There are dozens of ways that simulated forex trading can help you become a better trader. All traders from newbies to professionals will benefit from this sort of forex trading. But what is it?

There are two kinds of trading simulations, both of which use play money to place practice trades so there is nothing at risk. The first type is known as backtesting. In backtesting, you use software in addition to historical data to place practice trades like you were trading during that time frame. These practice trades can either be automated or manual. In case you are good at computer programming, then automated backtesting is something you may want to pursue. Even though you are not good at programming, manual trading may be just as effective.

Going back through historical data could teach you many things with regards to how a currency pair moves and reacts to different factors. This information is valuable because it can be relevant in current market conditions. It is also helpful because it can give you the self-confidence to take trades when cash is on the line. Having taken lots of trades using historical data is great practice.

The other kind of simulated forex trading is called demo trading. Demo trading is available through almost any forex broker and is just similar to a live trading account but you trade with play money. The platform and the market action are normally exactly the same as if you had real cash on the line.

This trading demo is great because you can take the skill you got from backtesting and start to apply it to live market conditions. Now you can find out if the system you developed actually works.

Occasionally you will find that something that worked in backtesting does not work in real life due to the fact that you don't have time to monitor the trade or you cannot carry out trades fast enough, or for a variety of other reasons. If this is the case, you could always backtest again and keep those previously limiting factors in mind. That being said, I think you will usually find that backtesting really does help if you are demo trading.

In conclusion, these two forms of automatic forex system trading may help you when you are just learning how to trade or even if you are a professional trader. You can use trading simulations to try out a new method, improve your current technique or help you get your self-esteem back after a losing streak. Give it a try and let me know what you think!

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