When a beginner trader enters the forex live market they are often very excited by the thought of making large amounts of money without manual labour. However, forex live trading requires hard-work and dedication which is sometimes more than new traders are able to commit. In order to be a successful trader you must be prepared for this market, which is why it is recommended that all beginner traders open a demo account. This demo account allows one to practice their trading skills in a simulated forex environment and determine whether they are suited to this environment.
Absence of a trading plan
The increased availability and accessibility of demo accounts has caused new traders to trade without a suitable strategy. This is highly damaging as it causes one to believe success on a demo account means success in the forex live market without a trading plan. All the trades will be based on gut instinct and emotions instead of a solid trading strategy based on technical analysis. This will always lead to inconsistent and unknowledgeable trading thus incurring successive losses.
As can be seen it is vitally important to have a strong trading plan when you begin trading, even if it is via a demo account. The demo account should not be seen as a place to ‘fiddle about’ but as a platform to test your strategy and hone skills.
Inattention on the forex live market
Trading via a forex demo account is arguably much more beneficial and simpler than trading live. This is for various reasons including that when you divert from your trading strategy you will not have the concern of losing personal trading capital. Unlike the live market where you are working with real money, the demo account allows for virtual trading with virtual currency. This being the case one does not experience the consequences of losing focus. However, this is not the case when trading with a live account as you will stand the chance of detrimental losses should you lack discipline.
A lack of discipline and inattention is one of the core reasons traders fail when trading forex live. It is often due to bad habits learned when using the demo account whereby they were not responsible for any bad choices. The most effective way to regain focus and instil a sense of discipline is by having a ratio of trades. This ratio of trades will be implemented in your strategy against the trades where you have diverted. The ratio must be small to ensure no diversions will be encountered.
Divergence from the market
The forex market is highly volatile and in constant flux, and in order to trade effectively one must adapt to the movement. If you are unable to do it is inevitable that you will experience losses instead of profits on trades. In order to be successful at adapting one must identify when the market will change direction. This can be done through technical analysis where one looks at the markets trending history.