Day Trading Demystified: A Comprehensive Guide to Using Demo Accounts

Feb 17, 2024

Written by:
John McDowell

Beginner’s Guide to Day Trading in Demo Accounts

So you want to be a day trader, huh? Alright. Well, your work is cut out for you. Chances are you've seen SMCI on the news lately, going from around $300 to over $1000 in less than a month! Then on February 16th, it dropped over $200/share in one day. To be a swing trader, or take advantage of that once in lifetime shorting opportunity?

Just take a look at this chart of SMCI inside the TradingSim demo account:


While you may be thinking that you wish you'd had the opportunity to trade this, the truth is that recognizing and capitalizing on opportunities like this requires much practice -- especially if you're new to trading. 

For example, you'll need to know how to short a stock like this, or buy shares if you want to trade the long side. You'll need to be able to read the Level II and Time and Sales. You might even need hotkeys to be quick on the draw. You see, a lot goes into day trading, and there is a need for practice in a demo account first!

In this Beginner's Guide to Day Trading in Demo Accounts, will cover all the fundamentals, like what to look for in virtual trading platform, why they are important, and some strategies to consider.

What Is a Demo Trading Account?

Demo trading accounts are simulated trading accounts that allow you to trade the stock market in a realistic environment safe from risking real money. The best place to begin learning how to day trade is with a demo account.

Many stock brokers offer paper trading accounts, but not all of them allow you to demo trade with realistic market replay data. And that is the key. After all, if you're like most aspiring day traders, you are likely trying to learn in your spare time, which is great! Kudos to you for taking the initiative. 

But herein lies the problem: if you can't trade the market live, how will you learn to feel the market and day trade? The stock market opens at 9:30 am sharp in Eastern Standard Time. That is the same time most people have begun their workday in the US. If you're in another part of the world, maybe it will be easier for you. Regardless, wisdom should tell you that you need to know a thing or two about trading before tossing your money into the market.

candlesticks chart patterns | TradingSim

Where to Start Demo Trading?

Demo trading is best done when you have the time to focus and hone in on a certain strategy or two. Stock market and day trading educators abound on the internet. We suggest finding one that resonates with your style of trading, one that'll help mentor you through the process of learning the ropes. There will be ups and downs along the way, and the best mentors recommend demo trading accounts for beginners.

If you don't take our word for it, check out our interview with JTrader, a professional day trader from Italy who recommends TradingSim to his beginner day traders.

To that end, whether you use your own broker's demo trading account, or you sign up with TradingSim, the best demo trading software should allow you to do the following:

  • Trade in a realistic environment with realistic data feeds
  • Offer historic Level II and Time and Sales data
  • Track your trades to analyze strategies
  • Chart with advanced charting tools and indicators in multi-timeframes
  • Trade anytime day or night, 365 days per year, with market rewind

Is Simulated Stock Trading Helpful?

Simulated stock trading is a fantastic way to learn the ropes of investing without real money. However, you want to take your time in the simulator seriously if you're going to be a day trader. Putting real money in the market isn't advised until you learn how to use simulated stock trading first.

Here are some tips and tricks on how to get started using stock simulators.

Choosing a Simulator for Day Trading:

Several platforms offer simulated trading, and each has its own special features and focus. Many of these simulators are built into the trading platforms offered by brokers. Here is a short list for your consideration:

  • TradingSim: is a standalone stock simulator that offers demo accounts for paper trading. It is far and away the most realistic and comprehensive simulator on the market, with replay available 24 hours per day, 365 days per year.
  • Investopedia Simulator: Investopedia offers a wide range of tradeable assets, including stocks, ETFs, and options, and even supports competitions.
  • TD Ameritrade PaperMoney: TD Ameritrade is ideal if you plan to use it as a broker for stock trading. Their platform is built on the ThinkorSwim trading platform and offers replay as well as simulated options trading.
  • WeBull Paper Trade: WeBull is becoming a popular choice as a broker because of its intuitive software. Many early Robinhood adopters have switched to it for its free stock trading. Their simulator is built on their proprietary virtual trading platform and offers occasional competitions.

Understanding the Interface:

Simulators provide interfaces similar to real trading platforms. The very basics offer a chart and an order entry montage. For advanced trading, you'll want to have a Level II and Time and Sales montage as well. Make sure you familiarize yourself with other features like:

    • Asset search: Look up companies and research financial information.
    • Order types: Learn about market, limit, and stop orders to execute different strategies.
    • Portfolio tracking: Monitor your holdings and performance.

Here is what these look like inside the TradingSim simulator:

Notice on the right-hand side of the simulator, you have a place to buy and sell shares, plus the Time and Sales data ticking below this. Along the bottom, you have a replay timer that allows you to start and stop the trade/market whenever you want.

In addition to these items, TradingSim offers a built-in analytics tool to show your prior trades and the consistency you display.

Developing Your Low-Risk Trading Strategies

Before diving into trading, decide your goals and approach. In our blog section, we have a lot of dedicated articles to help you explore strategies. Be sure to check that out and take your time with your education. Many strategies abound on the internet and the simulator allows you to practice these risk-free.

Consider deciding when you'll be able to trade. Will it be in the morning? Afternoon? Premarket? These are questions you will need to know. Similarly, how much money will you be looking to make in the market? Are you trying to replace your income or just supplement it?

