The Habit that Helps CFDs Traders Succeed

By Mithun Girishan|

Published: January 26 2021, 13:47 GMT+0

The Habit that Helps CFDs Traders Succeed

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The Habit that Helps CFDs Traders Succeed

CFD stands for Contracts For Difference. It’s an innovative tool that allows you to trade on any financial instrument’s price, like stocks, commodities, indices, or currencies, without actually owning them. 

Another unique feature of CFDs is that you don’t have to pay the full value of the position you want to open when you buy any of these instruments. You only need to deposit a fixed percentage – called a margin rate – of the total value of the asset you intend to buy, and the leverage allows you to magnify the purchased value. Leverage is what attracts most traders to CFDs. 

How do I become a successful CFDs trader?

Just like with most things in life, developing the right habits can help you succeed. There’s one major habit that vastly improves traders’ success. Let’s take a look at this habit that can help you transform into you a successful CFDs trader.

Don’t be greedy

Greed is a bad habit in general and a critical error in trading. We’re talking about opening too many trades, too fast. It’s human nature to invest more when you see good returns. With CFDs, this way of thinking can backfire. It’s best to take a step by step disciplined approach. Always stay cautious of the dangers and risks you’re taking. Don’t get greedy and keep opening trades, instead follow a successful pattern known as ‘Pyramidal buying’.  

The Pyramidal Buying Pattern

If you buy CFDs for 1000 USD and find the market going in your favor, don’t immediately purchase another 1000 or 2000 USD. Ideally,  buy with another 500 USD. If the market continues moving in your favor, buy with another 250 USD. This progression is linear, disciplined, and less risky. The Pyramidal Buying pattern tends to bring more results. 

How can I develop this success habit?

The first step to develop a new habit is to determine how far you are from the pattern. This is called ‘gap analysis’. The wider the gap between your habits and the habit you want to develop, the more effort you’ll need to put in to close the gap.

To identify the gap, take the history of your trading performance for the past 1 to 3 months and check whether you have been applying this habit in your trades, and if so, at which level.  This will give you a clear idea of where you stand with this critical success habit.

Now you have to narrow the gap. For that, you should adopt the strategy of the ‘crouching tiger’.  The principle is to take a few steps backward and crouch to prepare yourself for a giant leap. The backward movement in trading is to step back from focusing on profit-making and shift it to habit-forming. Keep in mind the habit you want to develop before taking the next trade. 

If you anticipate the market to move in your favor and your instincts tell you to buy in large quantities, wait a moment. Remind yourself that there will be opportunities in the future. Remember that building this success habit will help you take advantage of even more opportunities in the future. 

When you pause and give it some thought, you can now switch to using the ‘Pyramidal Buying’ pattern. You may make fewer profits than you could have made had you invested bigger amounts, but that’s what we call a ‘meaningful loss’- a loss that was essential to prevent more significant losses in the future. 

If you keep practicing, the method will become a habit. The habit will determine your success in the future. 

Essentially you should learn never to be complacent and stay on guard. Stay realistic, don’t get carried away by momentary success, and know the market can go against you at any time. Try not to invest the entire amount you intend to invest in one position, regardless of how well the market is moving. Instead, wait and test the waters at each stage, and split your entries accordingly.

Don’t be in a hurry to place the next stone in your pyramid. Wait and watch and make sure that it is moving your way. This will give you a steady, consistent growth in CFD trading.