Common Australian CFD trading errors can cost traders dearly in terms of money and time. By understanding these mistakes and how to avoid them, traders can put themselves in a much better position to succeed.
Not having a plan
One of the traders’ most common mistakes is not having a plan. Without a plan, knowing what you are doing and why you are doing it is challenging. A trading plan should outline your goals, strategy, risk management rules, and entry and exit points. Without a plan, it is effortless to get caught up in the excitement of the market and make impulsive decisions that can cost you money.
Set up a solid trading plan by:
- Outlining your goals
- Developing a strategy
- Risk management rules
- Defining entry and exit points
Not managing your risk
Another common mistake is not managing risk appropriately. It can manifest itself in several ways, such as taking too large a position, not using stop-losses, or not diversifying your portfolio. Not managing risk can lead to heavy losses if the market moves against you. Proper risk management entails:
- Determining how much capital you’re prepared to risk on each trade
- Using stop-losses to limit your losses
- Diversifying your portfolio to spread your risk
Overtrading
Overtrading is another frequent mistake made by CFD traders, which generally occurs when traders take too many trades to make up for losses or take advantage of a hot market. Overtrading can lead to significant losses and missed opportunities as traders are spread too thin. It is essential to:
- Only take as many trades as you can handle
- Manage your risk on each trade
Not doing your homework
Trading without doing your homework is a recipe for disaster. It would be best to understand the underlying asset you are trading and the market conditions that may impact its price. Not doing your homework can make poor trading decisions that cost you money. Be sure to:
- Understand the asset you’re trading
- Analyse market conditions
Not sticking to your strategy
When succeeding, it can be tempting to abandon your strategy and try to make even more money. However, this is often a mistake as it can lead to losses when the market turns. It is essential to stick to your strategy and not get caught up in the excitement of making money. Remember to:
- Follow your plan
- Stay disciplined
Chasing losses
Chasing losses is another common mistake made by CFD traders. It generally occurs when a trader takes a losing position and then tries to make up for it by taking an even more prominent position in the hopes of turning things around. It is usually a losing proposition as it can lead to even more significant losses. If you find yourself losing trades, the best course of action is usually to:
- Cut your losses
- Get out of the trade
Not using stop-losses
Stop-losses are designed to limit your losses if the market moves against you. However, many traders either do not use stop-losses or do not place them correctly, which can be a costly mistake, leading to significant losses if the market moves against you. Be sure to:
- Use stop-losses
- Place them correctly
Not managing your emotions
Emotions can significantly impact your decision-making. Fear, greed, and hope are some of the emotions that can lead to poor trading decisions. It is essential to manage your emotions and not let them dictate your trading decisions. Some tips to help you manage your emotions include:
- Having a trading plan
- Sticking to your strategy
- Taking breaks
Not diversifying your portfolio
You are exposed to unnecessary risk if you don’t diversify your portfolio. Diversification is a risk management technique involving investing in various assets to spread out your risk. If one asset fails, your entire portfolio doesn’t suffer. Be sure to:
- Diversify your portfolio
- Invest in a variety of assets
Trying to time the market
Trying to time the market is difficult; even professional investors struggle with it. Many new traders try to time the market, generally with disastrous results. It is best to:
- Stay disciplined
- Follow your strategy
