Does everyone make mistakes? However, if you make mistakes when trading CFDS, shares, or Forex, it can cost you, dear. We get to hear a lot of news about how the beginner traders, who start off enthusiastically, end up losing money. It most cases, it is because of their mistakes and errors in judgment.
Many of them then get discouraged, and they simply abstain from participating in trade activities. Therefore, it is important to know about the mistakes they make, so that you don’t have to learn the hard way too, which is by losing your money.
Common CFD trading errors can be costly and demotivating
If you are starting off with trading, it is important to understand the terminologies and the mechanics of CFD trading. It will help in understanding the trading platforms, and also in avoiding the common mistakes. There are many traders who lose out on trades, because of not being able to keep their emotions in check.
Therefore, it is important to invest time in learning the intricacies of trading, before putting your money on the platforms. However, it is equally important for you to get on with real trades when you feel confident because the major learning happens out there.
It is always better to learn from the successful traders, especially in the beginning stages. These days, it is quite easy to network with other traders with social trading tools. You can even replicate their moves on your own trades and earn consistently.
CFD trading is an easy and get-rich-soon game
Many beginners expect to make quick cash by using unreasonably high leverages on their trades. They think that they can earn big by sitting on their couch with their iPads, and by spending a few minutes on trading. These fantasies will soon burst like a bubble, because the first thing to learn here is that, you cannot become a trading pro overnight.
Trading can be challenging. It takes efforts, time, and experience [just like in any other business] to be a consistently successful trader. There are no shortcuts here unless you are extremely lucky. If you don’t have time to manage your trades, then you must consider going on long trades. You could also use managed accounts, where the experienced professionals will make the trade moves on your behalf.
Trade in unfamiliar markets
It is crucial to know about the markets you decide to trade with. Beginners just jump into any of the extremely volatile markets at the wrong time and end up bearing losses. You will need good analytical skills to handle such sharp price movements. Make sure that you conduct a thorough research and analysis, and adhere to your trading discipline, in order to avert the common trade glitches. Over a period of time, you will gain experience and knowledge to identify the suitable market for your trading style.
Allow losses to run
Many traders, who know how to trade CFDs also make this mistake of allowing the losses to run on open trades for unreasonably extended periods. The greatest mistake here is not thinking practically when the position is moving against you. You stick around with the hopes that the market will change, and prices will move in your favor.
It is possible, but you cannot bank on that strategy every time. It is human nature of not wanting to bear losses, or experience the feeling of being wrong. That attitude will spell disaster if you are into trading.
Remember to cut losses early, in order to keep the amount lost at the minimum. That, however, does not mean that you hit the panic button on each trade. If the market is favorable, then maybe you can test the waters by keeping the trade open for a little more time. Here it is important to give it a deadline with the stop-loss feature so that you come out of the trade automatically when the price hits the threshold.
Never get caught in the common CFD trading mistake – EMOTIONS. You have a trading plan with risk management strategy, so apply it. Never move stop order you placed or never add to losing trade. Think practically, stick to the plan, and eliminate emotions from the equation. Turn into a trading robot and perform trade activities on an automatic level.
Disregard of a trading plan
Trading plan offers guidelines and structure to describe your trade actions. It is a very helpful tool, which keeps you focused on executing trading strategy. If you ignore to plan means you propose to fail.
Perfect trading plan is the one each trader creates for themselves. It is unique because the trading style of each trader differs and the plan will be on the basis of their personal skills. How to build your own trading plan needs experimentation and adjustment.
Avoid making things very complicated
Cover the three points given below.
- Know your markets
- How long to hold position?
- How much you wish to risk?
Never wander on strange market turf. Always stick to known markets, you are comfortable to trade with. It helps to decide your trading style. For short-term, you can place multiple trades in a day. For mid-term, a small number of trade activities in a week or month. For long-term, limited trades over three to six months can be done.
Plan your risk aspect but it is recommended to start small and get a little idea of the process. Generally, your confidence starts to increase and you can consider to increase stake size.
CFDs are excellent instruments for earning profits but you need to treat them respectfully as well as be clear about their pros and cons.