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Thread: Why Demo Account Performance Is Often Better Than Real Account Performance

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    Default Why Demo Account Performance Is Often Better Than Real Account Performance

    Over the past several years, the popularity of online currency trading has grown substantially. Each day, online FX brokerage firms attract new investors - each of them lining up with a glint in their eye, lured in by promises of easy money. Most of these companies allow you to sign up for a free demo account which lets you place mock trades using their trading platform to get a feel for the excitement of currency trading. In the casual world of free demo accounts - many young traders find they are able to garner impressive profits without a significant amount of effort. It almost seems too good to be true. But transferring this success from a demo account to a real account is far less common. Why is this? The actual trading platform behaves the exact same way, the market doesn't care whether you're a demo or real trader - so what is different? It's you who has changed. Not your personality, not even your trading style - but the factors that affect you are different.

    What is the key factor to trading success?

    The search for the "Holy Grail" of trading has been a common theme throughout the history of markets. There are a variety of different techniques. Those whom are inclined towards number crunching and pattern recognition may prefer technical analysis, whereas those more focused on the big picture, logical macro perspective prefer fundamental analysis. Then there are specific methodologies like swing trading, trend following or even more esoteric ideas like the Elliot Wave theory. Which one is best? There are examples of very successful traders using each methodology.

    Since most new traders lose money - perhaps the more appropriate question to ask is, "What is the key factor to trading failure?"

    Greed and Fear

    Trading is an atmosphere rich in the porous emotions of greed and fear. The current price of a given security or financial instrument at any point in time can be thought of as the confluence of greed (bulls) and fear (bears). These two emotions make up the core of humanity itself. When market information is released, trading can be a high intensity experience. Sensing danger, your body releases adrenaline that acts to accentuate both your greed (fight) and your fear (flight). Because these emotions are so strong, they can cause you to act irrationally, ignore your system, stated set of rules or trading plan and to act upon impulse. Indeed, this is a genetically programmed response - but it is often also the trader's downfall, especially when he's playing with much better capitalized, more sophisticated and experienced foes that know how to manipulate those emotions.

    When you are a trader - you are always under the influence of at least one of these two emotions, even if you don't have any trades on.

    Impact of fear and greed on your trading

    If the market's going up and you're in - greed is telling you to buy more and fear is telling you to take your profits while you still can. If it's going down, fear of being wrong makes you hold onto a losing position - and then greed sometimes convinces you to "average down" your position (and buy more) so it'll be easier for you to come back.

    If the market's going up and you're not invested - fear is telling you that you're missing out on easy money but it's your greed that causes you to get in just after the greatest increase (just when its about to reverse course). If the market's going down and you're not invested - greed is telling you to get in as the price is cheap, while fear reminds you that you'll miss out on this opportunity if you don't act quickly.

    Perhaps if we just felt greed, or just felt fear we would be able to control our emotions a little better. But when both of these little devils whisper into our ears at the same time - it is often impossible not to listen.

    The Thrill of Greed

    The first time you try FX trading - you will feel the thrill of greed. It is an ecstatic experience, your brain flush with neurotransmitters and your mind giddy with visions of untold riches about to be reaped. Greed is bold, aggressive and incredibly exciting. It can take hold of you both mentally and physically. Just imagine the possibilities!

    This greed is what draws us into FX trading in the first place - the dream of easy money and 100:1 or 200:1 margin rates. It inspires us and causes us to forego rational thinking in favour of reckless abandon.

    In the movie Wall Street, Gordon Gecko says, "Greed is good", but it is also very dangerous - especially if you are unable to recognize when greed is the one doing the talking. Greed is also one of the most common techniques used to manipulate people. Every get rich quick scheme, promising untold riches for no money down takes advantage of your natural predisposition to throw all logic and sense out the window when greed pays a visit. The argument starts to appear very compelling and you ignore what would otherwise be clear warning signs. Like drunk goggles, greed can mislead you and when you eventually wake up you are often in a very precarious position.

    The Fear of Losing

    Fear can be equally as dangerous. The most potent and easily manipulated form of fear is your fear of admitting that you are wrong. Fear of having your precious ego bruised. This fear can cause people to do incredibly stupid things. The funny thing about this world is that everyone thinks that they are right. Most people would rather lose thousands of dollars than admit they are wrong. It is easy to feel ashamed of trading losses and live in denial but this is self-destructive behaviour. By denying the problem exists, you fail to take steps address it and only ensure that it will continue in the future.

