Demo-Trading and Why Should You? - Part 2
Many individuals who decide they want to day trade or short term swing trade make many foolish mistakes. They pull money out of their savings or where ever they have some money stashed and open a trading account with an online brokerage firm. Now, even though many brokers do require funds to open a trading account, the wise new trader will limit that amount to the least amount necessary. Minimizing this amount will also reduce the new traders urge to place a live trade, before they are ready. You should only deposit the amount of funds required to get the trading account opened and ready for trading -- but not, live trading.
The new trader should begin with laying out their trading platform to their satisfaction. Set up your platform with charts, Level II’s and Time & Sales windows for the number of stocks you wish to watch during any one given day. A watch list is a valuable tool for a list of stocks you want to keep an eye on. You may also want to monitor the chart for the DOW and or the NASDAQ as well. These two charts will assist the trader on the overall direction of the market. Learn how the trading platform operates. Learn how to place trades -- in demo-mode. Learn how to set up your charts and seek the assistance of a professional service for appropriate Chart Settings. Learn how to read the Level II and Time & Sales. These features are important or they wouldn’t be used by a majority of traders on Wall Street. These tools will become part of your lifeline for successful trading, in due time. Before that time, you will be using the trading platform in the same manner that you would when live trading. The main difference is, you will only do so, while in demo-mode.
Depending upon the number of monitors the trader has, you should allow at least one monitor for the service you wish to utilize, such as Millennium-Traders. The service you select should provide quality stock picks during the market session. You shouldn’t participate in a service thinking that you can duplicate their performance, you are smarter than that. There are too many variable factors which would prohibit a trader from duplicating a service or another trader, for that matter.
These smart beginner traders proceed with working to develop their own, individualized, trading strategy. The first part to an individual’s trading strategy involves determining how much money (demo-funds) will be wagered on any one trade. That means that, when the first demo-trade is made, that amount of demo-funds will be deducted from the demo-trading account. This amount can also be lost on the first demo-trade the trader makes. Therefore, the smart trader maintains control and resists the urge to risk their live trading capital until; they know what they are doing. Practice making demo-trades based on the amount of live trading capital you will utilize, in the future. Don’t make a trade, if your live trading capital funds would be exhausted. If you intend to only trade once stock at a time when you switch to live trading, you should still limited the funds on that one trade. By placing trades based on the limits of your real trading capital you are practicing how you will trade, when you switch to live trading. When you take a loss on a demo-trade, that means you need to reduce the amount of demo-trading capital you have available. Remember, when you go live, when you take a loss, that loss will reduce your live trading capital so -- practice how you handle losses while demo-trading. This will enable you to be prepared for the losses you take, when you switch to live trading.