Trading CFDs is as much a game of the mind as it is a game of dollars and cents. While technical indicators and numbers dominate most of the discussion, the mental aspect of trading plays a very significant role in whether a trader will win or lose. In the act of online CFDs trading, it is knowing the psychology that unites the emotional factor that makes all the difference between consistent profits and erratic losses.
The first psychological barrier that a trader has to face is fear. While in the use of CFDs, often one trades using leverage; you can make or lose much more than your initial capital. The occurrence would bring a fearful feeling when the market turns against one. This means that “fear” would also cause one to close his/her position too early, miss an opportunity or increase risks excessively in relation to recovering losses. To overcome such fears is to have a well-planned strategy and to stick by it. Traders who stay on their strategy plan and set predetermined exit points do not easily lose their cool during market fluctuations. On the other side of fear lies greed.
Another endearing aspect of online CFDs trading is that it can easily bring one high profits; however, it might also blur judgement on occasions. Greed is what can make people overtrade or use too much leverage, bet big on short-term movements with hopes of quick profits and so on. It may then work most of the time for a while, but in the long run, they will be gigantic losers. One who is successful knows how to balance the desire for more profits with the reality of risk. He finds his money by getting consistent small wins rather than chasing the big one. Another strong emotional challenge to traders trading CFDs is overconfidence. When some of the trades go the right way for a couple of consecutive trades, one tends to start believing in his luck, which, most of the times, no matter how much traders may claim, leads to poor decisions that one wouldn’t have taken without it. Overconfidence is just like ignoring all market signals or taking trades out of the norm for your usual strategy. The best way to keep this from happening is the continuous evaluation of the trades a trader makes and his ability not to fall into the trap of allowing one or two wins to dictate future behavior.
Self-discipline is one way to cope with these psychological issues.
A CFD trading strategy is not good if there isn’t a clear goal setting, final rules on risk management, and a trading plan. The plan itself can help you keep emotions at bay even if everything isn’t going right. Many successful traders also opine that limiting the portion of your capital into one trade is essential. This leaves a small chance for a couple of bad trades to wash away all your account balances. Trading psychology also involves pragmatism in terms of winning and losing. It is very easy to feel good after pocketing money and terrible after the loss, but such swings of emotions often cloud judgments. Accept either outcome and spend sufficient time learning from every trade because losses come with trading, and successful traders learn from them while others don’t.
Online CFD trading requires a focused, disciplined, and stable mentality. You will learn how to control your emotions and fear and overconfidence and greed and all others, which are key features in long-term success. A good trading psychology will make you adept at being able to understand both the highs and lows of the market without letting those emotions make the trading decisions for you.