There are many benefits and uses for a Metatrader demo account. While some uses (like training) are more obvious, other benefits of using a Metatrader demo account (like testing for drawdown) are less obvious. In this article, I’m going to show you how to get good use out of your MT4 demo account, whether you’re a student or a seasoned professional.
When most people think of demo trading, they picture a learning process involving an inexperienced trader. In fact, many of the best professional traders are actively involved in demo trading (in one form or another). That’s because live demo trading can do more than just give you some experience in the market, it can allow you to “test the waters” of the market at any time.
Before I go further, let’s go over some of the more traditional uses for a Metatrader demo account.
Some Uses for Metatrader Demo Accounts
Training – Training is one of those obvious uses for demo trading. Getting experience, especially in live market conditions, is a must for all new traders. Learning what it’s like to wait and watch for good trades, and learning how easy it is to lose money can be done without actually losing money.
No trader should risk their hard earned money until they have demo traded successfully for at least a few months. The only honest way that you can keep track of your actual successes and failures is to keep a meticulous trading journal. We tend to have selective memory when it comes to our win/loss percentages in one way or another. The numbers don’t lie! If you’re serious about making money, you need to keep a trading journal.
Testing – Many professionals are looking for that extra edge over the market. How could your trading system benefit from adding a new indicator or chart reading technique? Perhaps your system would have far more success if you removed a hindering rule. The best way to answer these questions (without risking unnecessary losses) is to demo trade your new ideas.
Many seasoned traders know about this obvious advantage, and use demo trading to tweak and perfect their trading system or methodology. Whether you’re learning a completely new trading system, or trying to improve an old one, using a Metatrader demo account just makes sense.
Market Awareness – This is one of the lesser known uses for demo trading. No trading system works perfectly every time. No matter what system you are using, you will experience periods of time in the market that are less productive or counter productive when combined with your trading system. These periods of inconsistency in your system are known as “drawdown.”
I say “inconsistency in your system,” because there is relatively no inconsistency in the market. The market can and does change whenever it wants, and it is very consistent in doing that. There is, however, a way to limit your losses during these periods of drawdown.
When your trading methodology has handed you a few unexpected losses within a short period of time, you can immediately stop trading live; and instead, start demo trading with a Metatrader demo account or something of the sort. You should use the same setup and rules when you are demo trading that you use when you are live trading. When your trading system starts gaining traction again (so to speak), and you feel confident in your system again, you can start live trading again – effectively skipping your drawdown periods.
Now, I know this is not an exact science, but using these techniques can save you a lot of money in the long term. As I’ve demonstrated, there are many uses for Metatrader demo accounts. Whether you’re just starting to learn how the market works, or you’re tweaking your trading system to perfection, demo trading is an indispensable tool.