Some Trading Tips for CFD Traders
CFD which is a financial instrument was introduced way back in the 1980’s and has since become very popular among traders. CFDs were made available among hedge funds and institutional traders who were able to take up stocks without having to own them. It was actually possible to sell stocks without having to buy it first, which was highly welcome by most investors.
CFD has been described as one of the most fantastic inventions for money management that ever took place. Marcel Link in one of his books states that ‘’Forget about making money, just try as hard as possible not to lose any of it’’. With this in mind, it is quite important that you create an edge for yourself. The world is cruel and especially the business world where there are experts who are always ready to strip you off your hard earned cash. You must therefore be very wise, confident and disciplined regarding your market edge. Always stay focused and try a much as possible to maintain your edge.
Another important factor is to ensure that you control your CFD leverage. This is quite powerful and you should ensure that you start small with the CFD leverage and subsequently maintain your total exposure at a lower level which is relative to your capital.
In order to be successful, you must establish trading goals that are clearly defined and realistic. The first and the most important rule is ‘’Preserve Precious Capital’’ otherwise known as PPC. It is essential that you keep your account intact for the first one year. You must learn to survive if you are to make anything at all out of CFD trading.
Another important tip would be to use CFD stop in a religious manner. For each and every trade that you involve yourself in, you must have a CFD stop that is clearly defined and assigned to each trade. Always ensure that you ‘’stop losses and make sense’’. This tip will come in handy especially for the first rule regarding the preservation of capital or PPC.
One thing that you must realize is that you will tend to get all emotionally charged when your trading position is dropping miserably. When this happens, you are always ‘’hopeful’’ that things are going to make a turnaround to the opposite direction. However, just keep it in mind that in as much as hope will keep you going, it will never be able to help the situation. Therefore, as a preventive measure you should define a CFD Stop which should not be within the market hours and subsequently stick to it.
A very vital factor that most successful traders do is maintaining a CFD trading journal. This enables you to keep an accurate record of your trades which is quite similar to a diary. The CFD journal will give you clear and precise reasons as to why you joined or exited a trade. It will also form a critical learning experience for you as you continue trading in CFDs. Looking back at you records will give you a clear picture of where you have come from and probably where you are headed. You will also be able to have a critical look at your thoughts as well as strategies, following which certain trends will start emerging. All these should be noted and where necessary, the appropriate remedial measures undertaken.
The main items that should appear in your CFD trading journal should include what was bought, sold and the profit made; time the trade was done; reasons for the trade and a chart that should show any proposed entries, stop or profit target.
The other important tip is to ensure that you have a trading plan that is well defined. The plan should be sensible and should have a few important items including entry strategy; risk management strategy; money management strategy; record keeping strategy and in profit stop loss.
Discipline is always a virtue that is carried almost everywhere. The same virtue should be applied when it comes to CFD trading. Once you have come up with your CFD plan, you must be disciplined enough to follow it to the latter without ceasing along the way. Sit back and think of all the time and sleepless nights that were spent going through research and trading methods. Think also of all the trial and errors that you went through just to come up with something sensible. Once discipline is applied, every other thing will automatically fall into place.