Is it important to practice trading?

Why practice?

When I got started I was keen to start trading with real money.  However, common sense told me that I needed to practice first.

  1. You need to become familiar with the trading platforms, their user interfaces and how to initiate and conclude trades on your chosen currency pairing (e.g. UK Pound versus US Dollar).
  2. During practice you’ll start to learn the basics of Forex day trading.  E.g.
    • How the trading pair perform
    • The times of the day that I suggest you treat with extra care, perhaps avoid committing to a trade during this period
    • How to select the right number of trading units to ensure that you don’t over-commit your trading account.  For example, don’t put all of your available funds into one trade, select the right number of units that block less than 50% of your total trading account value
    • The ideal trading scenarios, we will discuss these later in the next chapter
    • The impact on the currency pair of external influences e.g. economic, financial and political data

 

 

 

 

 

 

 

 

 

 

Practice and demonstrate success, otherwise try something else!

How long should I practice for?

Well there isn’t a definitive answer to this question.  My experience was that I practiced for two months initially when I first started contemplating trading.  I quickly learned that I was potentially quite good at reading the trends related to the chosen currency pair.  I wasn’t though using a realistic trading scenario, I’d set my trading account to 50,000 pounds with maximum leverage so basically it wasn’t representative of what my real world scenario was going to be.

After this, I stopped practicing because I was too busy and wasn’t sure that I had the funds to invest. Subsequently, a few years later I was sure about the available funds and decided to give it another go.  This time I approached if very differently, I created the practice account based upon the same conditions that I was likely to trade with real money.

Again, I was successful, on average I was making up to 2,500 pounds per week.  After 6 weeks I said to my wife, I think I’m ready.  In reality I wasn’t.  Trading with real money is not the same at all, the mindset is totally different and therefore your decision making is influenced by the sheer fact this is real money at stake.

When should I start trading with real money?

So, my advice is to practice until the following are true:

  1. You are making money week on week, you may have good weeks, you may have bad weeks, but the good weeks are more than accounting for the bad weeks.  If this isn’t the case, never trade with real money.
  2. You have really got to know the details of how your chosen trading pairs perform, times of day to maximise profits and also minimise risk and finally how they perform under external influences etc.
  3. Your mindset is hardened to ‘not getting it right first time’. What I mean by this is, you’ll make mistakes, what you need to be able to do is treat it like its real money and also avoid the initial urge to panic.  Panicking will lead to losses that could be avoided.  If you’re still panicking, then you’re not ready for real money trading.
  4. You have set clear realistic objectives.  There is no point in starting real money trading if your objectives are unrealistic.  This just puts extra stress on you as a trader, this is likely to result in bad decision making and ultimately avoidable losses.

Once the above criteria is met you should be ready to make the transition to real money Forex day trading.