Steadfast FinancesA Guide to CFD Trading - Steadfast Finances

A Guide to CFD Trading

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Everybody assumes that they know every rule of CFD trading, but even the most novice CFD traders still make so many errors that only a few proceed to have a successful trading profession.

The following are some of rules that CMC Markets supports – if well adhered to, a successful trading career will follow.

  1. Always cut your losses

Most traders get rid of their accounts because of failing to follow this simple rule. You should understand that any time you cling to a losing trade and resolve to cash in a profitable trade way too early will only lead to a series of small wins yet you experience smaller amounts of disastrous losses.

  1. Avoid Impulsive and Emotional Reactions

A trader who makes decision based on the ‘gut feeling’ will experience infrequent huge success, but in real sense she will rarely incur consistent profits. All these, emphasizes the importance of having and sticking to your trading plan no matter the circumstance.

You will not be lucky most of the time, therefore sticking to a plan created prior to the trading period will prevent you from making unnecessary changes in the course of the trading period. You will only be allowed to make changes when it is obvious.

  1. Exposure should be limited to a single trade

You should never bet 100 per cent or 50% of your initial capital on one trade. This will no longer be trading but gambling. You do not have to put yourself in a situation where one trade can wipe out the whole of your capital.

At any given time, you should try to avoid placing more than 2% of the capital in your trading account.

  1. Combine fundamental analysis and technical analysis

Any trader who opts to mix both technical and fundamental analyses will most likely end up creating a successful career for oneself than someone using only one of these techniques.

Developing a plan utilizing fundamental analysis to ‘elicit’ trade and employing technical analysis for timing the individual entry, is one great example.

  1. Do proper timing

Whether you are certain about the final direction of the market, if you enter the trade at a very early stage you will probably incur significant losses. You should wait for the right signal to ensure you do not have to incur such losses.

  1. Use trend lines – never add to losing trades

A great trader will easily identify a trending market from a range bound market. If you do not have this skill, then odds are you will make a deadly mistake by adding to an already losing trade with the expectation that it will turn around.

  1. Diversification is Key

You may not need to risk more than 2% of your capital on a single trade, but this will not guarantee a diversified record.

For instance, you may trade in a variety of shares owned by oil companies and make a wrong move. Odds are that the rest of the trades will follow that direction. Therefore, if you can you should diversify.

  1. Learn from your Weaknesses

Understanding your trading strengths and weaknesses will help you stand from the rest of your competitors. Particularly, understanding your weaknesses will help you carefully analyze any trade before you decide to join.

An important way to address this problem is coming up with a plan and setting up a limited amount of money for each trade.

  1. Use stop losses carefully

Stop losses will help you prevent complete and quick wipe outs.If you use those that are tightly set you will experience slow but disturbing wipe out.

You should, therefore, adopt stop losses sparingly by allowing the market to go through its normal downs and ups before diverting to a particular direction.

  1. Weigh expected risk against reward

As a rule, you should never enter a trade whose potential risk exceeds the expected profit. Therefore, a careful consideration of the nature of trade you enter will determine your success.


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Posted by CJ   @   10 October 2016 0 comments


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