My 2 Cents. I have been trading manually FX since 2006 until 2015. Demo is good for manual and automated strategy development but a complete waste of time for discretionary trading. For automated systems, it is a worth a gold mine as I do all my portfolio modelling in demo and will be using demo accounts forever based on the following facts and requirements I have set for myself.
- Demo Price feed are very close to live pricing but don’t blindly trust demo feeds. From time to time they go funky so I run a price feed compare script to ensure my broker is not playing games.
- In Demo (and in Live) strategies, I always consider 5times the trading costs in order for a position to be considered in profit. This is a must because demo is just demo with no live market conditions to affect the trade outcome. In forward testing, our first and primary goal is the recover trading costs to push us into a zero sum game from a negative sum game. I use 10 times the cost of commissions and swaps to even consider a trade to be in profit. If you do this, I can gaurantee your trading outcome in demo will be close to Live !
- True…there is no emotions involved in demo and same should be true in automated strategies also. That is why I will remain a demo trader for the rest of my life !
- Max Slippage allowed… I use a high number in demo (reflected in my TradingCostMultiple) to reflect real-live conditions in a demo trading environment
- Spread Widening controls…. this should also be in place to relate to real live liquidity conditions as part of your demo strategy. Most EAs check for spreads only during open of trades. We must also check during closing of trades too !
- ALWAYS check the broker server time between live and demo accounts.
- Always load history in live and then copy them in demo. This is one way of ensuring the backtests are done on live pricing.
- I like to run demo and live in parallel so study the price difference and you will soon know where the weak spots are.
- Avoid running demo strategies in the same account for too long…. I open demo accounts every week and I wont get into the reasons w
Hope this helps.
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