A question a lot of traders would like to learn is "Do CFD Trading Systems function?" and if they do why aren't more people utilizing them? Now we will take a look at the critical facts you may want to know about CFD trading schemes.
The three key aspects we will see if the CFD trading system will function for you are:
1. Check the statistics of the system first.
Before jumping on board of any CFD trading system you should do your due diligence on the very important 'numbers' of the scheme. Several of the more main trading numbers to consider are the average win, average loss, expectancy for a hold for both wins and losses.
Whilst the marketing of any CFD trading system is normally brilliant and demonstrates fantastic returns, no one can hide from the real numbers of actual trades done. One of the most essential trading numbers to consider is the expectancy of the system and will that expectancy aid you approach to your trading targets.
2. What sort of drawdowns does the scheme possess and are you capitalized to save those drawdowns?
Most individuals who consider utilizing a CFD trading scheme are just interested in the winning trades and quite often neglect the systems drawdown period. A drawdown is where your trading account sustains a period of losses.
Some of the best and most beneficial trading systems can have drawdowns in excess of 20 to 30% without any leverage. Consider if you annex CFD leverage to the equation you can see that you could easily wipe out your CFD trading account quite fast. Always consider the maximum drawdown of the scheme and define the appropriate risk management steps to ensure you stay well capitalised.
3. Does the CFD trading system match your psychological profile?
The last point to consider is whether or not the system fits in with your psychological profile. This may be a bit tricky as you have to realize how your mind works and which way you react to definite circumstances.
As a sample you may not be able to regulate a high percentage of losing trades but the trading scheme you are looking at is a trend following system with accidental huge wins. As you can imagine the vast majority of persons love big wins and will overlook the high percentage of losing trades and start trading a system that is just not right for them.
So as you may see there is a quite more to picking a winning CFD trading system that just believing the marketing hype.
The three main criteria we will see if the CFD trading system will function for you are:
1. Check the statistics of the system before you begin.
Before jumping on board of any CFD trading scheme you need to do your due diligence on the very important 'numbers' of the system. Several of the more main trading numbers to consider are the average win, average loss, the average time frame for a hold for either for loss or win.
Whilst the marketing of any CFD trading system is usually brilliant and shows fantastic returns, no one may hide from the real numbers of actual trades done. One of the most vital trading numbers to take into consideration is the expectancy of the system and will that expectancy aid you achieve your trading aims.
2. What kind of drawdowns does the scheme have and are you capitalized to save those drawdowns?
The majority of individuals who consider using a CFD trading scheme are only interested in the winning trades and nearly always ignore the systems drawdown term. A drawdown is where your trading account sustains a period of losses.
Some of the best and most beneficial trading systems can have drawdowns in excess of 20 to 30% with no leverage. Consider if you add CFD leverage to the equation you can see that you could easily clean your CFD trading account quite fast. Always take into account the maximum drawdown of the scheme and define the right risk management strategy to assure you remain well capitalised.
3. Does the CFD trading system suit your psychological profile?
The last point to consider is whether or not the system fits in with your psychological profile. This may be a little tricky as you need to understand how your mind functions and which way you react to certain circumstances.
As an example you may not be able to handle a high percentage of losing trades but the trading scheme you are looking at is a trend following scheme with occasional huge wins. As you are able to imagine most persons adore big wins and will overlook the huge percentage of losing trades and begin trading a system that is just not right for them.
Thus as you can notice there is a quite more to picking a winning CFD trading system that just trusting the marketing hype.
Author Resource:
Matthew Jones is a expert CFD trader with one of Australia's most popular CFD companies IC Markets. Matthew has written a number of textbooks and held a number of seminars on trading CFDs you can download many of his notes on CFD trading for free.
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