Updated from its original posting on 2012-01-13
So you’ve been trading on a demo account for months now and you think you’re ready to go live. But are you REALLY ready? Make sure you go through this checklist before you invest your life savings in the unforgiving world of forex trading.
1. You’re able to make consistent profits.
Making consistent profits and winning ALL the time aren’t the same. There ain’t a single renowned forex trader who can say that he hasn’t lost a single trade in his entire trading career. Given the market’s ever-changing market conditions, losing is really part of the battle.
So if you’ve lost a trade or two this week, don’t beat yourself up. Rather, focus on honing your skills in finding high-probability setups with decent reward-to-risk ratios and come up with strategies that will help you minimize your losses and maximize your wins. An example would be Pipcrawler’s Stop/Trail/Add strategy that allows him to make the most out of his winning trades while limiting his losses.
Make sure you also monitor your profitability on your demo account each month. That way, you’ll know if you’re on the right track and so that it will be easier for you to see what you need to work on.
2. You have clear-cut risk management rules that you stick to all the time.
They say that 50% of your success in trading is determined by your ability to find good setups. The other 50% rests on proper risk management. With that said, having a well-thought out set of risk management rules is also a must-have on my checklist.
There are times when the market goes wild, making you doubt your analysis and trading skills. During these times which test your mental toughness, your risk management plan may be the only thing that could protect your account.
Before you start to think about going live, you should check yo’ self if you’ve got a well-defined set of rules which tell you when you’ve lost enough or you’ve been trading too much or else, you’ll just wreck yo’ self. If you haven’t outlined your risk management rules yet, you can start by including percentage risk, the maximum drawdown you can tolerate, and when to stop trading after a series of losses in your trading journal.
3. You don’t lose your cool when your trade is losing.
Do you still panic when your trade is going against you? If you do, you may want to re-think about investing your hard-earned moolah.
I know, I know, it’s no easy task to keep your cool when you see that you’re losing money. So what should you do? Make a detailed trading plan and follow it!
By having a plan to focus on, you will be able to think clearly and evaluate what has changed in your trade since you saw the setup or if the fundamentals have shifted in order to help you decide whether to hold on or not.
4. You don’t take your losses too hard.
In the event that you do wind up with a dent on your account, you don’t take it too hard on yourself no matter how small or huge the loss is. Instead, you keep your cool and identify what went wrong and which technical and fundamental factors affected your trade.
Bear in mind that such level-headedness is usually achieved, not only when you plan your trades properly and calculate your risk beforehand, but after consistently doing it for some period of time. There’s no substitution to achieve success other than deliberate practice and gaining experience.
5. You are completely comfortable with your broker and trading platform.
Before you open a live account and risk actual money on your trades, you should know the ins and outs of your trading platform very well. You don’t want to suddenly realize that you don’t know how to exit a trade just when you’re about to, right?
Aside from that, you should be familiar with slippage and your broker’s usual pip spreads so that you’d be able to take these into account when setting orders. This is why we encourage you to practice with a demo account from the same broker you plan to open a live account with.
Last but certainly not least, you should be able to contact your broker easily in case anything goes wrong with your account. You’ll be entrusting them with your hard-earned money after all.
Allow me to end with a teeny tiny disclaimer though: Even if you are able to check off all the items on this list, it still won’t guarantee that your trading success through demo would be replicated on your live account.