You’ll find many CFD (contract for difference) contract trading tips, strategies and ideas on different sites that claim to transform you to a pro-trader overnight. Frankly speaking, that’s not possible until and unless you are the next “Buddha” (The Enlightened one). A novice trader can become a pro only through experience, properly backed-up by study, excellent analysis power, and a close watch on the market. There’s no Holy Grail of trading. There are certain rules and some proven strategies, whose proper application by the trader can not only help in increasing the equity curve but also help in restricting loss (which is an inherent part of every kind of trading) within a certain extent. In this blog post, some of the most effective CFD trading tips are shared so that they can succeed more times than they fail.
Trading Tips #1 – PPC Formula or Preserve Precious Capital
This idea of trading has been taken from the book “High Probability Trading”, written by Marcel Link. Per his capital preservation and money management suggestion, every trader should first try to protect his/her money from any kind of loss and then think about profits. Marcel says a trader must try to preserve his capital first and keep the losses to small sizes.
Trading Tips #2 – Strive hard to have an edge over others
A trader must always have a positive expectancy trading system, which will automatically provide the trader with an edge over others in the market. To maintain that positive vive and edge, a trader needs to work hard (which means always be on top of the trading affairs in the market) and stay focused.
Trading Tips #3 – Always control leverage on CFD trading
CFD trading provides traders with lots of leverage as the profit percentage is much higher than in the case of buying-and-selling underlying assets. This is possible because the margin size is miniscule for trading of underlying assets. When trading gurus say “leverage”, they not only mean profit, they also mean loss. In CFD trading, both profits and losses are leveraged. When you open a position, it can have both leveraged profit and loss scenarios.
It is advisable to control one’s trading leverage so that loss can be limited. There’s always a tendency among traders to increase position sizes when they are earning money. However, this is always risky as no one knows when they start incurring losses. Because of the inherent nature of CFD contract trading, the losses will also get magnified.
A real life example will make the concept clear. It was back in 2004 when a lady earned around $750,000 within a year (just 10 months) by investing $50,000 due to the Bull Run at that time. However, she went along with the flow and increased her leveraged positions one after the other. In March 2005, it took just a week’s time to erode half of that earned money. If she stuck to the strategy of limiting leveraged positions, she could have protected most of her money even after the change of fortune.
Do you need more trading tips on CFD trading? Check out CMC markets for more information.