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It may seem to you that kayaking through the rapids is a fairly straightforward matter, but if someone tells you there’s a hidden undercurrent that could flip you over unless you paddle hard to the left, you’d be foolish to ignore him. Similarly, if you’re paddling into the waters of CFD and forex trading, don’t simply hurtle ahead and try to do it on your own. There are many people who have done just that and suffered for it, so it would be better to learn from their experiences than repeat them. This article, op Trading Mistakes in Forex and CFD Trading, is designed to point out a few of the hidden undercurrents you are likely to encounter in your CFD and forex trading journey.
Hastily Choosing a Broker
When you’re enthusiastic and ready to go, it wouldn’t be a good idea to just jump into any old boat and start rowing. You might quickly find yourself up to your neck in water. Your choice of broker might not be something you want to devote too much time to, but what you’ll accomplish later on will depend on the sturdiness of this choice. Beyond that, the right trading platform is not simply the one with the best rating: It’s the one that offers the features that you, as an individual with your individual trading goals and resources, are looking for. When you have found the one you like, test it out with small trades until you feel comfortable. Lastly, only choose a broker that’s regulated. Regulation ensures they are held to a high standard of quality and conduct that’s overseen by a regulatory board.
As you’ve surely heard, diversification in trading can be a good thing. That is when it’s done wisely. Simply opening a large number of positions in the belief that your risk is being diluted is not what is meant by wise diversification. Firstly, it will be more difficult for you to devote proper attention to multiple positions than to only a few, which will hinder your ability to stay on top of things. Secondly, it makes more sense to allocate your funds to two or three well-researched instruments than seven or eight vaguely understood ones. When you diversify, choose instruments that are independent of each other, or somehow diametrically opposed. This means doing a proper amount of research on what you plan to trade, how they may interact, and if you’re experienced enough to add them to your portfolio.
Sometimes, it can be hard to keep perspective. For instance, you may hear a news report about how trading conditions are going to suit a certain industry, whether it be Artificial Intelligence or cryptocurrency, and the arguments you hear might be sound. But if you’re trading in short-term positions over the course of a single day, what you’ve heard could be irrelevant. There are many industries with sound long-term growth trajectories that go through repeated short-term price slumps. In all the market analyses you read, keep your mind tuned in to what matters for short-term price movements. When you peruse the economic calendar, look for the announcements that are likely to spark a market reaction. If you fill your head with too much information, the result could be indecision or error. All in all, find the ideal balance between news and analysis (aka fundamentals and technical) and base your trading decisions on experience and prudence.
Let’s say you have – quite correctly – made note of a key announcement from the Fed that is scheduled for tomorrow night. From your reading, you have some idea of what the news is likely to be, and you’ve also heard analysts discuss the market reaction to follow. It is natural to feel you are equipped to open a position now in anticipation of that market reaction, and it’s tempting to do so because it could lead to a potential profit. Ok, stop and take three breaths. Market reactions – both long- and short-term – often tend to defy expectations. Rather, keep a close eye on the markets following the announcement, make sure to get a well-rounded understanding of its practical meaning, and develop your strategy from there.
So, you find yourself walking on air due to several trades that have gone your way and feel upbeat about the fast-paced, thrilling world of CFD and forex trading. Now is a good time to mistrust your judgment. Trading from a sense that “I have the touch!” is usually not advisable, so ground yourself in the cold technicalities of data signals, market news, and candlestick charts. Conversely, a series of losses can bring intense feelings of despair, but don’t listen to that voice in your head telling you to put everything on the line to make up your losses in one sweeping gesture. Be disciplined and keep to the limits you set for yourself at the outset. Ups and downs are part of the journey, and you have the opportunity to learn both about yourself and the instruments you trade with each deal, whether successful or unsuccessful.