CFD Trading Tips by CFDagent
These are some essential trading tips for CFD Traders:
-1- Choose Partners Wisely
-2- Specialize in a Couple of Assets
-3- Manage your Leverage
-4- Keep a Detailed Record of your Trades
-5- Control your Prehistoric Brain
-6- Apply a Strategy / Trading Plan
-7- Run your Profits and Cut your Loss
-8- Making Money Starts from not Losing Money
The 8 Essential Tips for CFD Traders Explained
(1) Choose CFD Providers Wisely
Choose only among high regulated CFD providers offering segregated client bank accounts. Moreover, prefer CFD companies which are not based in offshore countries and that have been around for more than 5 years. In other words, when trading online give extra weight to the safety of your money. There are many other important issues when choosing a CFD broker including the availability of fund methods, spreads, availability of desired assets, availability of platforms, etc.
(2) Focus on a Couple of Assets
It is far better to concentrate on a few assets than trying to trade every available CFD instrument. Become an expert of the assets your trade. There are many professional traders who choose to trade solely one asset, for example, they trade EURUSD or Gold or Oil. These 3 assets enjoy great liquidity and almost perfect information. High liquidity means lower trading cost and good information means better chances of success.
(3) Control your Capital Leverage
Capital leverage is an enemy and a friend at the same time. When trading CFDs, capital leverage can be up to 50:1 or even more. The catch here is that when you increase your leverage you increase 3 things:
(i) Your Profit Potential
(ii) Your Loss Potential
(iii) Your Trading Cost (many forget about it)
Most traders become so greedy that open positions in the maximum available margin. What happens next is simple. They are forced to narrow their stops in order to limit their loss potential. As they place narrow stop-losses they get stopped-out very often and lose their money in no time. CFD beginners should not use leverage more than 5:1.
(4) Keep a Clear and Detailed Record of your CFD Trades
Our human nature is characterized by selective memory. We usually remember our wins but we tend to forget our losses. Therefore keeping a detailed and clear record of your trades is essential. A detailed record will help you identify which assets performed better in the past. It will also highlight the best months, weeks and days to trade any individual market.
This is what you need to contain:
(i) The CFD asset you have traded and the direction you have selected (long or short)
(ii) The size of the trade
(iii) The exact placement of the order (Opened Price, Take Profit, Stop Loss)
(iv) The date of the trade
(v) The reasons you decided to open that trade and the source of information you used
(vi) The final outcome of the trade (profit, loss)
(5) Control your Prehistoric Brain
The most difficult thing to control when you are trading is your own mind. Our brain is based on prehistoric instincts such is fear and over-enthusiasm. The only thing that can control your prehistoric brain is discipline and a system. Build your own system and follow it with discipline. Make every decision according to facts and figures not according to your instincts. Having a system and doing always what is right will help you maintain positive thinking. When you don’t feel positive for any personal reason then avoid trading.
(6) Select a Trading Strategy and make it a Trading Plan
Never forget you are trading against professional traders who enjoy better information than you and pay less transaction cost than you. If you try to trade against them without a strategy and without a plan you have no chance of success. Identify your personal trading profile and select the corresponding trading strategy. For example, if you a risk-averse trader you should not apply a short-term strategy, you should apply a swing or a long-term strategy. Once you have found an applicable trading strategy according to your profile you must turn it into a detailed trading plan.
A trading plan must contain:
(i) The Conditions of an Entry-Strategy (Entry set-ups)
(ii) Money Management (What will be the minimum and maximum lot size of each trade and how much are you willing to risk per trade)
(iii) Take-Profit Strategy (What is your minimum Profit / Loss Ratio)
(iv) The monthly/annual goal of your portfolio
(7) Run your Profits and Cut your Loss
The trend is your true friend. Don’t be in a rush to close a successful trade, and let your profits run. Statistically, you will not win more than 50-60% of all your trades. If you are not a scalper you don’t need more than 50% winning ratio. What you need is some of these 50% winning trades to be able to generate huge profits. Even professional traders do not win all the time. Throughout the year they make money only during 3-4 months per year. In these 3-4 months, they run their profits and generate their whole annual income. During the other 8-9 months, they simply try not to lose money. You never know which of the 12 months will be your true winners, therefore, you must keep your risk low in order to stay alive until the good months arrive.
On the other hand when a trade does not go very well then do not change its stop-loss and cut your losses. Most traders when they are close to being stopped out they change their stop-loss orders and place them wider. That is wrong because initially, you have placed the stop-loss below major support or above a major resistance level. If those levels are lost than the trade is not good and you should not maintain it by giving more space to the stop-loss.
(8) Making Money Starts from not Losing Money
If you are a beginner in trading CFDs you face a 90% probability that you will lose your CFD account within 6 months. The only way to avoid losing your first accounts is by limiting your risk. Your first goal is not to lose your money. In order to preserve your capital, you need experience and a lot of practice. Therefore here are some easy ways to obtain experience for free:
(i) Practice / Demo Accounts is good Start
Trade-in a Practice Account before trading for Real Money.
(ii) Micro Accounts are better for Beginners
If you are a beginner choose a Micro / Mini Account type before moving to a Standard lot Account type.
(iii) Place Pilot Orders
Placing the wrong order if very common if you are not an advanced trader, therefore place pilot orders before trade heavily. For example, before trading 2 lots of EURUSD you may place a pilot order of 0.1 lot and multiply the results by x20. By this way, you may measure your trading cost before executing your main orders.
(iv) Never forget to place a stop-loss
Think a stop-loss as your shield. You don’t going to war without a shield thus you shouldn’t trade without a stop-loss.
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■ CFD Trading Tips
George Protonotarios, Financial Analyst
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