6 Common CFD Trading Mistakes To Avoid To Maximize Your Profits

CFD trading has tremendously gained popularity over the last few years. That’s because it is a very lucrative investment, especially when done properly and carefully. But when it comes to contracts for difference trading, there are mistakes that traders, especially beginner traders are more likely to make.

If you are thinking of venturing into CFD trading, it is good to understand these mistakes so that you can avoid them and protect your investment. In this article, we take a look at some of the most common CFD trading mistakes that every trader should avoid. They include:

1. Failing to have a plan in place

Trading can be very exciting, especially when you are getting started. But what is fascinating the most is the ease at which your account balance can grow or fall instantly. But this is a phase that you are more likely to go through before you start trading in seriously.

It is advisable to have a trading plan. The plan can help you define how you intend to do your trading. It is a crucial tool that can help you concentrate on planning and implementing your trading strategy.

But many traders tend to fail to have a plan. Your plan doesn’t have to be complicated. It should cover things, such as:

  • The markets you will trade
  • When you will be trading
  • How long you will hold the trades
  • How much to risk per trade

As long as your plan covers these items, you are good to go.

2. Failing to follow the plan

It is one thing to have a trading plan and another thing to follow it. There is no point in creating a trading plan and failing to follow it. Trading CFDs or Forex in the same way consistently is a recipe for long-term success. So if you do something different on each trade, you will definitely get a different outcome each time. This will make it difficult for you to determine if the process can provide you with long-term success.

The best way to ensure that you follow your trading plan is to have it laid in front of you each time you want to trade. If possible, print out the plan and place it on your desk. If that’s too much work for you, you can have it in an excel sheet and go through it before every trade.

3. Overleveraging

This is also another common mistake when it comes to CFDs. As a trader, you need to focus more on position size rather than leverage ratio. The ratio is just typically a tool to help you get started in trading. Regardless of whether you are a seasoned trader or a beginner, you need to consider your own circumstances and learn from your mistakes.

4. Overtrading

As the name implies, overtrading simply means trading too much. Exactly how much trading is too much? That will depend on your trading plan as well as your trading style. The rule of the thumb is to always trade only when there is an opportunity and when your money management allows you to take that opportunity.

Overtrading usually happens as a result of boredom. Remember that overtrading can be very dangerous, especially for traders who have a limited amount of capital. It can lead to massive losses. It can be a fatal mistake. Thankfully, traders can avoid this problem. The best way to avoid this problem is to establish a trading plan and stick to it. This can save you from experiencing huge losses.

5. Failing to use a stop loss

Generally, it is not a must to use a stop-loss order. But it is important for you to know when to stop your losses. You must have a plan of when to stop your losses. Thankfully, most CFD brokers, especially reliable and trustworthy ones usually offer stop-loss orders to their traders when the price starts to go against them too fast. This is one of the best ways that traders can protect their money.

6. Complacency

One of the most common tendencies in CFD trading is misreading the market. This tendency is usually contributed by insufficient research and complacency. After winning a series of trades, you will feel like a genius. This can make you conclude that you cannot lose. It is at this stage that complacency can make you place unintended trades or increase your position size- something that you are still not ready for. Complacency can make you break your trading rules. So take some time off, especially after a winning streak.

Final thoughts

By learning about these CFD trading mistakes, you can easily avoid them and maximize your winnings. Knowledge is power, and knowing these mistakes can make you trade without making any loss as well as protect your investment.

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