Trading CFDs is like art, and with practice and the right methods, you can get good at it. However, if you don’t want to make huge losses while learning how to trade successfully, it’s best to follow certain basic principles of trading. Whether it’s forex trading or commodities, these basic principles can help you:
1. Stick to your time horizon
Define your time horizon. If you are a day trader, close your positions at the end of the day. A losing position carried over to the next trading day results in additional losses. However, if you have a longer time, do not square off your positions on the following day at a loss. Whether it’s forex trading or any other trading, analyzing your trade correctly can help you optimise your specified time period.
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2. Keep some funds aside
While trading can result in profits, it can also result in huge losses. Did you know only around 10% of day traders actually make profits; the other 90% face losses. This is why it is crucial to minimize the risk of losses, and the best way to do that is by keeping some funds aside for trading.
3. Combine trading strategies
At some point in your trading journey you’ll begin to form your own personal trading strategy by drawing on various elements of both technical analysis and fundamental analysis. In a nutshell, technical analysis looks back while fundamental analysis looks forward. Technical analysis involves studying the past performance of an instrument to gain insight on future performance by being able to identify trends and using that information to decide whether to open a ‘Buy’ or ‘Sell’ deal.
Fundamental analysis, on the other hand, looks at all the current real-time occurrences involving your chosen instrument such as financial news headlines, world events such as geopolitical tensions, trade conflicts, and various economic factors, all of which may also help to influence which type of deal to open. Using a combination of technical and fundamental analysis can help you make more informed trading decisions.
Just one thing: neither strategy are ever to be taken as a guarantee, and in the case of technical analysis, it’s important to remember that past performance is never a certified indicator of future performance.
4. Being a beginner, start small
As a beginner, you should focus on only one or two instruments during a trading session. Tracking and identifying the right opportunities is somewhat easier when you are focusing on only a few instruments. This lets you start small, minimizing your risk.
5. Limit your losses with “Limit Orders”
Decide what kind of orders you may use to go into and out of trades. This also applies to forex trading.
Are you going to use limit orders or market orders?
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With market orders, the trade will execute immediately at the price of that specific time, thus no guarantee of the price you want. However, a limit order ensures the price, but now, no longer the execution. Limit orders are helpful when you want a precise price but are not restricted when the trade executes. This means you can control the selling price but not the trading time.
6. Coping up with managing stress
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It is no surprise that trading, such as forex trading, can be stressful. You are risking your hard-earned money to make more, and that may be a traumatic activity. You want to address the strain that comes in conjunction with positions strolling into losses. There are many methods to address your stress. You must discover your personal way. If you can’t deal with such stress, it’s best to avoid trading; it may not be the right path for you.
