This article was contributed by “ TINDOG ” a Regular contributor to“Topstocks

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There are things to consider when trading CFDs either day trading or swing trading. Especially at the moment as the market is so volatile.

Being highly leveraged you MUST manage your risk and exposure implicitly. It is No.1
Aside from the points below, leveraging itself increases your exposure to risk.

The market atm has topped and is now falling back. I’m not taking on any new ‘long’ positions and haven’t for a week or so now till this is over. I have reduced my exposure to risk by not being ‘long’ in the market in times like this. I have a strategy for deciding to be ‘in’ or ‘out’ of the market based on indicators in the XAO.

The more positions you take on, the higher your exposure to risk. All the risk associated with a trade is at the entry end. Traders by the very nature of trading take on more positions and so their risk is increased proportionally.

The bigger your positions, the higher your exposure to risk.

The shorter your trading time frame, the higher your exposure to risk (profit to loss ratio is lower). I will not take a trade unless I get minimum 2:1 profit:loss

A poor entry strategy will reduce your success rate which in turn exposes you to higher risk. Also poor entry timing will reduce the profitability of your good trades and increase your losses on losing trades.

As you can see, risk is linked to everything. It is the ‘keystone’ to successful trading.

A good trading strategy will detail a comprehensive plan to manage risk and failure to do this is THE reason why many are not successful.

A good plan will allow for a risk of 2% of your capital. So a trading account of $10k will allow a loss of $200 on a losing trade.

Exposure can be managed by limiting the number of open trades at any one time OR limit your total risk to 10% of capital. This would allow a total risk exposure of $1k or 5 trades at a time.
Have strict criteria for your choice of stocks. I only trade CFDs on the XAO.
Select an entry and exit strategy and stick to it.

Make a conscious decision to be ‘in’ or ‘out’ of the market based on what your view is of market conditions. As I said, I use indicators in the XAO

Enforce a stop loss strategy but keep in mind that stops are not always a good way to take you out of a trade.

Don’t trade against the trend.

CFD traders make 2 common mistakes.

1. Failing to manage their stops correctly (eg. too close for example).

2. Relying on stops to exit a trade. While a common method, its not very efficient at maximising
profits for shorter term trading.

I have had my fair share of being pipped on the nose only to find the stock skyrockets to new heights.

The reason for this is volatility.

When trading short term, in my opinion, its important to make sure you are trading a trend. Trending stocks are less volatile.

At this point in time, the market is very volatile and not very conducive to safe short term trading.

Hope this helps

Cheers [:o)



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