Understanding CFDs for Beginners: Discipline in Trading

July 10, 2023

In CFD trading, maintaining discipline is crucial for long-term success.

Being disciplined means developing and strictly adhering to a trading plan, managing risks effectively, and keeping emotions in check.

Here is how to cultivate discipline in CFD trading.

1. Develop a trading plan

Before you start trading, create a comprehensive trading plan.

This plan should include your financial goals, the amount of capital you’re willing to risk, your trading strategy, and risk management measures.

The plan should also outline your entry and exit points for each trade, the maximum loss you are prepared to bear, and the profit you aim to achieve.

For example, if you are trading CFDs based on Apple Inc (NASDAQ: AAPL) shares, your trading plan might stipulate that you will enter the trade when the price reaches $190 per share and exit when the price hits $200 per share, or if the price falls to $185 per share, thereby outlining your potential profit and loss beforehand.

2. Stick to your trading plan

Once your plan is in place, follow it rigorously.

This may seem simple, but it can be challenging, especially when the market moves unpredictably.

It is crucial not to let fear or greed drive your decisions. Instead, stick to your plan.

3. Use risk management tools

Risk management tools, such as stop-loss and take-profit orders, can help you stick to your trading plan and manage your risks effectively.

For instance, setting a stop-loss order at $185 per share, in Apple Inc’s CFD trade example above, would automatically close your position if the price falls to this level – thereby limiting your loss.

4. Keep emotions in check

Trading can stir up strong emotions like fear, greed, and excitement.

It is essential to keep these emotions in check and not let them guide your trading decisions.

One effective strategy is to practice mindfulness, staying focused on the present moment and not getting carried away by the “what-ifs” of the market.

5. Review and learn

Regularly review your trades to identify any mistakes or areas for improvement.

Learning from your mistakes is integral to maintaining discipline in CFD trading.

Being disciplined in CFD trading will increase your chances of success

In conclusion, being disciplined in CFD trading means planning your trades carefully, sticking to your plan, managing your risks, keeping your emotions in check, and learning from your experiences.

While it requires effort and persistence, maintaining discipline can significantly increase your chances of long-term success in CFD trading.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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