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Over 80% of all new trading accounts with CFD brokers “survive” for a maximum of 3 months. The corresponding customers are therefore also called “quarterly customers” in the industry, without meaning this in a derogatory way.
The problem is that many customers sign up with a broker, deposit money and simply trade “wild”.
However, trading without a plan and sufficient preparation usually leads to the total loss of the balance on the trading account, with individual trades too much risk is taken and the position sizes are often much too high.
Highly set goals are connected with enormous risks
In many cases, the goals to be achieved by trading are unrealistic or do not fit the trader’s person or practical requirements at all.
A trading plan with realistic goals and a matching individual trading strategy are an absolute prerequisite for successful long-term trading.
What is a realistic goal in CFD trading anyway?
If you think that you can double your capital with just a few trades in a few days and soon find yourself among the millionaires, it is better not to start trading CFDs in the first place.
There are certainly isolated cases in which this has been successful, but it should also be made clear that CFDs are always concluded on the performance of an underlying asset such as shares, indices, commodities or other assets.
Even shares of Apple or Amazon do not go so far through the roof in one day that they lead to a doubling of the capital overnight. Prices can also move in the opposite direction in the meantime. The probability that all trades will always end positively is close to zero, even if prices should develop in the desired direction in the long term.
However, CFDs by their very nature are not suitable for long-term investments, but are an instrument that can be used to profit from price changes in the short term. However, no one can accurately predict how the market will behave in the short term.
Therefore, it is better to set yourself the goal of making more profits than accumulating losses and thus increase the available capital in the long term. This also includes taking only moderate risks and adapting money management to one’s own purse and individual goals.
In addition, someone who is working during the day has only a few hours a day available for CFD trading and therefore not all markets are open to him per se.
Note: Trade only with the capital that you are prepared to lose in case of doubt. Under no circumstances should you invest money that you need to live or that could endanger your retirement.
What could a plan for CFD trading look like?
A trading plan is that traders first think about how to use the available capital in the most sensible way. According to the individual profit goals and the possible times for CFD trading, the products to be traded must be selected. The trades should also be sufficiently prepared.
Observing the market and reading and evaluating current news is essential when it comes to forming an opinion on future price developments. No trade should take place unplanned.
In the trade itself no more than 2% of the available capital should be used per trade. From a risk point of view, this means that 50 trades in a row with a loss would be necessary to bring the account to zero. With disciplined execution of the orders and appropriate preparation, this case is unlikely to occur.
It is also recommended to examine an underlying asset with chart tools and indicators in order to keep an eye on resistance, support lines and possible trends. However, in extreme short-term trading, i.e. in the minute or second range, chart analyses as well as fundamental examinations of an underlying instrument lose importance.
Those who only hold their positions for a short time should rather keep an eye on the news and the economic calendar, which is usually provided free of charge by professional online brokers.
For example, around the announcement of important company figures, market statistics or central bank meetings, there is increased trading activity with corresponding turnover, which has an impact on price volatility.
The “markets” then form an opinion and new trends can be initiated. As a rule, fundamental entry signals can also be derived from this.
Tip: If you are looking for a comprehensive training, you should take a closer look at our training courses. For those who have already gained initial experience but are looking for profitable signals, we recommend the PowerSignale stock round.
Risk management – the basis for successful CFD trading
Every trader should pay sufficient attention to his risk management from the beginning and implement and maintain it with utmost discipline.
True to the motto that losses can be planned, but profits are less so, risk management is about preventing uncontrolled melting of the trading account and thus preserving the opportunity for successful trading.
This means that the position sizes are not chosen too large, the already mentioned maximum size of 2% of the available capital comes into play here, but also that losses in concrete trades are always limited with a stop loss order.
The stop loss should always be set before the trade is executed. As prices move up and down, traders must use their experience and analysis of completed trades to develop a reasonable measure for the automatic exit from a position.
Without risk, there is no way out. But of course it is also useless if the stops are regularly placed too close to the entry and the trader is only therefore constantly stopped with a loss, even though the price moves in the desired direction shortly afterwards. The determination of resistance or support within the scope of chart analysis can help in determining stop losses.
With successful trades, traders with increasing experience will also find that take-pro orders were often not optimally placed and profit taking occurred far too early. Especially with incipient trends, which are based on a certain dynamic, a lot of potential is often wasted.
Set limits – CFD Trading experience
Limiting the risk of loss on individual trades is one of the most important building blocks for successful trading. It is also helpful to build in a double bottom when trading by setting limits. First and foremost, this is about limits for losses. But you should also set limits for profits, which may sound surprising.
If you notice on a trading day that despite sufficient preparation for the trades, losses have occurred several times in a row, you should set yourself a loss limit per day. Why? First of all, most traders automatically experience an inner tension after losses. Quite a few traders try to take it sporty and then try to run after the losses.
However, this is exactly the wrong approach, because this is usually only possible by increasing the risk or the contract size. It is better to make a stop and analyze exactly what was done wrong. If the exit from trading takes place strictly at a loss limit, the losses remain predictable and manageable. With the knowledge gained from the analysis of the trades, errors can be avoided in the future.
Overall, every trader must be aware that losses are part of the trade. Even the most successful trader or fund manager has to expect individual daily losses. However, they must never lose their head and must approach the next trading day free of emotions and plan ahead
With several successful trades on one day, psychology also comes into play. Some traders fall into a euphoria in such a situation, which is usually not helpful.
In the opinion that everything goes well, even more trades are placed and used than originally planned. The result is usually: Win some, lose some. Therefore, traders should remain relaxed even in a comfortable profit situation. If a realistic profit target per day is reached, the profit should be taken and the remaining time should be used for other activities.
Diary – Analyze CFD trading to detect errors
Traders should not trade according to plan, but should also note each trade in a table. In addition to the traded underlying instrument, the date and time, the entry and exit price, the selected stops and other order additions as well as the high and low during the period of the trade should be written down.
If the trade was ended prematurely by a stop loss or take profit, it is important that the subsequent low or high is noted. For example, it is possible to see if the stop loss or take profit was possibly set too close to the entry price and thus opportunities were missed. Key figures such as the Maximum Adverse Excursion (MAE) and the Maximum Forward Excursion (MFE) can also be determined for this purpose. Some traders also note their emotions such as fear, greed or hope, in order to be able to determine later whether wrong decisions were made based on feelings.
Keeping a trading diary is a lot of work, and especially with many trades that are executed, it is tedious. However, the diary is the only way to systematically evaluate the trades and to be able to check and optimize your own trading strategy. Above all, it helps to identify errors so that they are not repeated.
Read my other articles about CFD Trading:
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- What is CFD Trading? – Ultimate Guide For A Profitable Start