Avoid Common CFDs Trading Mistakes
Some trading mistakes are simply that, mistakes. Everyone of us makes mistakes. Even the most seasoned traders have been known to accidentally buy instead of sell or trade the wrong quantity or even the wrong share from time to time. These mistakes can generally be avoided by exercising the appropriate level of care. Other mistakes are the result of either lack of preparation, knowledge or discipline on the part of the stock market trader. Having the ability to avoid these mistakes will greatly improve your chances of developing into a successful CFD trader.
While it is good to learn from one's mistakes, it is much better (and considerably less expensive) to learn from the mistakes of others. By mentioning some of the most common mistakes made by CFD traders, we hope that you will be able to avoid making the same mistakes.
A number of investors who get involved in CFDs start day trading with dollars in their eyes and think they will start making good returns from the first day. Others simply trade for entertainment. Both of these mindsets are likely to result in failure; if you're serious about trading it is important to treat it as a business and if you trade for fun you will more than likely end up losing money.
Here are a few other tips and mistakes to avoid -:
- Write a strategy down and stick to it even when things go well...
- I tried climbing the Himalaya despite barely making up on top of Ben Nevis... (increasing the stakes too quickly...etc.)
- I had several risky punts that turned out the wrong way as I was looking at the shares with Blue tinted glasses.
- Stop being greedy, take profit and move on.
- Do not trade when emotionally weak (death, relationships, etc.)
- Stick to safer shares (I sold out my last risky share this morning.)
- Do not overtrade...avoid the temptation to use up all your leverage just because you've got free equity available. If there is no good trade to be made, sit on your hands!
- Maintain a few short positions at all times - that will help with spreading your risk.
- Discipline is not often learned until a new CFD trader has lost sufficient monies to feel the pain. Until you have felt this pain, you think big trading losses won't happen to you and that can bring about a false sense of confidence.
- I still remember my early days when I started making lovely money. Thing is I lost my discipline and started moving my stops etc. Lost £10k in 1 day! Thing for me was that I just couldn't accept the losses when they occurred! I'd have, say £1k stop loss, and I'd move it when it got close. Or I'd double it up, reducing the distance the original trade had to cover. I set myself targets, say £400 a day, and was easily doing this for the first month. Then a few went bad trades, and as above, I refused to let them go. Funny thing is, had I kept pumping the cash in I'd have retired by now! My advice would be to stick to your guns, set limits and stick to them, and don't become too greedy...it's easily done! The skill is getting out when you have reached your targets, and the same goes for when they reach your stops. Being honest, that was my only problem. Waiting for a few more quid, or moving stops, cause it'll come back any minute. That's how I got shat on a while back.
- Avoid opening too many CFD positions. Many traders focus their energy on finding the CFD provider that offers the lowest margin requirement but then go nuts opening many positions and end up using all their available capital. This is a mistake - because of the effects of leverage, all it takes is one bad CFD trade and your trading capital could be wiped out. Keep plenty of spare cash at all times.
- Know why you're trading. You should treat trading as a money-making activity just like a business. If you trade for fun you will be lucky if you manage to make any money at all...
- Use leverage with care. Many new CFD traders make the mistake of simply trading right up to the maximum size available with their leveraged funds. Often this is done without any regard for the amount of risk exposure that such a position generates.
- Make sure you know the different order types. Many CFD traders have missed opportunities or closed out of trades at the wrong time simply by placing the wrong type of order.
- And lastly don't give up. (but do admit when you're wrong on a trade!) You need balls of steel to succeed in this business; a never say die kinda guy.
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