Along those lines, here are some examples of potential strategies you could use in a demo trading account:

Putting it into Practice:

Start with the strategies you connect with, or that your mentor recommends. Then, it's all about repetition and building that inner intuition for what is working in the markets. Part of this process is also about learning how to manage your risk -- super important!

Set aside time each day with a goal in mind. If you don't get home until late. Have dinner and then set aside time for at least one hour of focused trading demo work. Listen to your education materials, then find opportunities to trade in the simulator to practice those strategies. 

Over time, you'll track your progress on those strategies and when they work or don't work. 

Additional Tips:

  • Treat it seriously: Approach simulated trading with the same discipline and research as real investing.
  • Analyze your decisions: Reflect on your trades and learn from successes and failures.
  • Combine with other resources: Use educational content and mentors alongside the simulator.
  • Don't expect overnight success: Simulated trading builds skills and confidence, but real markets have unique complexities.

Remember, simulated trading is a valuable learning tool, but it doesn't guarantee success in real-world investing. Stay informed, manage risk, and enjoy the process. We'll leave you in this section with a salient anecdote from our friend Dr. Brett Steenbarger:

Even the best boxers practice in the ring away from formal competition to work on their movement, their combinations, etc.  Similarly, basketball teams prepare for the next game by scouting the opponent and then practicing against the offense and defense that the opponent are likely to use. 

And, of course, where would a Broadway actress or actor be without practicing lines away from the distraction of crowds. 

Every performance domain relies on practice away from formal competition to build performance in the heat of the moment. 

Dr. Brett Steenbarger, Ph.D. 

That is what simulation accomplishes in trading.  If we can’t be consistently successful in simulation mode, how in hell are we going to succeed with the pressures of real-time P/L?? 

How to Use Virtual Trading Platforms

Virtual trading platforms offer an advantage to aspiring day traders who take the process of learning seriously. As part of that process, there is a huge learning curve that you simply cannot master in a short time frame. Those who do are very few and far between.

Using a day trading demo account, or virtual trading platform, will help you shorten that learning curve if you're consistent, focused, and serious about the learning process. The road to success with virtual trading platforms is four-fold, so let's look at these in-depth.

improve your odds in day trading tradingsim

Financial Markets Education

Learning any new endeavor requires education. You need to understand the game you're playing. This is as true in trading as it is with anything in life. If you don't understand the game, you're going to get chewed up and spit out. Financial markets education is a great place to begin, more specifically, day trading education. 

Day trading and market education are like a melting pot on the internet. There are some formal financial markets education, but most of these are not going to teach you what you need to learn to day trade. Day trading is a highly speculative and risky style of trading. Most of the education you'll receive for this will come from professional day traders who offer their mentorship services on the Internet. 

To that end, we recommend you take a look at our podcast, The Simcast, and choose a service that suits your trading style and someone you connect well with.

Technical Analysis in Demos

Learning technical analysis is important for trading in a demo account. Most longer-term investors are more concerned with fundamentals. But when it comes to day trading, often the technicals are more important. To that end, make sure you familiarize yourself with the most important technical patterns in the market. 

Make sure you can learn how to read the tape in Level II and on a chart. This requires practice in understanding the formation of candlestick patterns, trendlines, and trading patterns. Tradingsim has a whole host of resources to get you started on the path to mastering these topics.

Once you feel like you've developed your technical analysis skills, you'll eventually want to take your trading live, but not until you have a bonafide trading plan that defines your rules, strategies, and risk.

Once we establish our consistency in sim, then, of course, we want to go live and tackle the pressures of actual gains and losses.  This is why musicians and theater professionals conduct dress rehearsals.  Simulation/practice is necessary for development, but not sufficient. 

It’s a step in the learning process.

-Dr. Brett Steenbarger, Ph.D.-

Transitioning to Live Trading

After months of training in a virtual trading platform, there comes a time when you must begin to try your strategies with real money. The best way to transition is with small money. You simply cannot trust yourself until you've taken real losses in the market and proven that you can respect your risk management strategy. 

When you do go live, make sure you have a plan for how much you can lose. Similarly, do not trade unless you can track your progress on the strategies you are using. And, don't forget to get back in the simulator. Just because you're trading live doesn't mean you can give up your practice.

What professional athlete stops practicing once he/she goes pro? The ones that do usually flake out. Remember that! This is a performance profession, and it will eat you alive if you let your guard down.

Building Trading Confidence

As you develop as a trader and experience more and more market cycles, you'll evolve. The best way to do this is in tandem with the demo account. When you find yourself in an unfamiliar market cycle, you may find that your strategies no longer work. This is normal.

The best way to build confidence is to make a note of what works under certain circumstances in the market. Break-out strategies may not work in a bear market, for example. You must learn when to either sit out or go back to the simulator to adjust your strategy for the seasonality of the market.

Do this for enough years and you'll eventually build the confidence you need to succeed in the markets. 

Demo Accounts Conclusion

We hope you enjoyed this guide to demo trading accounts. It's our goal here at TradingSim to help as many traders as possible to succeed in the markets. That's why we've created the #1 market replay trading simulator. It is the most realistic day trading demo account you can practice with. We offer a free 7-day trial with a no-risk guarantee. 

Join us in the TradingSim!


Tags: Day Trading


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