Learning to trade DMA Contracts for difference is often fairly overwhelming at first, with new traders having to learn the trading platform offered by their DMA CFD provider and naturally develop a trading plan. Trading can easily be satisfying and worthwhile if you take some time in the beginning to do your research, below are some essential tips to assist new traders who are getting started.
1. Develop a trading plan.
A common error new trader’s make is that they use an inappropriate strategy, or worse still, they have got no plan at all. Adopting a trading approach and using it on a consistent basis, gives a framework of discipline. It is also probable that this is going to bring superior results than a hap-hazard method or using a continuously changing series of approaches. Care should be taken when deciding on a trading plan. It would be a mistake to attempt trading a technique based on five minute charts if you're unable to access your trading platform for much of the trading day. Likewise, it would be a mistake to use a technique based on monthly graphs if your trading horizon is measured in days or weeks.
Certain traders often believe that a more complex system is usually the best system. They build techniques that employ huge numbers of inputs and need enormously complicated calculations and algorithms. They often generate graphs which are so heavily covered in indicators that it becomes difficult to distinguish the price action. While some of these complex techniques certainly can be profitable, the greater the amount of inputs and calculations they require, the more potential there is for something to go amiss. In some ways, an easy approach can often be better (and less difficult to follow with confidence) than a more complex system.
One of many strategies employed by many traders is the short trade. This is where a trader sells a CFD that they don’t currently hold in anticipation of buying it back again at a cheaper price in the future. While it could be argued that there is no difference between opening a long position or a short position, the short position might 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 highest potential downside for each type of trade. When holding a long Contract for difference position, the worst possible move could be for the CFD to fall to zero and become worthless. For a short position, where losses will mount as prices rise, the greatest loss is limitless. While holding a short Contract for difference position on a equity 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 to use your trading platform.
It can be a steep learning curve when trading on a new platform however once you have spent the time and effort and overcome any lingering fears of technology you'll realize that this is crucial if you're to be a successful on line trader. It is no good waiting until you have open positions and the markets start moving before you figure out how to put on or alter a stop-loss or take-profit order. You need to ‘know’ how to maneuver around the platform and open, close or adjust orders without having to look up the user guide.
You must also prepare for more severe situations. Consider what might happen if your internet connection were to break down or if your PC became infected with a virus and wasn't operating at its peak. As a preventive measure, it is wise to store your CFD providers phone number written down near your computer. It's also good practice to maintain a list of your open positions so that you know what your exposure is.
3. Take accountability for your trades.
Most traders closely observe their open positions but there are those who make the mistake of not doing so. By frequently checking on your open positions you'll know what your overall exposure to the market is and whether you're in profit or loss situation.
In addition to trading mistakes, some traders simply forget that they have placed certain orders, or because they don't understand the platform they find that they have accidentally placed orders without intending to do so. It's best to discover these mistakes as fast as possible by keeping track of your open positions. Errors made when entering trades are more common than you may think. Traders frequently hit buy rather than sell (or vice versa) or enter the incorrect quantity or even the incorrect ticker symbol. These are simple errors that tend to be put down to having a “fat finger”. However, if you take your trading seriously, you must make sure that you exercise the appropriate level of care.
Author Resource:-
Matthew Jones is amongst Australia’s most successful CFD traders, Matthew has been trading DMA CFDs for over eight years with Australia's most popular CFD provider IC Markets. Matthew has mentored many amateur traders and published numerous comprehensive guides and ebooks on DMA CFD trading. Download and read some of his free CFD education and start trading now.
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