Beginner Tips and Tricks for Trading Forex on a Demo Account

The best way for beginner forex traders to become acquainted with the forex market is to trade on a demo account.

But where do you get a free demo account to practice trading?

Don’t sweat the small stuff. Many forex brokers offer a free demo/practice account. To access the demo, you only need to sign up on the broker’s website for free, and you are good to go.

Practice or demo accounts are funded with ‘virtual money’. You are free to use the virtual money to place trades in the market. Any profits made on a forex demo account cannot be withdrawn, neither can loses be debited on your account.

Why Demo Accounts?

Practice accounts give you a great opportunity to experience the live forex markets without putting any of your money at risk.

  • You can analyze how prices change in different times of the day
  • You can see how the behavior of different currency pairs differ from each other
  • You can see how the forex markets reacts to different news releases
  • start analyzing charts and improve your understanding of how margin and leverage work
  • You can use a demo forex trade account to strengthen your strategy before putting it live

Using a demo account, you can start trading in real market conditions without the fear that you are going to lose money. If you are looking for experience in forex trading, a demo account is what you need.

Demo/practice accounts are also an excellent way of testing how a certain broker’s platform works. Unfortunately, there is one thing that you can’t simulate on a demo trading account: the emotions of trading. To get the best out of your trading account, you will have to treat it as if it contained your hard-earned money.

Getting Started With a Demo Account

I assume that you have already signed up with a forex broker of your choice. If you haven’t, I recommend you do so right now. Here are our recommended partners.

There are two broad ways that you can trade forex on the markets. You either place direct orders using a click-and-deal featured on the MT4 or you employ orders to be executed when the market meets certain conditions.

Placing Click-and-Deal Orders

Many forex traders love trading the market at its current positions (click-and-deal orders). They love the certainty of knowing they are in the action as opposed to placing an order that may or may not be placed. This ‘live activity’ is part of what makes the forex market so alluring. It is like sitting in a room full of stock brokers shouting their orders (think the Wolf of Wall Street!)

Most forex brokers provide trading platforms that give you the live stream of currency prices in the market. These platforms will allow you to place a trade with a single click of your mouse button.

To place a trade on such platforms,

  1. Specify what amount you want to trade
  2. Click buy or sell

The forex platform will respond instantly, mostly within a second or two. If the trade went through, you will receive a popup notification and your MT4 will update to show your open position. If the price changed in-between you placing the order, the platform will notify you that the trade did not go through.

The order might also fail to go through if your trade is larger than the margin allowed. In this case, you will need to reduce your trade size and try again.

One important thing to keep in mind when trading on a click-and-deal platform: Any action you take on the platform is your sole responsibility. You might have meant to click “Sell” instead of “Buy”, but no one knows for sure, except you.

Using Orders on a Demo Account

Orders are an important part of the forex market. They are trades waiting to happen. Savvy forex traders use orders to catch market entry points that would otherwise elude them when they are not in front of a trading screen.

Recall that the forex market is open for 24 hours a day, 5 days a week. A market move is as likely to happen when you are in front of your screen as when you are deep asleep. If you have a daytime job, market moves are also most likely to happen when you are deeply engrossed in your boss’s menial work.

Orders are how you are able to capture market moves and enter trades when you are not in front of your trading screen.

But orders are have more uses than simply capturing market movements when you are asleep. I can’t emphasis the importance of using orders strongly enough. In a highly volatile market, using orders can help you capitalize on quick market movements while limiting the impact of negative market moves on your account.

Common Forex Market Orders

There are many type of orders available in the forex market. However, all orders are not available with every online broker. Before you sign up for a forex account with your broker, you will need to verify whether they offer all orders that you might want to place during your trading career.

Take profit orders

Don’t you just love the name!

Take profit order are used to lock in the profits that you have already accumulated on a trade.

Limit orders

A limit order is an order that triggers a trade at a more favorable price than the prevailing market price. A classic example of a limit order would be “Buy low, sell high”

Stop loss order

This one doesn’t sound so good, does it? But don’t ignore it. Among all orders, the stop loss order carries more significance and is critical to your success as a forex trader in Kenya.

In their most conventional use, stop loss orders will close a trade that is losing money. In your case, you’ll be using stop loss orders to limit loses to an acceptable threshold. If you do not set stop loss orders, you are leaving your account at the mercies of the market, which is nothing short of financial suicide.

Trailing stop-loss orders

One of the keys to successful forex trading is limiting the size of your loses while exponentially maximizing your profits.

The best way to do this is to let your winning positions run and stopping your losing positions. A trailing stop-loss order does exactly that. It will adjust its order rate as the market move, but only in the direction of your trade. For instance, if you are long CHF/CAD at an entry of 1.5750, and you’ve set a trailing stop-loss order at 30 pips, the stop will first become at 1.5720.

If the CHF/CAD moves higher, the trailing stop adjusts itself, pip for pip. It will continue to adjust higher as the market moves higher. If the market reaches its peak, the trailing stop will be 30 pips below the top. If the market ever moves down by 30 pips, your trailing stop-loss will be triggered and your position will be closed.

To the savvy Kenya forex trader, a trailing stop is a powerful order.

One-Cancels-the-Other Market Orders

Also commonly referred as OCO’s, a one-cancels-the-other market order is a stop loss order paired with a take profit order.

