The Top 5 Pitfalls of CFD & Forex Traders
What is great about engaging the foreign exchange market is that you are able to access it with a lot of ease, especially in 2020 where most brokers and their corresponding platforms would offer the ability to get into trading without anything getting in your way. A stable internet connection, smartphone or laptop, and a small amount of cash will enable you to start getting into trading. However, despite this, there are tons of pitfalls that your friend, office mate or mentor has not spoken about and when you have already started with trading, it will be really easy to get lost in the way. Easy access does not equate to easy money so before you become trigger happy, you might want to check out some of the pitfalls that most forex & CFD traders
“Quitting while you’re Ahead”
Well, not ACTUAL quitting of trading or else, it will not make sense starting this off with an immediate encouragement to forget about trading. Understand that most traders, especially those without actual trading plans and rules, will continue to trade despite having a string of losses. Always remember, if you did not lose anything or any amount, that would mean you are still winning. You have to understand that you will need to maintain a certain win-rate and risk in order to have a healthy CFD or Forex trading routine
Adding to a Trade Despite a Losing Day
Adding to a losing trade is something that you refrain from happening. You see if you continue to do so and the price of the current trade is moving against you, you just increase your loss to an epic proportion compared to how you initially started it in the day. Some traders believe that if you keep adding on to this position you purchased, the trend will eventually reverse. What you can do as a trader is to look into a trade and set a stop-loss on that certain trade. If the value meets the stop-loss parameters, the trade is going to be closed at a smaller loss compared to not having a stop-loss set at the onset. There is nothing wrong with cutting your losses so you can trade for another day.
Put Yourself at More Risk Than You Can Actually Afford
Being able to establish how much your initial capital and basing off how much you are willing to risk that amount on the onset of CFD & Forex trading is a very good step in being able to save yourself from a position where you bite off more than you can chew. As a trader, you are encouraged to at least risk 1% or less of your capital in any single trade that you engage in. So if you have learned to use your stop-loss orders, you may end any trade that will result in anything below 1% of loss. So what this also means is that even if you start losing a certain amount of trades in succession, you only lose a small amount of your capital. Also if you start making more than the 1% you have set, you are able to win a trade and recoup your losses.
Go Big or Go Home
Doesn’t this sound familiar to you? This is highly likely most of the mentality of people getting into gambling or casinos without any form of discipline with their money thinking that their losses can be won back by a single strategic placement. Despite what we initially said about risk management being important in your trades, there are surely going to be situations where you are going to be carried by your emotions and will totally ignore whatever simple systems you might have devised and will engage bigger trades that you would normally do. This is very unadvisable most especially having incurred a streak of losses as risking too much and trying to convince yourself that things will “turn around” is just a recipe for disaster. Stick to your 1% stop-loss rule and engage in a 3% risk per day so you are able to consistently gain back your losses at a realistic pace instead of leaving yourself to chance.
Getting into Trading Without Any Form of Plan
Sounds basic? Yes it does but it will always be essential whether you are a veteran CFD trader or a novice willing to learn the ropes. Starting your endeavor with a written document stating or even outlining your strategies is very essential as you are able to mince the trading culture and answer details that answers the usual what, how, when questions. Stating which markets you will trade, time frame/specific time of trading and analyses might sound a bit “geeky” but it concretizes and initially starts to put framework in your trading habits. Also devising a set risk management rules is key and becoming very specific in how you will engage in trades for both losing and winning situations should be practical so that you are able to govern yourself in times of critical situations that are highly present in CFD & Forex trading.