You cannot become a successful trader if you do not have certain skills required to become one. After all, the financial market isn’t something you should be messing up. Some abilities required to become profitable include the ability to evaluate the fundamentals of a company as well as determining the direction of the stocks. But the greatest of these is the trader’s own mindset.
The components of trading psychology involve proper handling of emotion, exercising discipline, and quick thinking. Among the emotions you feel while trading CFDs, there are these two main emotions that you must keep under control.
Overcoming Fear in CFD trading
Traders get easily scared whenever they see bad news about the financial economy of a country or problems with the stocks of a company. This fear leads to sudden decisions like liquidating their holding and refraining to take additional risks. Certainly, they can avoid the losses that they are so afraid of. But without risks, there are also no gains.
It is important to understand what fear is all about – it is a natural reaction to a threat that you have perceived. In CFD trading, fear is something that can be a threat to your potential profits. Traders must think ahead of time and understand how they should react to such events. This will help them move on from sudden emotional responses. As humans, this isn’t so easy. But if you want to avoid panic attacks and unnecessary emotional responses, then you must think calmly and act according to your trading plan.
Overcoming Greed in CFD Trading
An old saying still goes around in Wall Street – “Pigs get slaughtered.” This refers to traders who are greedy enough to hang on to winning positions for a long period of time, trying to get every profit available. Without his knowledge, the trend reverses and the greedy trader gets caught up.
You are trading because you want to earn more profits. Because of that, greed can be so hard to overcome. It is an instinct that pushes you to do better and get a little more until you are left with nothing. A trader must learn to identify this instinct and find ways to counter it through the use of a comprehensive trading plan.
Setting the Rules in CFD Trading
There are several sets of rules that a trader must create and follow diligently. This is to avoid becoming too emotional when a psychological crunch happens. You can start by taking some guidelines out of your risk-reward tolerance when entering and exiting a trade. A profit target must also be set and a risk management tool like stop loss should be put in place to protect your account from huge losses and mitigate the risks.
Additionally, you should decide on specific events, negative or positive that could trigger your decision to buy or sell your instruments in CFD trading. Setting limits with regard to the maximum amount that you can lose or win in a day will also be very helpful. Once you hit your target profit, you can take the money and relax for a day and if you hit your predetermined number of losses, close your positions and take a breather away from your computer.
