1) Treat trading like a business
While trading can be fun, astute traders know that long term success involves a lot of hard work. Also critical to trading success is the ability to keep one’s emotions in check and to be able to make the tough decisions that can keep them around to trade another day. Have a strategy in place and test it. When you trade with CMC Markets you receive a professional back testing module that means you can test your strategy against 25 years of historic data. Don’t fall in love with your trade, follow your plan.
2) Know Your Trading Objectives and Style
Successful traders know what they want to achieve from trading. Some questions a trader should ask themselves include: Am I a short term trader or a long-term investor? Do I want to trade as a full-time job or a part-time hobby? How much time per day do I want to devote to trading? When in the day do I want to trade? What markets am I comfortable trading, Equities, Commodities, Treasuries, market Indices? Do I want to trade domestically or look for global opportunities?
3) Educate yourself
Trading is a perpetual learning process, which is why many of the best traders and technical analysts refer to themselves as students of the markets. Education involves not only the basics of fundamental and technical analysis, but also in learning from mistakes made while trading and understanding why certain plans worked and why certain ones did not. CMC Markets offers a comprehensive range of free seminars and webinars for both clients and people interested in learning more about the markets. Visit www.cmcmarkets.ca/seminars to register online.
4) Don’t take sides, take advantage of all market moves
Markets don’t move straight up or down forever and most experienced traders know that in order to maximize their opportunities for profits, they need to be prepared to trade both the long and the short side of a market. In addition, by pairs trading, or going long one position and short another, a trader may also potentially benefit from changes in relative performance. With CMC Markets it is as easy to potentially profit from falling markets as it is from rising markets. What’s more there is no uptick rule, competitive margins and no restrictions on the instrument you can short - if we offer it, you can short it. Find out more about shorting with CFDs.
5) Before you get into a trade, have a plan for getting out
As important as it is to find the best time and level to enter a trade, it is even more critical to know when to get out of a trade. A trader needs to know where they intend to crystallize profits and when to cut and run from a losing trade in order to be able to capitalize on the best opportunities. Remember, you will never go broke taking a profit. Order types such as Stops, Limits and Contingent orders such as OCOs (One Cancels other) may take some of the emotion out of trading and help you stick to your plan, make sure your online trading provider offers different order types, they should play an important part in your strategy.
6) Trade where the odds are in your favor
A key aspect of successful trading is knowing which trades to make and avoiding trades with a lower probability of success. Through the use of technical and fundamental analysis investors may determine the potential returns (price objectives) and risk (stop loss levels) for a given trade. Many traders that are successful over the longer term tend to avoid trades where the return to risk profile is 1:1 or less and focus on trades with a 2:1 or greater return to risk profile.
7) Don’t tie up your capital in one trade or type of trade, diversify your trades
One of the secrets to trading success over the long haul is to avoid having your portfolio sunk by one or two bad trades. Because of this, experienced traders tend to only commit a small portion of their overall portfolio (say 5-10%) to any given position. When trading multiple positions at the same time it is important that the trades take place in significantly different markets to reduce the odds of all positions moving against you at the same time. In other words, trading gold Future CFDs and gold Share CFDs may not offer the same level of diversification as trading say Natural Gas Future CFDs alongside Health Care Share CFDs. CMC Markets offers a wide range of instruments including Global Shares, Indices, Treasuries, Commodities and FX from one account and across one trading platform, making it easier to diversify your portfolio.
Understand your online trading platform and make sure it is reliable
Your trading platform can make the difference between winning and losing trades. That is why it is important when trading online to practice with the platform and know that is reliable. CMC Markets offers a free demo account with $10,000 in virtual money in order for you to practice trading. What’s more the platform you demo on is the same as you’ll trade on so you can judge how reliable the platform is even before you open an account. You can register now for an instant free trial of MarketmakerTM, CMC Markets’ award-winning online trading platform by clicking here.
9) Get the most from your trading dollar
Two ways that traders may enhance their returns are to put up the full cost of what they are trading and hope for a big move, or to borrow a substantial part of the cost of the position and use leverage to capitalize on smaller moves. An important thing for every trader to measure is their return on investment, ie how much have they made or lost according to the amount they have invested. Leverage can dramatically increase your return on investment and can play an important part in a trader’s strategy. While the use of margin and leverage can enhance returns, it also, however, can magnify the potential percentage losses if a trade moves against you.
10) Manage Your Risk and understand your risk tolerance
Are your trades keeping you up at night? If so, perhaps your positions are too large relative to your risk tolerance. Experienced traders know to trade within their financial means and realm of experience. If a trade is causing high amounts of excitement or stress, perhaps its time to reduce a position to a size where you can get some sleep. After all, a successful trader needs to be thinking clearly in order to make the best decisions.
One way to discover your risk tolerance is to start by trading small positions until you gain a better understanding of the markets you are trading and confidence in your strategies. CFDs can be offered on any amount of Shares, including odd lots, and commodity CFD contract sizes are smaller than comparable futures contracts, which makes CFDs particularly useful for small investors.
