Forex Market Simulation
Engaging in a Forex market simulation can provide you with valuable information before you get involved for real. If you've ever played Madden, NCAA Football or some similar video game, you know just how much fun a good simulation can be. You set everything up, make the decisions and then press the "Sim" button. This is the basic concept behind "The Sims" and other similar games. Luckily for you, the same process is available in the Forex market.
Forex Demo Accounts
One way that you can simulate what will happen in the Forex market is to trade with a demo Forex account.
By using a demo account, you get to trade just as you would in the regular market. The only difference is you use "Monopoly Money" to do your trading. Ok, you won't really be using green, pink and white paper dollars, but you get the idea.
Before you embark on a new trading strategy, it is important to try it out on a demo account first. By using a demo account, you get to see if the trading strategy really works in real-time. If you can't make fake money with a trading strategy, I don't think the strategy will suddenly become good when you put real money behind it.
Another way that you can simulate what will go on in the Forex market is to use a backtest. Most trading platforms, including the popular Metatrader platform allow you to run a strategy test. If you have a trading strategy, such as an expert advisor, you can try it out with past historical data. You set up the strategy tester and then load your expert advisor onto a chart. You set the parameters of the test and then see how profitable the expert advisor would have been with the data presented.
Keepin' it Real
If you use a strategy test to gauge the effectiveness of a trading strategy, you also need to run it on a demo account before going live. Many different expert advisors can look profitable when they are traded on a backtest. Then when you put them on a live account, they promptly blow your money faster than Pacman Jones at a strip club.
If you want to keep that money in your account and eventually allow it to find its way back to your pocket, you need to do as much simulation as possible and do not only rely on backtests.
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