    Demo Trading

    Demo trading is a great way to get started in foreign exchange trading. It is identical to real trading, except that you're using "pretend" money. Demo trading allows you to get a taste for what type of events move markets and how they move. It encourages you to learn more about geopolitics, macroeconomics and global finance and these are all incredibly positive things.

    Demo trading also introduces you to the rapture of greed. Trading is a means to one of the purest, most raw and potent forms of greed. The whole point of trading is to make money and the more money you make - the stronger the pull of your greed becomes. It is intoxicating and can take complete control of you.

    But demo trading does not introduce you to fear. There is no fear when you are demo trading. It is like you have a perpetual get out of jail free card. If you start losing badly on a demo account - simply start a new one. There is no accountability for your trading failures and only recognition of your trading success.

    So your demo account does not teach you how to handle the emotion of fear. This emotion is most likely going to lead to your downfall. Greed may get you overextended, but fear will stop you from cutting your losses. You may think that fear of losing money would cause you to cut your losses, but the stronger emotion is fear of being wrong and that causes you to hold on to your losing position - until it's all gone.

    There is also the issue of account size. Many demo accounts give you $50,000 to play with. This type of capitalization allows you to buy 5 lots (500K) of EURUSD pretty easily. If goes up 20 pips you've made $1000. Nice one. But when you open your real account - it's more likely that you put $5000 or $10000 in there to begin with. Now you're dealing with a 50K lot, which means you'll take $100 out of a 20-pip movement. But mentally you are used to getting $1000 for that movement so you usually end up risking more. Next thing you know - your 200K position has turned against you 50 pips and you've lost $1000. That's real money you just lost. You can't just start another account.

    The capitalization of the demo account is sufficient to sustain losses and still come out on top. But your real account is likely to be undercapitalized and if you're trying to achieve returns similar to what you got on your demo account - you are going to blow up very quickly.

    Being honest with yourself

    Ultimately, while providing an excellent introduction to FX trading - demo accounts do not accurately predict whether you'll be successful trading real money. Markets are dominated by psychology and often go against what fundamental logic or technical indicators suggest should happen. The single most critical factor in your trading success will be your ability to control your emotions of greed and fear. These emotions cloud your judgment and cause you to trade recklessly. Demo accounts introduce you to the emotion of greed, but by their very nature they are risk free and therefore there is no fear involved. They are also likely to be better capitalized than your real money account, which misleads you with respect to the amount of returns you can expect to earn.

    For all of these reasons, demo accounts allow you to avoid being honest with yourself and this is perhaps the most important factor of all. You need to know your edge and your limits and in order to know these - you must be honest with yourself.

    This being said, demo accounts are still very entertaining and educational and I highly recommend opening one to anyone who's interested in getting a taste of the exciting world of FX trading. It's a great way to learn more about economics, global politics and yourself.

    Article source:
    http://mybestdigitalproducts.com/Res...ding/24004.php
    Last edited by wcforex; 07-18-2007 at 09:55 PM. Reason: Forum rule #11 violated

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    totally, totally true....

    *** greed and fear ***
    the worst trader enemies, but the enemies that live within us. i think the major problem is the strong attachment to the outcome.

    with demo money those little persons i have mentioned before are not alert.
    when real money is in game they tend be in their maximum peak. they can make us overreact and lose objectivity. make us unsure, doubt, tension and other unwanted things.

    a big problem i have while trading with real money is first i enter a trade because i am really sure. but suddenly the market goes against me and suddently i exit. when i exit i think 90% of the time, the market makes a big rebound but i am out of the trade. so.... it has even made me think that the market is against me what is insane.

    but those are wired feelings we have to control and i am looking for ways to do it, lately i have found a technique called NLP. which i think is really great suppressing those feelings.

    hope this helps

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    Quote Originally Posted by acidguy View Post

    but those are wired feelings we have to control and i am looking for ways to do it, lately i have found a technique called NLP. which i think is really great suppressing those feelings.

    hope this helps
    NLP what kind of technique....
    would you mind shere your technique with us...
    i read all in your link that you show to me... and I think the best part of it is "Being honest with yourself"

    thanx for posted this one

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    NLP can be an abbreviation for: * Neuro-linguistic programming - a field of human endeavor concerned with empirically studying and modeling human performance and excellence, with the goal of creating transferable skill sets, founded by Richard Bandler and John Grinder and others in the 1970s.

