Tips for trading CFDs frequently

Plan your trade

Before you trade, you should know how much money you are prepared to lose and why you enter the position. Trading impulsively is a classic mistake that inexperienced traders make. If you follow a set strategy, stick to it and don’t deviate from it once the trade has been entered into, then this will help prevent abandoning your trading plan in times of pressure or losing trades due to lack of discipline.

Use stop-losses

Always use stop-losses as they will protect your earnings from significant losses if the price moves against your prediction after entry but won’t exit a successful trade prematurely only for the price to continue moving in the right direction for profits. It may seem like common sense, but many traders frequently forget to set a stop-loss, and their winnings are eaten up by unexpected price movements or ‘gapping’.

Set take-profit orders

If you haven’t done so already, setting take-profit orders after entering a position is recommended as it allows you to sit back and relax as the trade runs in your favour without worrying about whether to stay in the trade until the price reaches your target for maximum profits. It again may seem obvious, but many traders do not have a solid exit strategy once they have entered a position – trading without one can lead to significant losses if the market moves against them quickly after entry or exits too early from a profitable trade.

Don’t forget slippage

Slippage is the difference between the price you expect to receive when entering a trade and the actual entry price. Slippage can occur, and some CFD providers will be more susceptible than others. If you are trading at too tight a level, it may be better to widen your limits so that slippage is minimised, but only if this doesn’t eat into your potential profits by too much, of course.

Do not add to losing positions

It’s natural enough for traders to add onto winning positions to maximise profits; however, adding on top of losing trades is costly and defeats the purpose of setting stops to limit losses. If you are unsure about exiting a position early (when risking a loss), the best thing to do is to walk away for a while and come back after your emotions have settled. As all successful traders know, losing trades are part of the game – adding onto them only makes trading exponentially riskier.

Don’t chase price

The most common error that inexperienced traders make is chasing price once it has moved against them after entering the trade. If you find yourself in this situation, close out the position quickly with a stop-loss or limit order so that you can move on to your next opportunity instead of being drawn into averaging down in an attempt to recoup losses. It may seem counterintuitive, but prices frequently retrace by similar amounts upon reaching primary levels, so there will be another opportunity if you maintain discipline now by giving up on this position.

Keep emotions in check

Trading is a serious business, and you should treat it as such. If you find yourself feeling too happy or sad about the direction your trades have taken, then try to analyse why this is so from a trader’s perspective, not from an emotional one – set stop-losses and take-profit orders, don’t chase price and always plan your trade before entering it! It will ensure that wins and losses do not affect you emotionally but help motivate you to be smarter with your next trade.

Avoid trading when tired or stressed

If you are tired or stressed, you are far more likely to make emotional decisions which can lead to errors of judgement – for example, not setting stop-losses or taking profits. If possible, schedule your trading around times when you are alert and have the most energy – if this isn’t possible, then take regular breaks throughout each day to keep you fresh for making intelligent decisions with your money.