Learning to trade can be incredibly daunting, but it can prove to be immensely profitable in the long run. Often times, it is best to learn from those that have been able to profit from their contract for difference trades. These individuals have learned the ropes the hard way and have been able to figure out precise techniques for gauging, entering and exiting trades in the most advantageous manner possible. Although you may still hit a few speed bumps along the way, you can limit those speed bumps by relying on proven techniques. Below, you’ll learn about some of those techniques and how they can help you become a much more effective CFD trader.
Focus On Preserving Your Capital
Many new investors make the mistake of trying to achieve the biggest ROI as possible. Although you should definitely try to make profitable trades, it is also essential to keep your money safe and secure. In fact, you should first and foremost focus on preserving your capital. Discovering the most profitable trading technique will take practice and you may lose a little bit of money along the way, but do your best to keep as much money as possible. By doing so, you will be able to live to trade another day and potentially discover your own personal technique for success.
Control Your Leverage
One thing to remember is that CFD trading often incorporates the use of leverage. Leverage can give you the upper hand, while allowing you to wager more than the current amount of your margin. Unfortunately, it can also hurt you substantially, if you happen to make a bad trade. Initially, it might seem like a good idea to use leverage to double or triple your investment, but you shouldn’t! Take your time and only use your leverage, when you’re absolutely certain that it’ll pay off in the long run. As a new investor, it is often best to use zero leverage for a period of time, until you’ve got the hang of it. Slowly and cautiously implement leverage, but never exceed three times more than your margin!
CFD Stops Are A Necessity
If you’ve been around the markets for a period of time and have traded a lot, you’ll be familiar with stop losses. They can be incredibly beneficial and you should make it a habit to use them to your advantage. In fact, stops could make the difference between losing a small amount of money and losing a substantial amount of money. So, how do they work? Well, whenever you’ve placed a trade, you will also be able to set a stop loss. By configuring this parameter for a specific trade, you will be telling your broker to eliminate the trade, if your losses hit a specific threshold.
This will protect you from losing more than you should and will give you the ability to try once more in the future. This feature is available from all brokers, including when you engage in market trading at CMC Markets.
Set Goals Early On
There are numerous things that need to be done, before you finalize your trade. Obviously you’ll want to research the markets and investigate the security in question. This is common sense. Of course, some things are often overlooked. This includes setting goals for your investment. Many see a great investment and jump into the foray, without looking into the future. Before moving forward, make sure you know exactly what you want. You might want to try and make a specific amount of money each month or may wish to increase your capital by a certain percentage.
Once you’ve set this in stone, you’ll want to focus on achieving it each and every day. Completely ignore any outside distractions, which could potentially throw you off course and focus entirely on your initial goals.
Develop A Trading Plan
Eventually, you’ll need to jump into the actual trading portion of the process. Going in without a solid plan could prove to be disastrous and could result in substantial losses. When setting up a trading plan, you need a solid entry strategy, capital management strategy and a risk management strategy. Each and every one of these strategies come together to help formulate a comprehensive trading plan, which will prove to be worth your time and money. This isn’t something that can be read in a textbook or learned from another trader.
You truly need to get hands-on experience and develop these strategies with time and experience. If at first your techniques fail to impress, you’ll want to alter them and try it again. By minimizing your risks and remaining diligent, you’ll eventually find a solid trading plan, which works well for your specific preferences and circumstances.