CFD Trading Tips

Strategic thinking

Never trade on a hunch. As a novice CFD trader you have the benefit of being able to draw on the experience of many successful traders, and many tried and tested CFD trading strategies. Each strategy represents a way of analysing market moves, spotting patterns and calling trends.

No strategy is foolproof. You need to work out the strategy that suits your needs as an investor, your attitude to risk and your long-term goals. And then accept that even the most closely followed strategy won’t be right all the time.

More: What is a CFD?

CFD trading plan

A good trading plan will consist of:

  • Your long-term and trade-by-trade goals
  • Your style of trading and target markets
  • Your money management rules to determine the size of your trades
  • Your trade identification system and entry strategy
  • Your risk management rules and exit strategy

With your target returns broken down into daily totals, and your acceptable levels of risk clearly stated, you have an informative structure for your day-to-day trading decisions.

CFD trading journal

Keep a record of all the trades you make, including your entry and exit points, your reasons for entry and exit, and any other feelings or observations about the trade. This will help you to identify points of success and failure, and to see your strengths and weaknesses as a trader. You can now focus on your strengths and eliminate weaknesses.

Control your emotions

Your emotions are your biggest obstacle to executing your CFD trading plan. The markets will always throw up shocks and it is your job to stay disciplined when they do. Don’t chase your losses by risking more than you intended. Losses are a natural part of your trading process. And be patient. You are more likely to achieve your goals through a succession of small gains than via one spectacular trade.

If you have a string of losing trades, don’t take it personally. The market isn’t against you. You haven’t lost your ‘touch’. You simply have to review your trading plan against your ongoing performance.

Manage your money and your risk

When you are trading CFDs you need to pay special attention to your capital outlay on individual positions, as CFDs are a leveraged form of investment. You only put down a margin deposit to open a position, not the full contract value, so you can maximise the return on your capital. This will also, however, maximise your risk.

Your CFD trading plan should state clearly how much of your capital you are prepared to risk as margin on an individual CFD trade. For instance, your rule may be to risk no more than 10% of your total funds per trade. You should note, however, that you may lose more than your initial margin on any CFD trade, so put stop-loss orders in place to manage your risk.

Remember however that stop-losses are not guaranteed and may be subject to slippage and market gaps.

Test your CFD provider

Remember that you always have a choice of CFD firm, and be prepared to switch providers if you’re not getting the service you require. Test the service of your CFD provider rigorously against your needs.

Your choice of provider is one of your most important trading decisions. Draw up a checklist: do you need fixed spreads? Free trading tools? Personal customer service? A reliable online trading platform? With this list of requirements you can find the best provider to suit your CFD trading goals.

See also: Spread betting tips

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