Learning to trade DMA Contracts for difference can be quite overwhelming initially, with new traders having to master the trading platform offered by their DMA CFD provider and naturally build a trading plan. Trading can easily be pleasurable and rewarding if you take some time in the beginning to do your research, below are some essential tips to help new traders who are getting started.
1. Develop a trading strategy.
A common mistake new trader’s make is that they use an inappropriate trading strategy, or worse still, they have got no trading strategy at all. Adopting a trading approach and using it on a regular basis, provides a framework of discipline. It is also likely that this will deliver better results than a hap-hazard approach or using a continuously changing number of strategies. Care must be taken when choosing a trading strategy. It would be a mistake to attempt trading a strategy dependent on five minute graphs if you are unable to access your trading platform for much of the trading day. Equally, it would be a mistake to utilize a strategy based on monthly charts if your trading horizon is calculated in days or weeks.
Some traders tend to believe that a more complex system is generally a better system. They develop systems that employ huge numbers of inputs and need extremely involved calculations and algorithms. They repeatedly generate charts which are so heavily covered in indicators that it becomes difficult to distinguish the price action. While some of these complex methods certainly can be effective, the greater the quantity of inputs and calculations they require, the greater potential there is for something to go wrong. In some ways, an easy approach can often be superior (and less difficult to follow with confidence) than a more complex system.
One of many approaches used by a lot of traders is the short trade. This is where a trader sells a Contract for difference that they don’t presently hold in anticipation of buying it back again at a lower price in the future. While it might be argued that there is little difference between taking a long position or a short position, the short position might not be suitable for a conservative trader. In theory, a short position holds much greater risk than a long position. This is because of the difference in the maximum possible downside for each type of trade. When owning a long Contract for difference position, the worst potential move would be for the CFD to fall to zero and become worthless. For a short position, where losses will mount as prices rise, the greatest loss is unlimited. While holding a short Contract for difference position on a share with a skyrocketing price is unlikely, it is possible. It would be a mistake for a highly conservative trader to trade on the short side, especially without a stop loss order in place.
2. Learn to use your trading platform.
It can sometimes be a steep learning curve when trading on a brand new platform however once you have spent the time and effort and overcome any lingering fears of technology you’ll realize that this is crucial if you are to become a successful on line trader. It is no good waiting until you have open positions and the markets start moving before you figure out how to put on or adjust a stop-loss or take-profit order. You should ‘know’ how to maneuver around the platform and open, close or adjust orders without needing to look up the user guide.
You should also prepare for more severe situations. Think about what could happen if your internet connection were to fail or if your PC became infected with a virus and was not operating at its peak. As a safety measure, it is sensible to keep your DMA CFD providers phone number written down near your PC. It is also good practice to maintain an inventory of your open positions so that you know what your exposure is.
3. Take responsibility for your trades.
The majority of traders closely monitor their open positions but there are those that make the mistake of not doing so. By regularly checking on your open positions you’ll know what your overall exposure to the market is and whether or not you’re in profit or loss situation.
In addition to trading errors, some traders simply forget that they have placed certain orders, or because they do not understand the platform they find they have unintentionally placed orders without intending to do so. It is best to find these mistakes as fast as possible by monitoring your open positions. Errors made when entering trades are more frequent than you may think. Traders often hit buy instead of sell (or vice versa) or enter the incorrect quantity or even the wrong ticker symbol. These are simple errors that are often put down to having a “fat finger”. However, if you take your trading seriously, be certain to ensure that you exercise the appropriate degree of care.
CFD trading can be very rewarding and enjoyable when you spend some time initially educating yourself and learning the tools of your trade.Of course it is always important to remember that trading DMA CFDs can be risky, however the information outlined above will help you in controlling risk and can help you to avoid lots of the errors traders make at the begining.