    It seems to me to be a way of manipulating your mind to achieve the results you want.

    This above info, I got from google.

    we should hypnotize and control your mind, emotion, etc.

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    in ********* Demo Account Performance Is Often Better Than Real Account Performance also

    I think in all broker the same

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    DEMO means training... while REAL means profiting... just a thought.

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    Demo account doesn't give the effect of your pyschology but the real account does.

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    There is another thing besides putting 'the blame' to the traders.
    Demo accounts are treated differently than real accounts by the brokers, even when they are in the same server.
    Mainly the difference is in the hedging. Positions in real accounts are subject to hedging by the brokers to offset the risk. This thing is not needed for demo accounts.
    As such, the execution speed for demo accounts is always better than for the real accounts, hence we always get better price in demo accounts than in real accounts.
    This will be felt especially for scalpers than for long term traders.

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    Director of FXOpen Aus FXOjafar's Avatar
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    Quote Originally Posted by MRSaad View Post
    in ********* Demo Account Performance Is Often Better Than Real Account Performance also

    I think in all broker the same
    That's because they are a bucketshop, not a broker.
    Performance in FXOpen is the same in demo as in live. Try it and you will see.
    Jafar Calley - Director
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    AFSL:412871 ABN:61 143 678 719
    http://www.fxopenaus.com

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    IMHO Demo account is an IDEAL trading, environment
    Visit 0.90 Pip Rebate Here
    Forex Rebates, Promotions, and $$$ BONUS!!
    Click Here!

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    Quote Originally Posted by yohanip View Post
    IMHO Demo account is an IDEAL trading, environment
    Hehe. It's only ideal because if you wipe out, you can just open another $1,000,000 demo and start again
    Jafar Calley - Director
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    Level 26 • 1 Bligh Street
    Sydney NSW 2000
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    AFSL:412871 ABN:61 143 678 719
    http://www.fxopenaus.com

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    Quote Originally Posted by RebateFX.com View Post
    Hehe. It's only ideal because if you wipe out, you can just open another $1,000,000 demo and start again
    That's true and thats the one giving a positive wind to the emotions..
    a good trader is allways ready to pull all loss he/she may encounter and ready to deposits more..te-he..

    I find it hard to believe at first that FXOpen demo account performance is the same as Real account performance, but..experiences tells you so..
    Visit 0.90 Pip Rebate Here
    Forex Rebates, Promotions, and $$$ BONUS!!
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    my biggest mistake is doing average
    greed & fear ruin my psico make me nervous
    now, i try to learn from mistake

    wish me luck
    Remember.
    Trading is not a sprint but a marathon. Compounding money is a powerful thing.
    Be patient and persistent
    Exercise discipline
    Always, Always use stops loss
    Protect your profits at all times.
    Accept your losses like a man. If you cant accept your losses you will become a nerverous trader.
    When in doubt stay out.

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    Quote Originally Posted by panca View Post
    my biggest mistake is doing average
    greed & fear ruin my psico make me nervous
    now, i try to learn from mistake

    wish me luck
    Well, if you really do learn from your mistakes, they are no longer mistakes, but lessons.
    Jafar Calley - Director
    FXOpen AU Pty Ltd
    Level 26 • 1 Bligh Street
    Sydney NSW 2000
    Australia
    AFSL:412871 ABN:61 143 678 719
    http://www.fxopenaus.com

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    Get this qoute from author 4x4u.net
    “Failure is a man who has not learnt from his blunders. If you are able to cash in on that experience you are on the path to success”
    – Jay Lakhani, Forex Trader
    Remember.
    Trading is not a sprint but a marathon. Compounding money is a powerful thing.
    Be patient and persistent
    Exercise discipline
    Always, Always use stops loss
    Protect your profits at all times.
    Accept your losses like a man. If you cant accept your losses you will become a nerverous trader.
    When in doubt stay out.

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