CFD trading can be a great way to make money, but only if you avoid making common mistakes.
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Here are 10 of the most common ones:
1) Not doing your homework
The forex market is constantly changing, and traders must continually update their knowledge and skills if they want to remain profitable. Failure to follow the most recent market news can lead to significant losses for new investors as it is very easy for a trader to lose money on an asset that they no longer believe in
2) Thinking stop-losses are always best
A stop-loss setting ensures you cut your losses at a certain level. However, this also means cutting your profits at a certain point too. This can leave you feeling helpless and an overall loss – not what any trader wants! For example: let’s say you bought the GBP/USD rate for $1.6050 then placed a stop-loss order at $1.6000. If the market rate falls to $1.6000, your stop-loss order will be executed, meaning you sell your position at this price – even if it’s lower than what you originally bought it for.
3) Not being patient
CFD trading can be a very profitable venture, but only for patients to wait for the right opportunity. Jumping into the market without researching or waiting for confirmation of a trade setup can often lead to costly mistakes.
4) Focusing too much on technical indicators
When used correctly, technical indicators can be helpful tools, but many traders focus too much on these instead of looking at the overall market picture. This can lead to trades being taken wrong and often leave traders with significant losses.
5) Not using a demo account
Using a demo account is by far the best way for new investors to test out their strategies and hone their skills before risking any money. New CFD traders should use a demo account until they feel fully confident in all aspects of trading and understand exactly what works and what doesn’t.
6) Not keeping good records
Keeping good records of your trades is imperative if you want to improve as a trader – both in making more profit and preventing future mistakes. Keeping track of your wins, losses, emotions experienced throughout the trade, entry price, exit price etc., will allow you to see where it went right or wrong so you can learn from it and improve for the next trade.
7) Not having a trading plan
A trading plan is important for any successful trader’s arsenal and should include things such as your preferred trading style, risk management rules, entry/exit points and profit targets. Without a solid plan to work from, traders are far more likely to make costly mistakes.
8) Trading too big
When starting in CFD trading, it is essential to trade small and increase your position size gradually as you become more comfortable with the market. Trading too big can often lead to quick losses as inexperienced investors cannot handle the increased volatility and risk.
Overtrading is another common mistake made by new CFD traders as they chase trades throughout the day with little to no thought on whether or not the trade is right for them. This can easily lead to inexperienced investors losing money, or worse – taking their first steps into overtrading.
10) Failing to track your progress
As with any new skill, you need to know where you are before attempting any significant improvements – this is no different in trading. By tracking your wins and losses, your emotions during trade and how profitable each trade was, you will be able to see exactly what needs improvement so that it doesn’t happen again.
Whether you’re new to CFD trading or a seasoned pro, it’s easy to make mistakes when setting up your trading plan. Every trader makes errors; the examples presented in this piece are not the be-all and end-all of your trading career. However, they should be treated as chances to learn what works and what doesn’t work for you. The most important thing is that you create a trading strategy based on your analysis and stick to it so that emotions don’t cloud your judgment.