Most traders have utilized a demo account at some point of their lives. Some of them wanted to give trading a try before allocating the real funds, others wanted to test certain strategies and hone trading their skills. Traders are usually encouraged to trade on a demo account, yet a lot of people find it difficult to replicate their trading results on a real one when they finally switch. Psychological differences between the two may be the two account types reason.
1. Real money means real emotions
When there is no real money involved you will find yourself calm and level-headed, no matter whether you make big gains or lose big. However, when you switch to the real account, you no longer risk ephemeral demo funds, as your own money is at stake. Turns out, this is enough to make almost everyone nervous and their trading results — less consistent.
You have probably already heard that getting rid of emotions is essential on the path to becoming a successful trader. However, it is impossible for an average human being to get rid of ALL his emotions. Emotions in trading lead to suboptimal decisions and results.
2. There is no risk involved in trading on demo
As already mentioned, your own money is not at risk when working with a demo account. No matter how much you win or lose, your balance is still just a number you see on the screen.
When you finally switch to the real account, though, you might find yourself in a situation when you are afraid of making the right move — entering the deal when the time is right or manage losses when necessary — out of fear of losing money. Mistakes always happen, yet on the demo account they do not matter that much.
3. Perpetuating bad trading habits
It is much easier to fall victim to your bad trading habits when working with the real account. Again, you are not so emotionally invested when working on a demo. It is, therefore, harder to keep your head cool when your money is at stake. You might find yourself replicating the same mistakes you have made at least once: moving the stop loss when it clearly should have stood still, forgetting your strategy or the trading plan in the middle of a trade.
What to do?
Now, to the most important part. What should you do in order to offset the differences between the two account types? The solution will involve a little bit of mental gymnastics, yet it is absolutely doable. Try to copy your mental state you embrace when trading on demo: focus on the process, not the result. When opening the deal, do so at the right moment and avoid making mistakes that can be avoided. When closing the deals, make sure that you do so in accordance with your trading strategy, not emotions.
Another option is to keep your trading journal. Write down all trade-related information, including your emotional state and mistakes. This way, you will find it easier to eradicate undesired behavior over time.