Everybody believes that they understand the golden rules of CFD trading, but most beginner traders still make numerous mistakes and only few go on to become successful in their trading careers.
I have a friend who has been CFD trading recently on an app on his phone and he (and you) might find these rules helpful if you’re wanting to trade profitably.
The following are the 10 golden rules for CFD trading
1. Letting profits run and cutting losses
Most traders blow their CFD trading accounts by simply failing to adhere to this rule than probably any other reason. Clinging to losing trades for too long while cashing in on the profitable ones too fast results in a small number of catastrophic losses and a series of small wins.
2. Using logic rather than emotion
Traders that base trading decisions on emotions might make the occasional big win but the reality is that they seldom will ever be profitable consistently. This is why it is important to have trading rules and sticking to them at all costs.
3. Limiting exposure to just one trade
Traders that bet 50 percent or more of their CFD trading capital on a single trade are no longer traders but are now gamblers. You must never risk more than 2 percent of your available capital on a single trade no matter how ‘sure’ it seems.
4. Combining fundamental analysis with technical analysis
Traders that employ a combination of technical and fundamental analysis stand greater chance at becoming successful than those that employ just one of these methods. A good rule to apply is using fundamental analysis for ‘triggering’ the trade and technical analysis for the actual entry.
5. Timing is crucial
Even when you are right about the long-term direction of the market, an early entry can result in significant losses. Waiting for a ‘trigger’ along with at least one confirmation signal ensures that this never happens all too often.
6. Never add to losing positions
Good traders learn the distinction between trending and range-bound markets. Without this skill they would make the fatal mistake of adding to their losing positions due to the mistaken expectation that price will turn around. A good tool to use here is trend lines.
7. Understanding Risk vs Reward
Every trader needs to understand the trade-off between risk and reward. Never enter a trade whereby the potential risk is greater than the potential reward.
8. Trading with money you cannot afford to lose
Most people mistakenly believe that CFD trading or trading with other financial instruments online is a quick and easy way to earn money. Therefore, they use money intended for other important projects such as paying for their mortgage and eventually lose it all. Never trade with money you cannot afford to lose.
9. Wise Use Of Stop Losses
Trading without a stop loss is the quickest way to a fast and total wipeout. Setting stop losses too tight can lead to the slow but eventual wipeout. Use stop losses that give the market enough room to ‘breathe.’
10. Admitting personal weaknesses
The psychological makeup is perhaps the single most important difference between a winning trader and a losing one. A winning trader understands that he or she must never give in to weaknesses such as fear and greed. To address this problem, you need to plan you trade, trade your plan, and practice strict money management.
Conclusion
The 10 golden rules for CFD trading are vital if you ever wish to become a successful trader. Start implementing these rules and you will increase your odds of being successful.
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