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Our inbox gets this message at least once a month: "I lost a lot of money when I first started trading, but after I got the hang of it I did better." We quickly learn that these people failed to include a vital step in their trading education: Practice. And practice trading isn't just for newbies. Anytime you develop a new strading strategy, you MUST backtest and then practice trade before you try it in the live market. This is a lesson you can learn the easy way, or the hard way. Please, choose the easy way. (For more on backtesting, be sure to read: Backtesting Software for Forex Traders). Article continues below. Click on the flags for analysis and charts for each pair.
Why would you not practice first?
Imagine you've been selected to shoot a free-throw at half-time of an upcoming basketball game for the chance to win $10,000. Would you spend some time practicing the shot leading up to the game, or would you simply strut in there and plan to sink the basket? Of course, you'd practice. But sadly, many traders jump into the markets with live money, and end up losing lots of simply because they weren't prepared for the ins-and outs of actually placing trades and managing them. Don't kid yourself, you need practice. A MAJOR part of your market education should be learning how a trade is actually placed, order types, commissions, timing your entries and exits (if you plan to trade on market timing or with a trend). All of these things take practice and refinement, and it's way to painful a lesson to learn with real money.
Practice until you've got it
If you're new to the market, we're not talking about practicing for just a couple hours, or even days. For some, it may take weeks to get a strategy and the mechanics down, while others may take months. And some will even decide they can't take the emotional stress investing your own money brings, and they decide they just need to learn enough to pick a good financial planner or investment advisor.
And even if you plan to be a long-term forex trader (yes, there is such a thing!) who infrequently places new trades or exits existing trades, you still should practice in the beginning. Placing the order wrong will cost you a spread, not to mention any loss on an erroneous trade.
Either way, if you've spent the time to go through the education we're offering here, the next step MUST be practice trading.
A word of advice: Paper trade like you mean it!
Sometimes new traders open a practice trading account, and begin placing hundreds of thousands of play money on the line, trading wildly and recklessly. That's fine if you're just looking for a good time.
But if you want valuable practice that will help you in the live market, trade just like you would if it was real money on the line. Make your practice trading account balance similar to your actual account balance. And make sure you've developed a trading strategy to test and refine.
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