Avoid large amounts in demo account
The demo account allows you to put as much virtual money as the counter allows, so technically you could put in a million dollars and start trading with that as practice. Now for some, this allows them to use each trading setting they want and so they can see how much they could potentially lose or potentially win if they were in larger trades. There’s a problem with this and it rests with the psychology of it all. The amounts are so far removed from what you will actually be trading with when you’re starting, that’s the weight of what you’ve lost or gained with the trade will never really set in properly. The differences between a few pips could mean hundreds of dollars in a hypothetical trade made with the virtual money but it won’t have the same effect as trading with a reasonable amount. Eventually, it will just seem like a simple numbers game if it keeps up.
In order to fully explain how that works, I first have to say why it’s best that you do demo trades with a similar amount of money that you would want to risk in normal trades. You should also insert a similar amount of capital that you would initially invest in your trading account as well. When you start trading in this way, the effects will be mirrored to what you actually have to deal with when you start. So, say you enter the market with an account of 1000 virtual dollars and then you enter a trade with a fairly large lot size. If the trade is a failure due to miscalculations/misinterpretations/or anything else and you lose about $100, then it’s much easier for it to really set in that if you tried the same thing normally, you would actually be throwing away that much money. With effective mirroring it will encourage you to treat the demo account trading a bit more seriously in preparation for the live trading as any loss or profit will feel more realistic.
It’s really easy for many people to treat demo trading as just an insignificant activity before they start getting to what they want. A lot of people usually use way larger lot sizes than they would reasonably be using in a live trade and so the amounts per pip would be larger, especially if they fiddle with the leverage to grant them a higher money ratio. Unfortunately, due to how the human mind works, it is more likely that any losses incurred from a trade that didn’t go correctly won’t be treated as seriously as they need to be since they could easily just add more money to the virtual account to try again. Because of this, it won’t spur any adaptations of new strategies or a distinct attitude of learning well from mistakes. This could result in people just throwing random trades at the market until they just happen to win enough in a row that they think they’ve got the hang of it. Accentuated by the fact that they’re using unrealistic lot sizes that should never be risked for the amount they’re going to put in; allowing them to mentally put it together that this is the amount they could be winning if they just switched to live trading. But they never put together that their losses with the same lot sizes and leverage are the amount they could lose if they jump into live trading as they have probably forgotten that the reason that they won so much is likely mostly attrition based as there was no real penalty for losing. In the demo account, when you lose and think that it’s no big deal and then win and think that you’re completely on top of things, then it is practically guaranteed that by the time you get to live trading, you’ll be in for a rude awakening.