CFD Trading is becoming more and more popular, however beginners often find themselves overwhelmed by the options available. To avoid silly mistakes and hopefully make your CFD Trading more profitable the following tips are worth bearing in mind.
- Have a trading plan - When you have decided on trade, you should always plan your entry and exit and stick to that plan. Trading requires discipline and once you have decided on your entry price you should avoid giving in to temptation and wait for the market price to reach the level you wish to trade at, try not to BUY or SELL to early. Also decide on two exit levels: one if the trade is going in your favour and one if it is not. These levels should take into account your risk/reward strategy.
- Take advantage of a stop loss and never move it - Probably the biggest mistake novice traders make is moving their stop loss further away if the trade is not going in their favour. If you move your stop loss further away this is just the same as not placing a stop loss in the first place. Again, trading successfully requires discipline, remember you want to cut your losses quickly and run your profits. No trader can ever make ever trade a profitable one, good traders know when to get out.
- Always have a reason for trading - Never trade on impulse, always have a reason to take a trade. A common mistake for beginners is see a chart with a big price fall, deciding the price cannot possibly go lower and going LONG. Remember the price can always go lower and betting against the trend without evidence that the trend is changing could easily result in a losing trade.
- Know when to let your winning trades run – It is actually common for novice traders to take their profits too early. Sometimes you want to make the most of a profitable position so try not to take your profits as soon as you see them, you maybe missing out on potentially larger profits by letting your trade run. Remember market moves are almost never completely linear so dont panic on the first sign of a pullback.
- Stick To Instruments you have the most experience in - CFD trading makes available a potentially larger set of instruments to trade than you may have been used to, so when learning you should always stick the instruments you have most experience in first. Later when you have more confidence and knowledge you can try trading for example indices, forex or commodities.
- Always monitor your trades – Dont overdo this, if you have your trade plan in place and stick to it, however it is important to give CFD trading your full attention when you are in the market. Make sure you check up on your open positions regularly.
- Do Not Fall into the Trap of “Averaging Down” or “Doubling Up” your trades – This is probably the most common beginners mistake. Sometimes it will work and you may find you can turn a potentially losing trade into a profitable one, but more often than not you will just be adding to your loss. Stick to your trading plan and get out and look for a better level to reenter when the trade is not moving in your direction.