Learning to trade DMA CFDs can be fairly daunting initially, with new traders needing to understand the trading platform offered by their DMA Contract for difference provider and of course build a trading plan. Trading can easily be enjoyable and rewarding if you take some time at the beginning to do your research, below are some essential tips to assist novice traders who are getting started.
1. Build a trading plan.
A typical mistake new trader’s make is that they use an inappropriate strategy, or worse still, they have no trading strategy at all. Adopting a trading strategy and using it on a regular basis, gives a framework of discipline. It is also probable that this will deliver superior results than a hap-hazard method or the use of a continuously changing number of methods. Care needs to be taken when choosing a trading plan. It would be a mistake to attempt trading a strategy based on five minute charts if you're unable to access your trading platform for much of the trading day. Similarly, it would be a mistake to use a technique dependent on monthly graphs if your trading horizon is measured in days or weeks.
Some traders tend to believe that a more complex system is generally the best system. They develop techniques that employ huge numbers of inputs and need exceptionally complicated calculations and algorithms. They often generate charts that are so heavily covered in indicators that it gets difficult to spot the price action. While a few of these complex techniques certainly can be profitable, the more the amount of inputs and calculations they need, the greater potential there is for something to go amiss. In some ways, an easy strategy is often better (and a lot easier to keep to with confidence) than a more complicated approach.
Among the many strategies 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 cheaper price in the future. While it can be argued that there is little difference between opening a long position or a short position, the short position may 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 maximum loss is limitless. While owning a short Contract for difference position on a stock 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 how to use your trading platform.
It can be a steep learning curve when trading on a brand new platform however after you have spent the time and effort and overcome any lingering fears of technology you'll realize that this is essential if you're to be a successful on line trader. It is no good waiting until you've got open positions and the markets start moving before you determine how to put on or alter 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. Consider what could happen if your internet connection were to stop working or if your computer became infected with a virus and wasn't operating at its peak. As a preventive measure, it is sensible to keep your CFD providers telephone number written down near your computer. It's also good practice to keep 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 keep an eye on their open positions but there are those that make the mistake of not doing so. By regularly checking on your open positions you will know what your overall exposure to the market is and whether 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 meaning to do so. It's best to discover these errors as quickly as possible by keeping track of your open positions. Errors made when entering trades tend to be more common than you may think. Traders often hit buy instead of sell (or vice versa) or enter the wrong number 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, you ought to make sure that you exercise the proper amount of care.
Author Resource:
Matthew Jones is considered one of Australia’s most successful CFD traders, Matthew has been buying and selling DMA CFDs for over eight years with Australia's most popular CFD broker IC Markets. Matthew has mentored many amateur traders and published a variety of comprehensive manuals and ebooks on DMA CFD trading. Download some of his free CFD education and get started trading today.
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