Contracts for Difference or CFD’s provide the Australian market with an extremely leveraged instrument to trade with. By trading $1,000 dollars in CFD’s the investor can get the gains – or losses – equivalent to $20,000 of capital. The lure of big dollars brings droves of money hungry traders to the exchanges. Sadly, a vast number of people find themselves penniless and disgruntled after a quick and nasty affair with the leveraged market.
Is there some common problems or traits that these traders make? Will we learn from their mistakes and improve or are we destined to follow in their footsteps? This trading site is dedicated to helping you become a better trader. In the spirit of making you a proficient investor we will review 5 trading mistakes many CFD speculators make.
Mistake #1: No Plan
It cannot be stressed enough that without a plan, a direction, and some steps to get there you are flying blind. Some estimate that 80 to 90 percent of traders fail. One of the biggest reasons is that they likely do not have a plan. A plan needs to include the exchange and instrument you will trade, money management techniques, entries and exits, risk management, and so on.
Mistake #2: Ignoring the Plan
It is great to have a plan, but it will not be effective unless you actually use it. Why do people deviate from the plan? In the heat of the moment the feelings of fear or greed, euphoria or despair might overwhelm a person’s good senses. They might buy a stock at too high a price feeling that this is the last good buy they will see in a while. Or they may sell after a miniscule profit or hang onto a loss too long in fear. Emotions run at odds with a trading plan.
Having a plan is utilising the brain. Trading the plan is controlling our heart and emotions.
Mistake #3: Losing the Psychological Battle
Many people look to the stock market as an easy way to make money. They have dreams of lounging around in their undergarments drinking champagne in the morning while money pours into their portfolio. When reality of trading hits them, they get depressed, wither, and die.
Trading the market requires mastery over the emotions. You need to be able to tolerate lengthy periods of boredom when no good trades are available. You need to be quick and decisive when a trade presents itself, and walk away when the trade falters. Iron will is a must. Trading is not for the lazy. You must keep your body and mind in peak condition. You need to have goals, motivation, and the desire to keep working towards them. Not to be forgotten is the skill of losing, but not feeling like a loser. Instead you will need to know how to analyse any losses and learn from them.
Mistake #4: Risk Taking
How often the following scenario plays out: a trader loses a large amount of money on a trade. Angrily, he takes all the remaining funds and wagers it on a very risky trade trying to gain all his losses back at once.
Earning on the stock market is about maximising gains for the lowest possible risk. New traders will often take undue risk by not using stop losses or by placing too much money in one trade. Some will take risk because it works out for them once or twice and bolsters their confidence in making easy money. Others will receive a euphoric high from the risk. Whatever the reason is, trading with high risk will usually result in failure.
Mistake #5: Lack of Patience
Regardless of how you trade, patience is essential. You could be a day trader making 100 plus transactions per day but you will still require patience. Perhaps the lunch hour doldrums create a very choppy trading environment that you need to sit out. Or there may be complete days that you need to sit on the sidelines and only watch. The point is that patience is needed at all levels of trading. For those that view the market as a get rich quick scheme, that is exactly what will happen….someone will be getting rich from your losses.
These 5 mistakes are some of the most common ones that CFD traders make. Get a plan, stick to it, prepare the mind and emotions for the trading process, take as few risks as possible, and patiently make trades during the best setups – and you will place yourself in the 10 or 20 percent of traders that are successful.