According to the top financial analysts at Olsson Capital, it is the dream of every CFD trader to make huge profits when trading. It is very satisfying to seeyour account grow as you trade. However, profits do not come easy in CFDs trading. The risks of making losses are very high, to the extent that you can lose your entire invested amount in seconds. It requires concrete trading strategies to avoid making CFD trading losses. Below are strategies to help you avoid making losses when trading CFDs:
Analyse the market before opening a position
You should have an elaborate formula of analysing the market to identify the right opportunities to place orders. You can choose to use technical indicators, candlestick patterns, trading signals from signal providers or automated trading. Before using any of these options, they should first be tested on a demo account to ensure they are profitable and you can use them easily.
When you identify the correct entry point, you will be sure of making some profits since the market will move in your favour majority of times. But since every business has losses, a few losses here and here are okay as long as they do not occur during the majority of times.
Identify the correct exit points for your positions
In most cases, CFD traders emphasise the entry points and forget the exit strategy. To lock down the right profits, you will have to master the art of exiting the market at the right time.
If you exit the market too early, you may end up missing some profits that you may have made, should you have waited. On the other hand, if you close the order too late, you may end up making losses since the market may have started moving back and eroding the profits you could have made.
It is usually a balancing act. You will have to analyse the market correctly in order to predict what the best position to exit the market is. Some signals, especially those from trading signal providers, come with target levels. However, if you are using technical indicators, you should look for a change in the conditions of the indicator. Any slight change is a signal that you should exit the trade.
Using stop levels
Just like in any financial market, it is advisable to use stop levels (stop loss and take profit levels) when trading CFDs. This helps to reduce the risk margin and as a trader, you will not have to worry about what will happen to the markets in case you are not monitoring them. The stop levels help reduce the stress of staying in front of your computer to monitor the financial markets.
You can also choose to use trailing stops
Depending on the broker of your choice, you can trail your profits by using a trailing stop. A trailing stop targets a certain level when the market prices are likely to hit. Should the prices hit that level, the trailing stop locks it instead of closing the order. After that, the stop level will be adjusted according to the levels set by the trader to lock the profits as long as the trend continues in favour of the trader. If the trend changes, the previously locked profits are not eroded and the trailing stop closes the order.
Trade a few markets at a time
This will help you concentrate on the chosen market rather than having many running trades. With that said, many trades reduce the free margin and you may not be able to hold the order for too long, especially if the market tends to misbehave like in times of news releases.
Learn to use reasonable lot sizes
The larger an order is, the larger the profit margin. However, if the market goes against you, you will end up making huge losses. The size of your trade will depend on the amount of funds in your account balance. The smaller the trade, the longer you can hold it in the market and the more orders you can place.