DMA CFD Trading: Some Vital Tips

Posted on August 25, 2010
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Learning to trade DMA Contracts for difference can be fairly daunting initially, with new traders having to learn the trading platform offered by their DMA Contract for difference provider and naturally build a trading plan. Trading can be enjoyable and worthwhile if you take some time in the beginning to do your research, below are some tricks to help novice traders who are getting started.

1. Create a trading strategy.
A common mistake new trader’s make is that they use an inappropriate strategy, or worse still, they’ve got no plan at all. Adopting a trading approach and using it on a consistent basis, gives a framework of discipline. It’s also likely that this is going to bring superior results than a hap-hazard method or the use of a continuously changing number of techniques. Care should be taken when deciding on a strategy. It would be a mistake to attempt trading a technique dependent on five minute graphs if you are unable to access your trading platform for much of the trading day. Likewise, it would be a mistake to utilize a strategy based on monthly charts if your trading horizon is calculated in days or weeks.

Certain traders tend to believe that a more complex system is generally the best system. They build techniques that employ huge numbers of inputs and require exceedingly complex calculations and algorithms. They frequently produce charts which are so heavily covered in indicators that it gets difficult to spot the price action. While a few of these complex systems certainly can be profitable, the more the amount of inputs and calculations they require, the more potential there is for something to go wrong. In some ways, a simple strategy is usually superior (and easier 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 presently hold in anticipation of buying it back again at a cheaper price in the future. While it might be argued that there is little difference between opening a long position or a short position, the short position may not be appropriate 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 maximum possible downside for each type of trade. When owning a long Contract for difference position, the worst potential move would be for the CFD to fall to zero and become worthless. For a short position, where losses will mount as prices rise, the maximum loss is limitless. While holding a short CFD position over a share with a skyrocketing price is not likely, it is possible. It would be a mistake for a highly conservative trader to trade on the short side, particularly without a stop loss order in place.

2. Learn how to use your trading platform.
It can be a steep learning curve when trading on a new platform however after you have spent the time and effort and overcome any lingering fears of technology you’ll realize that this is important if you are to be a successful on line trader. It is no good waiting until you have got open positions and the markets start moving before you figure out how to place or amend a stop-loss or take-profit order. You should ‘know’ how to move 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. Think about what could occur if your internet connection were to stop working or if your computer became infected with a virus and was not operating at its peak. As a preventive measure, it is wise to keep your DMA CFD providers phone number written down near your computer. It is also good practice to keep a list of your open positions so that you know what your exposure is.

3. Take accountability for your trades.
The majority of 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 are in profit or loss situation.

Along with trading errors, some traders simply forget that they have placed certain orders, or because they don’t understand the platform they find they have by mistake placed orders without meaning to do so. It’s best to discover these mistakes as quickly as possible by monitoring your open positions. Errors made when entering trades tend to be more common than you may think. Traders often hit buy instead of sell (or vice versa) or enter the incorrect number or even the wrong ticker symbol. These are simple mistakes that tend to be put down to having a “fat finger”. However, if you take your trading seriously, you should ensure that you exercise the appropriate level of care.

CFD trading can easily be very satisfying and enjoyable when you spend some time at the start educating yourself and learning the tools of your trade.Naturally it’s always important to remember that trading DMA CFDs can be risky, however the tips outlined above will help you in controlling risk and will help you to avoid lots of the mistakes traders make at the begining.

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