One of the thrills of CFD trading is that there is the huge potential to make money, to become rich and even make a name for yourself. On the other side, there is the risk of losing all your capital and having to stop trading. The difference between one and the other is often the strategy used and the approaches of the traders. Here are some of the top tips from the traders who made it.
1. Start Small
Here’s a stark figure – only 10% of traders make it past their first year in trading. And the ones that do are the ones that have a system in place that means they start small. By keeping your trades small and in control, you protect that crucial capital and ensure you can keep trading another day if things go against you. Losing trades are inevitable but if you keep your trades small, these won’t end your trading experience.
2. Don’t trade on impulse
We, humans, are an impulsive species and we do lots of things on impulse. CFD trading shouldn’t be one of them. It is crucial to have a strategy and just as crucial to stick to it. You will do a lot of research before you start trading and when you are actually using a real money account, don’t abandon everything you have learned and start trading on impulse. Stick to that plan!
3. Decide where you want to enter and exit the trade
Of all the tips a trader will give you, this one is the most important. This is where you will plan to enter and to exit a trade and stick to it. This minimizes losses and ensures your decisions are consistent. To create a plan for this you need to consider some of the following elements:
- Have an exit strategy based on testing that has shown you what works. Even if you can’t backtest your theories, some manual testing is a great idea to create your strategy.
- Have a firm money management strategy around how much capital you will use per trade.
- Have a firm risk management strategy that looks at how you allocate money for each trade and where the stop losses will be set (more on those in a moment).
- Keep clear records of what you do to study, what works, and what doesn’t.
4. Set stop losses and stick to them
We mentioned stop losses and they are a crucial part of trading. Stop losses minimize the losses you make and ensure your capital is kept intact. You need to have a clear plan for CFD stop losses and you shouldn’t move them once you have set them. Ideally, you should identify stops outside of live trading with prices moving. And never allow emotion to interfere with settings and sticking to stop losses – remember tip #2.
5. Know when to close a losing trade
Stop losses are a popular way to tell yourself when the time has come to stop a losing trade. There are other ways you may also want to consider using in some situations. Examples include cutting losses early, breaches of support levels and indicators. Start using them and stick to them.
6. Know when to let your profits run
And the best for last. Most traders wipe out their capital because they don’t follow this tip. You keep going with a losing trade or just as bad, cash in on a profitable trade too early. Both mean you might only make small losses or small gains. You need to learn when to let your profits run and don’t get panicked if there is an increase in volatility. You have a plan, follow it and your profits will mostly come together.
If you want to start putting all of this learning into action, you can sign up for an account with Olsson Capital and start trading for real.
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