How to Make Your Own Demo Trading Plan

Are you ready to start with demo trading? Make sure you’ve read the basics of futures trading before we proceed, but I will assume that you have done so. More importantly, be sure you’ve understood the concepts covered in this article on how to approach trading with a demo account.

In this article, I’m going to give you some ideas for how to get your demo account environment set up for you to succeed. I would recommend a few brokers that offer a demo account, but it doesn’t really matter which one you pick. As long as you get acquainted with the software and feel comfortable with how it works, it will be roughly the same experience. What matters most is that the data you are getting is live and reliable, and that you approach this stage correctly.

It’s definitely best to practice on the same software as the one you will be using for live trading, for an easier transition, but this is not always an option.

I started with FXCM, and their platform may have changed significantly since then. From my understanding, they do not support US clients anymore. You might still be able to get a demo account there, but you can definitely find better.

Identify Your Trading Goals and Objectives

Before you begin crafting your demo trading plan, it’s important to establish your trading goals and objectives. Start by setting SMART goals: Specific, Measurable, Attainable, Relevant, and Time-bound.

These goals should encompass both your short-term objectives, such as mastering a particular trading strategy, as well as your long-term aspirations, like achieving consistent profitability. Align your goals with your personal risk tolerance and trading style to ensure they are realistic and achievable.

Example of a SMART Demo Trading Goal

Specific: Improve my futures trading skills by focusing on trading with the trend in the crude oil market.

This goal is more specific than “get better at trading” or “make more money”. It identifies where you will be focusing on trading, and it’s better to identify what skill you’re targeting as well. Maybe you want to work on improving how you exit a profitable trade, because you’re unhappy with the money you always leave on the table.

Measurable: Achieve a consistent 60% win rate on demo trades with a minimum risk-reward ratio of 1:2.

Note that this is also specific: you want a 60% win rate with a 1:2 risk-reward ratio. This is easy to measure based on your trades, as you can simply tally your wins and losses. In addition, it includes details of the ratio you want to implement in profit taking and risk management.

Attainable: Dedicate at least 2 hours daily to practicing and refining my trading strategy.

Studying for 2 hours daily is something most traders can easily afford to do. Note that this is 2 hours spent on focused practice, not simply placing trades and leaving. How you decide to practice will be up to you, but I recommend at least a couple hours of chart analysis per week, outside of actual trading.

Relevant: This goal aligns with my long-term ambition to become a successful futures trader and eventually transition to trading with real capital.

This is self-explanatory. Don’t set a goal of simply making money, because that is not going to foster long-term success or continual progression. Make your goal relevant to your mastery as a trader for a much larger reward than that day’s profits.

Time-bound: Accomplish this goal within a 3-month period, by July 24th, 2023.

Making your goal restricted to a specific period of time works wonders. If you are conscious of a deadline, and truly want to achieve your goal, you might find yourself doing things that you didn’t think you were capable of doing, just to get it done. This is a seriously underrated ability that each of us has. Make a deadline for yourself, and get started.

Choose a Market and Time Frame

If you’ve already got your main goals in mind, great. Let’s combine those goals with a particular market and approach.

If you’re an absolute beginner, this is going to be a bit of a struggle. How can you even know what market to trade, or what time frame to use? You haven’t even used any!

But don’t worry, this step is not the most important right now. As long as you choose a market that is active during the hours that you will be trading, you can learn from it. What matters more is that you try a few, for an extended period of time each. Finding out what you’re comfortable with is more important than which you begin with.

I recommend any of the following futures contracts, but the symbols may vary based on the broker: Nasdaq-100 (/NQ), S&P 500 (/ES), Crude Oil (/CL), Gold (GC).

For time frames, since we are focusing on day trading, you will want to go with something like 5 or 15 minutes. 1 hour is a bit long, because a single trading session in America will only provide 6.5 candles per day. On the other hand, if you trade 1 minute candles, you will likely feel overwhelmed at first, due to the speed.

Thus, I recommend 5 or 15 minutes. You can always change this later as you figure out your comfort zone.

Choose a Trading Strategy

Once you have a clear understanding of your trading goals, it’s time to select a trading strategy that aligns with those objectives.

There are numerous trading strategies available, each with its own unique set of principles and techniques. Research different strategies. Are you more interested in trend following long-term, or short term trading and scalping? Choose one that resonates with your risk tolerance and preferred market approach.

As you gain experience and confidence in demo trading, don’t be afraid to adapt your chosen strategy to better suit your evolving needs and preferences. Remember, the goal is to develop a trading approach that works for you and your individual circumstances.

To keep things simple, consider a more general approach based on one or two technical indicators.

Perhaps you’ll look for a bullish entry based on a MACD crossover happening while the MACD is above 0, and the market is above the 50 SMA.

If you recognize that the market is in a downtrend, maybe you’d prefer to look for shorts, so you can follow the trend. Then, you might look for RSI to show that the market is overbought, and then enter short when the market shows a divergence.

Whatever strategy you pick, it’s better to start somewhere fundamentally sound, and tweak it over time. With repetition, which is our next step, you’ll start to find out where certain logic breaks down and why.

Trade with Repetition in Mind

This is the step that will help you figure out exactly what’s wrong with your strategy. Since you’ll be day trading, if you have a good enough fundamental strategy figured out, and trade on the 5-15 minute time frames, this won’t be hard. You should be able to locate trades just about every single day.

What’s important, however, is that you have some idea of how you want to take these trades, and what you will do each time a setup appears. Are you entering simply on a MACD crossover? Or do you want the market to come off of a support level as well? What will you do if you reach a profit of three times your risk? Do you exit immediately? Or do you re-evaluate at certain points during the trade?

As you place trades, continue to ask and answer these kinds of questions, so you can determine your ideal course of action in different situations.

Repetition is the father of learning. Take your setups repeatedly, and see what happens after you have a large enough sample size (20+ trades per setup) to make a reasonable assessment.

Assess Your Results

Assuming you achieved your goal, or continued trading long enough to build a good sample size, how did you do? Did you learn anything significant?

Chances are, your strategy needs some tweaking. But don’t let this discourage you. There’s set rule on how long this should take. Mastering any skill takes thousands of hours, and being a master day trader is no exception.

Perhaps you’ll see that your initial goal wasn’t attainable. Or, maybe it was too easy. Either way, make an adjustment, and try again.

Conclusion

The best way to demo trade is to treat it like a live evaluation of your trading skills. Imagine you’re going to be given a grade at the end of your trial. However, the rules are set by you. Therefore, if you don’t set reasonable rules that will be both challenging and beneficial for your own development, you will not get much out of it.

For those of you who do demo trade, how do you set your goals? What are some challenges you gave yourself? Feel free to share complete plans below, for other traders to use as inspiration.