Common Mistakes in CFD and Forex Trading 2022: Get the info you need to make better trading decisions.
Navigating Choppy Waters
Many people who enter the world of CFD trading with positive attitudes end up discouraged by some unfortunate outcomes in their first few trades. They may end up losing all their confidence and quickly setting sail from the world of CFDs. That’s why it’s worth taking time to explore the pitfalls of CFD and forex trading before jumping in. It won’t make it any less risky, but rather it’ll empower you with the knowledge you need to make more informed trading decisions from the outset.
Even if you consider yourself a well-adjusted forex trader, it may be worth giving yourself a refresh every once in a while to ensure you’re up to speed on the ins and outs of trading. That way, you can keep adding skills to your storehouse of knowledge and enter the trading arena with wisdom. Here’s a step in the right direction: a guide to some common mistakes in CFD trading.
Being Guided by the Heat of Emotion
Some of our expectations of CFD trading may simply be fantasy. You may have an image in your mind of a post you saw on social media of a forex trader making a huge amount of money and saying how easy it was for him or her to do. That right there is a red flag. While certain elements of trading may be routine for more experienced traders, it’s still rife with risk and should be approached with a level head each time. You should learn from the experience of many other CFD traders who have learned this lesson the hard way.
Practically, this means you shouldn’t think you have the golden touch and cannot fail, and you shouldn’t think that, since you made a loss, you must quickly make it up to save face. Your feelings of confidence, greed or fear should not be the things that motivate your next trade, and they’ll certainly try to be. Rather, make a firm decision that, when it comes to your trades, you’re going to be as cold as ice. The only thing that’s going to guide you is your carefully developed trading strategy, which brings us to the next point.
Going in Without a Plan
Don’t make the mistake of rushing in ready to roll: you might be facing in the wrong direction. It’s going to take time and effort for you to amass the know-how you’ll need to feel you’re on solid ground. More specifically, you’re going to have to learn about your financial instruments. If you’re trading in the forex market, have you researched the ways in which central bank policy drives this market? Or, perhaps, your market of choice is influenced by certain kinds of news items or company reports. Take the time to read up about it.
If you’re opening deals in multiple markets, do you know the ways these markets might be correlated with each other? For example, when risk assets go up, gold tends to go down. When the US dollar goes down, oil tends to go up. There are, of course, exceptions but knowing what to expect can help you focus on your own deal details. Don’t be quick to involve yourself in markets you don’t know much about. Stay on familiar territory (until you expand your understanding, and other markets become part of your familiar territory too). Also, consider which markets suit you and your goals.
Not Being Realistic
Before opening any deals, calculate how much money you could lose on the deal if things don’t go according to plan. If it’s too much for your wallet, don’t go ahead with the deal, or change the amount. Also, decide what level of monetary gains you would call a success, so you don’t feel it’s never enough. And if you trade with all your available funds on a single deal, you won’t be the first to make this mistake, but it might be too costly for you to bear.
Being realistic means accepting that, even when you do all your homework, your deal might fail anyway. The financial world is, by its very nature, volatile – whether it be in politics, economics, weather, or trading sentiment, making a failed deal simply part of a CFD trader’s week, nothing more. Skilled traders keep a journal of the details of failed trades to learn from them, so make some space in yours and start recording.
These are just some general signposts showing places CFD and forex traders tend to go astray, but every trader should keep developing his own manual of CFD and/or forex trading mistakes, whether they be emotional or technical. One tip on the technical side is to ensure you know the features and controls of your trading platform very well. This way, your stop loss orders will be in place on the defensive side of things, and, on the positive side, you’ll be poised to jump on opportunities as they arise.