5 common mistakes made by new CFD traders
Many traders begin trading with enthusiasm only to quit trading in the long run. Some do not even last their first week of trading without risking too much or liquidating all their starting funds.
Therefore, any trader needs to assess their skill level and understanding of the market before beginning to trade on real money accounts.
Following are some mistakes that new traders tend to make which prevent them from becoming successful at trading:
Trading on small profits can eat up your equity every month despite being profitable overall. Overtrading is one of the common causes of having low returns per trade and losing days where you made profits but did not have enough capital to trade the next day.
2.Trading without a realistic plan of action
Many traders put in their buy and sell orders based on technical indicators or gut feel rather than on a plan that clearly states their:
- entry and exit points
- initial stop loss distance from the entry point
- the maximum permissible drawdown from the original capital
These plans can help them make decisions quickly, which is essential when many market events happen every day. Not having such a plan may lead to taking trades without thinking, resulting in losses and bad habits like doubling up losing positions for fear of admitting your mistake, etc.
3.Choosing brokers with low trading limits or high spreads
Many traders take up trading with a broker with a lower account balance or fund transfer limits, which makes minimizing losses difficult. They are also likely to lose profits when they can’t afford to hold open positions during adverse market conditions because of smaller trade sizes. To learn more follow the official Saxo bank website.
On the other hand, choosing an online broker who has high trading limits but charges higher commissions may not be financially viable for new traders. Many brokers out there, both regulated and unregulated, provide cheap trading platforms while offering reasonable spreads for scalping or hedging trades.
4.Lack of business discipline
Many new traders keep changing their preferred trading strategy every month without being clear about their motives for doing so. This is because most seasoned traders have found one or more strategies that work for them, and they keep refining their strategy before applying it to their trade. They choose the direction of the market and then place their trades, rather than randomly picking up any trade that comes along as new traders do.
5.Not understanding risk appetite or having too much of it
New traders need to understand the amount of capital they can afford to lose before starting and their risk appetite. These two factors together should help them decide on a suitable trading strategy and allow them to apply money management principles while planning for an overall strategy.
If a trader has no clue about how much they should be risking on each trade, they may end up calculating the percentage of equity left after losing a few trades and try to recoup those losses by risking more. This will only damage the trader’s bankroll over time.
It’s not unusual to hear about the profits when trading equities, but you’ll rarely hear about the losses. As a result, some new traders become complacent, believing that successful trading requires little knowledge. It’s always a good idea to keep in mind the time and effort needed for trading. You must constantly educate yourself in your field, looking for new ways to improve your decision-making abilities.
Learn what you need to know. Don’t let your emotions cloud your trading expertise. Be true to yourself; the financial future of your family is at risk here. Begin today with the first step in your discipline program.