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How to Practice Before Trading Live

Discussion in 'Forex Discussions' started by painofhell, Sep 24, 2015.

  1. painofhell

    painofhell Content Contributor

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    Talking Points

    The Value of Practice

    How to Practice

    What Practice Can't Teach You


    "Tomorrow’s victory is today’s practice." Chris Badford

    Practicing how to trade is little understood. When it comes to trading, there are some critical trading characteristics that practice trading can teach you and at the same time, to neglect practice is foolish depending on how you define practice. This article will take a wider view of practice but will also make sure you have a system to replicate when you're ready for live trading.

    The Value of Practice

    Some traders spend months getting ready for live trading but make no mistake that others can take years. There are different reasons for the length of practicing and no two traders are exactly alike.

    Experienced traders understand that trading with little capital and low usable margin makes trading increasingly difficult. Therefore, it's often better to build up your capital base without exposing to risk while learning about the market so that by the time you have a healthy capital base, you know how to appropriately enter, exit and when. So practice has multiple benefits in the realm of trading, first to help you understand how the market works and second, to develop a methodology for trading while building a capital base.

    How to Practice

    Many traders take a technical approach where as they look to chart patterns to enter the trend as part of their processes. If a trade is entered based on a pattern and the pattern invalidates or breaks against the larger trend, it is advised the trader exits so that they're not in the trade on hope alone.

    Based on this approach, the first thing a trader learning how to trade can focus on is recognizing patterns on the charts.

    Personally, I have about 15 patterns that I look to on the charts to decide whether the opportunity is there or not. In addition to the chart patterns, I look to see if I can understand the fundamental stories that complement the charts. If a fundamental shift is developing and the charts agree with the shift then you may have recognized an opportunity worth trading. A key benefit of the FX market is that opportunities are like trains in that there's always another one and therefore, it's best to wait until you have the appropriate capital to trade with because a correlating fundamental story and chart pattern will eventually arise for you to trade.

    What Practice Can't Teach You

    You were recently introduced to the somber truth of the FX market. The purpose of that series was to help you see that only those without something to sell you will tell you that trading is a battlefield. The difference between the trading battlefield is that you must also fight against your own mental shortcomings as well as others that are trying to take money from your account so that they can add it to theirs.

    Unfortunately, a practice account doesn't show traders a few key concepts. First, liquidity is a finite good in the real market and not in the practice account. Liquidity is the ability to get out or in at a certain price. Second, the emotions if present at all, are miniscule on a practice account compared to a live account. No trader, losing on a practice account has to explain to investors that a larger percentage forecasted has been lost due to an unforeseen move. This means it's important to have a way to handle the emotions that most certainly come with live trading. Lastly, on the other side of risk and losses is large gains. Some of my biggest mistakes early on came from exiting great trades for no other reason than to book a profit. Sadly for me, some of those trades I exited with excitement were only just beginning and I was emotionally unfit to enter them out of fear.

    Summary:

    Practicing allows you to improve your strategy while you build your capital base and learn how to see higher probability trades. A technical trader can spend their time recognizing chart patterns and looking at news to confirm those patterns. However, outside of a practice account, traders would do well to focus on how they will handle emotions that come aside live trading.
     
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