An OCO is an incredible insurance to a savvy forex trader. All positions remain open until one of the order levels is hit. When one order level is triggered, the other one is simultaneously closed.

For instance, if you are short on USD/JPY at 117.00 and you believe that the currency will keep moving up once it hits 117.50, you’d place your stop loss order at that point. At you then place your take profit here.

The above scenario has clearly marked out your playing field. If the USD/JPY keeps playing between 117.49 and 116.26, your positions will remain open. Conversely, if the market hits 116.25, your take profit order is triggered and you walk away smiling. If 117.50 is hit first, you’ll suffer some clearly pre-demarcated loss, nothing to worry you so much.

OCO orders are highly recommended for every order you have open in the market.

Managing Trades on a Demo Account

At this stage, you have placed orders and placed all the requisite orders. Is it time to sit back, relax, and watch the market do its thing, right?

Not so fast, amigo.

The forex market is not some form of gamble where you roll the dice and wait for Lady Luck to smile upon you; it is a dynamic environment where variables that influence your trades are constantly cropping up. These variables alter the way prices develop and render previous price expectations null.

A lot can happen between the time you set up your trades and the time they hit their targets. Forex trading is not a set-it-and-forget it kind of a thing. You need to keep abreast with market developments.

You Don’t Need a Thousand Complicated Indicators to Trade Forex

Sheeroh Kiarie, blogger and webpreneur at WorkOnlineKenya, recently interviewed one of the top forex traders in Kenya. Ken Githaiga, who started trading forex before many of us did, had a lot of valuable and inspiring tips for both advanced and beginner forex traders.

Needless to say, I had a tremendous time reading the insightful interview. Kudos Sheeroh on a job done so well.

One of my key takeaways from the interview was this:

“I use only one indicator (The exponential moving average) with candlesticks on the four hour chart.”

If you have not read the interview, this was Ken’s response when asked what approach/strategy he uses to trade forex. It also brings me directly to the topic of my blog post today.

The Only Technical Forex Indicators You Need

There are so many forex trade indicators being released into the industry every single day. There are so many approaches to technical and fundamental analysis. You would literally need about a decade to study and implement all of them.

The good news is that you DO NOT NEED all these forex trade indicators and strategies to be a successful forex trader. The best forex traders find an indicator that works best for them, and they stick with it through all the winning and the losing trades.

If your approach to forex trading is jumping ship once you sense signs of a losing trade, then you will be in for more and more losses when you move from one strategy to another.

Ken Githaiga uses the Exponential Moving Averages to trade forex. Another trader will move the Simple Moving Average. And yet another one will use Fibonacci retracements.

Here is the key takeaway- there is no one forex trading strategy that is superior to the other one.

It is your role as a trader to find a trading strategy that suits your trading habits, refine it and perfect it to the extent that you are familiar with it like the back of your hand.

The 5 Common (and Free) Forex Trade Indicators

For the sake of beginner forex traders, I think that it is worth to explore the 5 of most common forex trade indicators. These indicators will normally come bundled withing the MetaTrader 4 Platform that you get from your broker. In my opinion, you do not need to download any other forex trade indicator.

In this article, I will only give you a brief look into each of the indicators. However, I will make a point of following up with indepth tutorials on each of the indicators. Additionally, if you need personalized help with any of the indicators, feel free to contact me on 0710251380

Moving Averages

Simple Moving Average (commonly abbreviated as sma) is used to show the average price of a currency pair over a certain period of time. Traders use the simple moving average to highlight uptrends or downtrends and to avoid trading during false breakouts.

For the best results, the simple moving average is commonly used in combination with another one. For instance, the 50 day SMA is commonly used in combination with the 200-day SMA.

In the case above, when the 50-day SMA crosses above the 200SMA, this is called the Golden Cross and it portends an upcoming uptrend. The opposite is called a Death Cross, as it portends and downtrend.

Moving Average Convergence Divergence (MACD)

Moving Average Convergence Divergence indicator is used to analysis the emergence of new trends in a currency pair. It consists of three parameters:

  1. 12– These are 12 of the past fast moving average
  2. 26– Represents the previous 26 bars of the slower moving average
  3. 9– Represents the the 9 previous bars of the difference between the two moving averages.

Typically, when the faster moving average crosses over or below the slower moving average, this is an indicator that a bearish or bullish trend is about to start.

For optimal analysis, MACD is best used as a confirmation forex indicator.  That is, only use it in combination with other indicators to confirm what the other indicators are telling you.

Relative Strength Index (RSI)

RSI is a technical analysis indicator. It is the measure of the ratio between the down-moves and the up-moves of a currency pair. The index is expressed in a range of 1-100.

When the index moves over the 70 mark, the market is considered to be overbought, and indicates that the prices of a currency might have fallen below what is normal for the market. Likewise, when the index falls below 30, the market for the currency pair is said to be oversold. This indicates that the price might have fallen below market expectations, forcing forex traders to sell the currency.

Stochastics Oscillator

I personally use stochastics to trade forex, and in my opinion, this is the simplest technical indicator ever invented.

Simply put Stochastics measures whether a certain commodity has been overbought or oversold.

For more information about forex trading and technical indicators, subscribe to my forex trading newsletter using the form on the sidebar. You can also call me on 0710251380 in case you need personalized help with forex trading.

Read more about Stochastic Oscillator here.