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In the dynamic world of financial markets, CFD (Contracts for Difference) trading remains popular among traders and investors seeking to generate a return from price changes of different financial assets, such as Indices, Forex, Commodities, and Digital Currencies.
A good trading plan must be developed and evaluated regularly to help facilitate trader growth. This article offers methods through which CFD traders can review and improve their performance.
A consistently profitable CFD trading journey begins with a robust trading plan, encompassing everything from your trading strategies to your risk management approach and trading goals.
Ensure that your trading plan is tailored with clear objectives, risk management rules, and a defined approach to trading. For your trading strategies, for example, it is necessary to have objective entry and exit rules.
Without a trading plan, you cannot accurately review your trading operations, and therefore, it would be difficult to improve your performance.
Falling within one’s trading plan, a trading journal is an essential practice in CFD trading. The trading journal records all your trading activities with lists of trades undertaken, your trading logic and emotions (before, after and during the trade), how it was implemented, and their results.
Such record-keeping is crucial as it gives you priceless information on your trading plan. By tracking how far each trade goes, you can tell if your strategy is profitable, and in essence, it helps you review and improve your trading operations.
The two techniques mainly applied in CFD trading are technical and fundamental analysis.
While some choose to rely on either a technical-based approach or a fundamental method, combining the two techniques helps provide a complete vision of the markets and facilitates decision-making.
As you would expect, to have the ability to review and ultimately improve performance—irrespective of whether one chooses technical or fundamental trading or a mixture—a defined trading strategy must be in place.
Your trading style and plan should always consider the dynamic nature of markets, and hence, you should constantly assess current market conditions.
For example, if you are a day trader (or scalper), you could look at short-term technical trading opportunities within liquid markets. On the other hand, if you are a long-term trader (position trader), it would be advisable to look for current market trends, generally employing both technical and fundamental analysis.
It is recommended to adapt your trading style to current market conditions to help improve your trading performance.
It is essential to understand your risk tolerance in CFD trading. Calculate the risk you are willing to handle (are comfortable) using your trading capital. Place a stop-loss order on every trade to help contain unfavourable trades. You should never risk more than you can afford to lose on any trade.
A comfortable risk profile will enable you to trade more objectively rather than succumbing to emotions.
Once you have a solid trading strategy, ensure you are ready to refine your strategy whenever needed.
Your trading strategy is your compass to enter and exit trades. Constantly improve your approach by drawing on the observations made in the trading journal or current market conditions. Have the flexibility to make changes whenever necessary. For example, if your strategy starts showing a higher-than-usual drawdown, it might be time to tweak your risk management plan or pick better entry points, etc.
Utilising a demo account is a valuable resource for CFD traders, whether seeking to fine-tune their existing trading strategies or test new ones.
These accounts provide a risk-free environment in which traders can practice and gain valuable experience without jeopardising their actual capital. Demo accounts offer a safe space to adjust and test strategy variations without the fear of incurring losses. This invaluable tool allows traders to gain confidence in their tactics and adapt to the ever-changing dynamics of the CFD market, ultimately contributing to improved trading performance when they transition to live trading.
In the dynamic environment of CFD trading, it is always advisable to learn new approaches or information that may improve your performance. Read books, do courses, attend webinars, and follow market experts. Broaden your knowledge about asset classes, new CFD trading approaches, or new findings in the industry. Gaining more knowledge over time will improve your trading performance.
In short, to become a consistently profitable trader, you will have to set a solid trading plan, keep a trading journal, often use both technical and fundamental analysis, always watch for the changing market conditions, assess your level of risk tolerance, and utilise demo accounts.
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