of demo trading? A demo account will allow you to take your time in developing a comprehensive trading plan that incorporates risk management techniques and testing it to get an understanding of how your plan could work in real market conditions.
The most important thing here is to treat demo trading as if you were trading on a real money account. You can then practice your plan and amend it according to your goals and risk tolerance levels- until you are comfortable enough to jump into the real world of trading.