Sometimes in life, it pays to jump right in. That's not the case with day trading.
Practice Stock Trading may not make perfect in this situation, but it increases the chances of making this an actual career. You risk money when you day trade, and protecting your investment depends on you.
In this article, we will explain what a demo or paper trading account is and then mention some of the top reasons why you should consider using it.
What is a demo trading account?
A demo account is a feature that most trading companies provide their customers with (for example, We have TMS™). It is an account that gives them access to the live financial market without having them risk their real money.
A demo has all features and data that a real account has. It also has fake money that you can use to practice trade with.
A demo account is mostly used by someone who is starting their trading journey. However, at times, many experienced professionals also use a demo account regularly. For example, they use it when testing a new trading strategy or a robot. They also use it as part of their analysis.
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How long should you stay in a demo account?
A common question among many new traders is on how long you need to spend in a demo account. The answer to this question is that it depends on your current stage, the time you are dedicating to trading, and how fast you are getting it right.
If you are an extremely new trader who is practicing it on a full-time basis, then we recommend that you spend at least 3 months in a demo account. While this may seem like a long time, it will help you learn more about how the market works. Most importantly, it will let you experience different market conditions.
Benefits of practice day trading with a demo account
- Gain Experience Rapidly - If you only trade during market hours, it will be years before you're anywhere close to being an expert. Use the hours when the market is not open to Practice Stock Trading, analyze potential trades and refine your strategy.
- Getting Ready to Make Fast Decisions - When you are familiar with an activity, you know what to do immediately. But you need to Practice Stock Trading to achieve the same level of skill and knowledge. There is no time to deliberate about a trade, because day trading happens very rapidly.
- Become One with the Market - As cheesy as this sounds, practicing regularly helps you develop intuition about the market, and it will come very much in handy while trading stocks. This is because market conditions change often, and you need to be able to figure them out in time.
- Show Yourself You can Do It - When it comes to being successful at day trading, confidence is crucial (but avoid overconfidence). The best way to gain it is by getting plenty of practice before committing yourself to the real thing.
- Learn How to Roll with the Punches - As a day trader, you're going to win some and lose some. No, trading is not always a winning proposition. Either way, you need to enter each new trade with a clean slate, forgetting about wins or losses forget as soon as you complete a trade. Practicing let's you do so in a safe, controlled way.
- Figure Out How Much You can Make - As a novice, you may hope that your charts show you the secret to making a big win. This is a long way from reality. It pays to be realistic about how much you can earn as a day trader, and by practicing you can figure this out before quitting your day job.
- Develop a Healthy Respect for Charts - Without getting enough practice, you're liable to rely too heavily on charts and may put too much emphasis on various setups.
- Develop Your Own Trading Style - Day trading is complex, and there is no one solution for everyone. With practice, you'll develop your own way of trading and will learn to take responsibility for your actions.
- Become a Good Money Manager - By day trading with a margin, you can make use of money that you do not have, but it is a risk that requires evaluation. Think of the trades that you make when you Practice Stock Trading as real money and take them seriously.
- Train as you would trade live - Your success in day trading often depends on your intuition. Feeling the movement of the market contributes more to learning how to day trade than studying charts. Practice Stock Trading in an active market environment to know how to react to sharp up or down changes.
Tips for using a demo account
There are several important tips you need to remember when using a demo account. First, always start with the same amount that you intend to start trading with. For example, if your goal is to is to start with a $10,000 account, ensure that this is the amount of money that is in your demo account.
A common mistake that people do is to use extremely big accounts. Using the same amount of money will give you a feel of how your trading will be.
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Second, always assume that you are using real cash when trading with a demo account. In other words, don’t assume that you are using fake money. In most cases, you will not make progress since you will be creating a separate demo account after the first one loses money.
Third, like in a real account, avoid over-trading. As you will find out, excessive trading is one of the biggest mistakes that you can do as a trader.
As eager as you may be to jump right into day trading, devote plenty of time to practice first. By doing so, you'll set the stage for a long, successful career trading stocks.
There is no better way to learn day trading than through experience. But to not blindly risk your money, you should go through the demo mode.
And treat this fake mode as if you were actually trading to really benefit from it.
We have listed 10 good reasons why gaining some basic knowledge by trading directly in the markets is essential. Do you think we are missing any important ones? Let us know!
External useful resources
- How long did you practice day trading before you started generating profitable trades? - Quora